UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 27, 2018November 2, 2019
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___.
Commission File Number: 0-23246
Daktronics, Inc.
(Exact Name of Registrant as Specified in its Charter)
|
| | |
South Dakota | | 46-0306862 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | |
201 Daktronics Drive Brookings, SD | | 57006 |
(Address of Principal Executive Offices) | | (Zip Code) |
(605) 692-0200
(Registrant’s Telephone Number, Including Area Code)
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: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
|
| |
Large accelerated filer o | Accelerated filer x |
Non-accelerated filer o(Do not check if a smaller reporting company) | Smaller reporting company o |
| Emerging growth company o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the registrant’s common stock outstanding as of February 26, 2018November 25, 2019 was 44,474,202.
45,147,549.
DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended January 27, 2018November 2, 2019
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
| |
| DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)
| | DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)
|
| | January 27, 2018 | | April 29, 2017 | | | | | | |
| | (unaudited) | | | | November 2, 2019 | | April 27, 2019 |
ASSETS | | | | | | | | |
CURRENT ASSETS: | | | | | | | | |
Cash and cash equivalents | | $ | 49,042 |
| | $ | 32,623 |
| | $ | 29,265 |
| | $ | 35,383 |
|
Restricted cash | | 28 |
| | 216 |
| | 59 |
| | 359 |
|
Marketable securities | | 23,937 |
| | 32,713 |
| | 3,618 |
| | 26,344 |
|
Accounts receivable, net | | 76,104 |
| | 78,846 |
| | 103,417 |
| | 65,487 |
|
Inventories, net | | 70,451 |
| | 66,486 |
| |
Costs and estimated earnings in excess of billings | | 32,449 |
| | 36,403 |
| |
Inventories | | | 79,237 |
| | 78,832 |
|
Contract assets | | | 34,395 |
| | 33,704 |
|
Current maturities of long-term receivables | | 2,199 |
| | 2,274 |
| | 4,567 |
| | 2,300 |
|
Prepaid expenses and other assets | | 7,333 |
| | 7,553 |
| |
Prepaid expenses and other current assets | | | 9,943 |
| | 8,319 |
|
Income tax receivables | | 2,726 |
| | 611 |
| | 4,301 |
| | 1,087 |
|
Property and equipment and other assets available for sale | | | 1,860 |
| | 1,858 |
|
Total current assets | | 264,269 |
| | 257,725 |
| | 270,662 |
| | 253,673 |
|
| | | | | | | | |
Property and equipment, net | | | 67,163 |
| | 65,314 |
|
Long-term receivables, less current maturities | | 1,948 |
| | 2,616 |
| | 1,758 |
| | 1,214 |
|
Goodwill | | 8,469 |
| | 7,812 |
| | 7,974 |
| | 7,889 |
|
Intangibles, net | | 4,174 |
| | 4,705 |
| | 4,204 |
| | 4,906 |
|
Investment in affiliates and other assets | | 4,888 |
| | 4,534 |
| | 15,458 |
| | 5,052 |
|
Deferred income taxes | | 7,983 |
| | 11,292 |
| | 11,190 |
| | 11,168 |
|
| | 27,462 |
| | 30,959 |
| |
PROPERTY AND EQUIPMENT: | | |
| | |
| |
Land | | 2,172 |
| | 2,099 |
| |
Buildings | | 67,340 |
| | 65,935 |
| |
Machinery and equipment | | 88,143 |
| | 84,189 |
| |
Office furniture and equipment | | 5,799 |
| | 5,604 |
| |
Computer software and hardware | | 51,980 |
| | 51,523 |
| |
Equipment held for rental | | 287 |
| | 374 |
| |
Demonstration equipment | | 7,044 |
| | 7,109 |
| |
Transportation equipment | | 7,647 |
| | 7,108 |
| |
Property and equipment, net | | 230,412 |
| | 223,941 |
| |
Less accumulated depreciation | | 166,117 |
| | 157,192 |
| |
| | 64,295 |
| | 66,749 |
| |
TOTAL ASSETS | | $ | 356,026 |
| | $ | 355,433 |
| | $ | 378,409 |
| | $ | 349,216 |
|
| | | | | | | | |
See notes to consolidated financial statements. | | |
| | |
| |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
CURRENT LIABILITIES: | | | | | |
|
Accounts payable | | | $ | 48,432 |
| | $ | 44,873 |
|
Contract liabilities | | | 48,387 |
| | 47,178 |
|
Accrued expenses | | | 36,817 |
| | 32,061 |
|
Warranty obligations | | | 9,837 |
| | 9,492 |
|
Income taxes payable | | | 638 |
| | 468 |
|
Total current liabilities | | | 144,111 |
| | 134,072 |
|
| | | | | |
Long-term warranty obligations | | | 16,148 |
| | 14,978 |
|
Long-term contract liabilities | | | 10,578 |
| | 10,053 |
|
Other long-term obligations | | | 8,295 |
| | 1,339 |
|
Long-term income taxes payable | | | 735 |
| | 578 |
|
Deferred income taxes | | | 531 |
| | 533 |
|
Total long-term liabilities | | | 36,287 |
| | 27,481 |
|
| | | | | |
DAKTRONICS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (in thousands, except share data)
|
| | | | | | | | |
| | January 27, 2018 | | April 29, 2017 |
| | (unaudited) | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | �� | | |
CURRENT LIABILITIES: | | | | |
|
Accounts payable | | $ | 40,309 |
| | $ | 51,499 |
|
Accrued expenses | | 27,578 |
| | 25,033 |
|
Warranty obligations | | 13,291 |
| | 13,578 |
|
Billings in excess of costs and estimated earnings | | 14,424 |
| | 10,897 |
|
Customer deposits (billed or collected) | | 10,288 |
| | 14,498 |
|
Deferred revenue (billed or collected) | | 13,906 |
| | 12,137 |
|
Current portion of other long-term obligations | | 1,000 |
| | 1,409 |
|
Income taxes payable | | 532 |
| | 1,544 |
|
Total current liabilities | | 121,328 |
| | 130,595 |
|
| | | | |
Long-term warranty obligations | | 15,909 |
| | 14,321 |
|
Long-term deferred revenue (billed or collected) | | 6,916 |
| | 5,434 |
|
Other long-term obligations | | 2,795 |
| | 2,848 |
|
Long-term income tax payable | | 3,679 |
| | 3,113 |
|
Deferred income taxes | | 984 |
| | 836 |
|
Total long-term liabilities | | 30,283 |
| | 26,552 |
|
TOTAL LIABILITIES | | 151,611 |
| | 157,147 |
|
| | | | |
SHAREHOLDERS' EQUITY: | | |
| | |
|
Common Stock, no par value, authorized 120,000,000 shares; 44,778,945 and 44,372,357 shares issued and outstanding at January 27, 2018 and April 29, 2017, respectively | | 54,725 |
| | 52,530 |
|
Additional paid-in capital | | 39,671 |
| | 38,004 |
|
Retained earnings | | 114,028 |
| | 113,967 |
|
Treasury Stock, at cost, 303,957 shares at January 27, 2018 and April 29, 2017, respectively | | (1,834 | ) | | (1,834 | ) |
Accumulated other comprehensive loss | | (2,175 | ) | | (4,381 | ) |
TOTAL SHAREHOLDERS' EQUITY | | 204,415 |
| | 198,286 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 356,026 |
| | $ | 355,433 |
|
| | | | |
See notes to consolidated financial statements. | | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (in thousands, except per share data) (unaudited)
|
| | | | | | | | |
| | November 2, 2019 | | April 27, 2019 |
SHAREHOLDERS' EQUITY: | | |
| | |
|
Common Stock, no par value, authorized 115,000,000 shares; 45,722,110 and 45,317,267 shares issued at November 2, 2019 and April 27, 2019, respectively | | 59,276 |
| | 57,699 |
|
Additional paid-in capital | | 43,546 |
| | 42,561 |
|
Retained earnings | | 103,397 |
| | 93,593 |
|
Treasury Stock, at cost, 573,775 and 303,957 shares at November 2, 2019 and April 27, 2019, respectively | | (3,516 | ) | | (1,834 | ) |
Accumulated other comprehensive loss | | (4,692 | ) | | (4,356 | ) |
TOTAL SHAREHOLDERS' EQUITY | | 198,011 |
| | 187,663 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 378,409 |
| | $ | 349,216 |
|
| | | | |
See notes to condensed consolidated financial statements. | | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| November 2, 2019 | | October 27, 2018 | | November 2, 2019 | | October 27, 2018 |
Net sales | $ | 174,911 |
| | $ | 172,692 |
| | $ | 355,167 |
| | $ | 326,880 |
|
Cost of sales | 134,824 |
| | 129,935 |
| | 269,575 |
| | 245,876 |
|
Gross profit | 40,087 |
| | 42,757 |
| | 85,592 |
| | 81,004 |
|
| | | | | | | |
Operating expenses: | |
| | |
| | |
| | |
|
Selling | 16,177 |
| | 16,125 |
| | 34,474 |
| | 32,503 |
|
General and administrative | 8,965 |
| | 8,574 |
| | 18,058 |
| | 17,111 |
|
Product design and development | 10,121 |
| | 9,039 |
| | 20,621 |
| | 18,331 |
|
| 35,263 |
| | 33,738 |
| | 73,153 |
| | 67,945 |
|
Operating income | 4,824 |
| | 9,019 |
| | 12,439 |
| | 13,059 |
|
| | | | | | | |
Nonoperating (expense) income: | |
| | |
| | |
| | |
|
Interest income | 162 |
| | 188 |
| | 431 |
| | 385 |
|
Interest expense | (31 | ) | | (2 | ) | | (66 | ) | | (41 | ) |
Other income (expense), net | (514 | ) | | (66 | ) | | (321 | ) | | (220 | ) |
| | | | | | | |
Income before income taxes | 4,441 |
| | 9,139 |
| | 12,483 |
| | 13,183 |
|
Income tax (benefit) expense | (2,833 | ) | | 533 |
| | (1,821 | ) | | 3 |
|
Net income | $ | 7,274 |
| | $ | 8,606 |
| | $ | 14,304 |
| | $ | 13,180 |
|
| | | | | | | |
Weighted average shares outstanding: | |
| | |
| | |
| | |
|
Basic | 45,115 |
| | 44,780 |
| | 45,114 |
| | 44,717 |
|
Diluted | 45,267 |
| | 44,950 |
| | 45,361 |
| | 44,994 |
|
| | | | | | | |
Earnings per share: | |
| | |
| | |
| | |
|
Basic | $ | 0.16 |
| | $ | 0.19 |
| | $ | 0.32 |
| | $ | 0.29 |
|
Diluted | $ | 0.16 |
| | $ | 0.19 |
| | $ | 0.32 |
| | $ | 0.29 |
|
| | | | | | | |
See notes to condensed consolidated financial statements. | | | |
| | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | November 2, 2019 | | October 27, 2018 | | November 2, 2019 | | October 27, 2018 |
| | | | | | | | |
Net income | | $ | 7,274 |
| | $ | 8,606 |
| | $ | 14,304 |
| | $ | 13,180 |
|
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Cumulative translation adjustments | | 146 |
| | (555 | ) | | (380 | ) | | (1,694 | ) |
Unrealized gain (loss) on available-for-sale securities, net of tax | | 3 |
| | 6 |
| | 44 |
| | (7 | ) |
Total other comprehensive income (loss), net of tax | | 149 |
| | (549 | ) | | (336 | ) | | (1,701 | ) |
Comprehensive income | | $ | 7,423 |
| | $ | 8,057 |
| | $ | 13,968 |
| | $ | 11,479 |
|
| | | | | | | | |
See notes to condensed consolidated financial statements. | | | | | | | | |
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
Net sales | $ | 130,316 |
| | $ | 115,719 |
| | $ | 472,353 |
| | $ | 442,857 |
|
Cost of goods sold | 101,749 |
| | 92,403 |
| | 356,536 |
| | 336,166 |
|
Gross profit | 28,567 |
| | 23,316 |
| | 115,817 |
| | 106,691 |
|
| | | | | | | |
Operating expenses: | |
| | |
| | |
| | |
|
Selling expense | 15,271 |
| | 14,678 |
| | 45,560 |
| | 45,828 |
|
General and administrative | 8,335 |
| | 8,599 |
| | 26,138 |
| | 26,007 |
|
Product design and development | 8,299 |
| | 6,973 |
| | 26,294 |
| | 21,142 |
|
| 31,905 |
| | 30,250 |
| | 97,992 |
| | 92,977 |
|
Operating (loss) income | (3,338 | ) | | (6,934 | ) | | 17,825 |
| | 13,714 |
|
| | | | | | | |
Nonoperating income (expense): | |
| | |
| | |
| | |
|
Interest income | 158 |
| | 183 |
| | 520 |
| | 559 |
|
Interest expense | (40 | ) | | (56 | ) | | (173 | ) | | (174 | ) |
Other (expense) income, net | (487 | ) | | (305 | ) | | (429 | ) | | (250 | ) |
| | | | | | | |
(Loss) income before income taxes | (3,707 | ) | | (7,112 | ) | | 17,743 |
| | 13,849 |
|
Income tax expense (benefit) | 2,482 |
| | (1,985 | ) | | 8,371 |
| | 4,416 |
|
Net (loss) income | $ | (6,189 | ) | | $ | (5,127 | ) | | $ | 9,372 |
| | $ | 9,433 |
|
| | | | | | | |
Weighted average shares outstanding: | |
| | |
| | |
| | |
|
Basic | 44,518 |
| | 44,102 |
| | 44,403 |
| | 44,071 |
|
Diluted | 44,518 |
| | 44,102 |
| | 44,798 |
| | 44,206 |
|
| | | | | | | |
(Loss) earnings per share: | |
| | |
| | |
| | |
|
Basic | $ | (0.14 | ) | | $ | (0.12 | ) | | $ | 0.21 |
| | $ | 0.21 |
|
Diluted | $ | (0.14 | ) | | $ | (0.12 | ) | | $ | 0.21 |
| | $ | 0.21 |
|
| | | | | | | |
Cash dividends declared per share | $ | 0.07 |
| | $ | 0.07 |
| | $ | 0.21 |
| | $ | 0.24 |
|
| | | | | | | |
See notes to consolidated financial statements. | | | |
| | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) (unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total |
Balance as of April 27, 2019 | $ | 57,699 |
| | $ | 42,561 |
| | $ | 93,593 |
| | $ | (1,834 | ) | | $ | (4,356 | ) | | $ | 187,663 |
|
Net income | — |
| | — |
| | 7,030 |
| | — |
| | — |
| | 7,030 |
|
Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | (526 | ) | | (526 | ) |
Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | 41 |
| | 41 |
|
Share-based compensation | — |
| | 643 |
| | — |
| | — |
| | — |
| | 643 |
|
Employee savings plan activity | 779 |
| | — |
| | — |
| | — |
| | — |
| | 779 |
|
Dividends declared ($0.05 per share) | — |
| | — |
| | (2,250 | ) | | — |
| | — |
| | (2,250 | ) |
Treasury stock purchase | — |
| | — |
| | — |
| | (1,187 | ) | | — |
| | (1,187 | ) |
Balance as of August 3, 2019 | 58,478 |
| | 43,204 |
| | 98,373 |
| | (3,021 | ) | | (4,841 | ) | | 192,193 |
|
Net income | — |
| | — |
| | 7,274 |
| | — |
| | — |
| | 7,274 |
|
Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | 146 |
| | 146 |
|
Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Share-based compensation | — |
| | 541 |
| | — |
| | — |
| | — |
| | 541 |
|
Tax payments related to RSU issuances | — |
| | (199 | ) | | — |
| | — |
| | — |
| | (199 | ) |
Employee savings plan activity | 798 |
| | — |
| | — |
| | — |
| | — |
| | 798 |
|
Dividends declared ($0.05 per share) | — |
| | — |
| | (2,250 | ) | | — |
| | — |
| | (2,250 | ) |
Treasury stock purchase | — |
| | — |
| | — |
| | (495 | ) | | — |
| | (495 | ) |
Balance as of November 2, 2019 | $ | 59,276 |
| | $ | 43,546 |
| | $ | 103,397 |
| | $ | (3,516 | ) | | $ | (4,692 | ) | | $ | 198,011 |
|
| | | | | | | | | | | |
See notes to condensed consolidated financial statements.
|
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
| | | | | | | | |
Net (loss) income | | $ | (6,189 | ) | | $ | (5,127 | ) | | $ | 9,372 |
| | $ | 9,433 |
|
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Cumulative translation adjustments | | 1,228 |
| | (47 | ) | | 2,289 |
| | (1,487 | ) |
Unrealized loss on available-for-sale securities, net of tax | | (50 | ) | | (29 | ) | | (83 | ) | | (33 | ) |
Total other comprehensive income (loss), net of tax | | 1,178 |
| | (76 | ) | | 2,206 |
| | (1,520 | ) |
Comprehensive (loss) income | | $ | (5,011 | ) | | $ | (5,203 | ) | | $ | 11,578 |
| | $ | 7,913 |
|
| | | | | | | | |
See notes to consolidated financial statements. | | | | | | | | |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued) (in thousands) (unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total |
Balance as of April 28, 2018 | $ | 54,731 |
| | $ | 40,328 |
| | $ | 107,105 |
| | $ | (1,834 | ) | | $ | (2,714 | ) | | $ | 197,616 |
|
Net income | — |
| | — |
| | 4,574 |
| | — |
| | — |
| | 4,574 |
|
Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | (1,139 | ) | | (1,139 | ) |
Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | (13 | ) | | (13 | ) |
Share-based compensation | — |
| | 651 |
| | — |
| | — |
| | — |
| | 651 |
|
Exercise of stock options | 57 |
| | — |
| | — |
| | — |
| | — |
| | 57 |
|
Employee savings plan activity | 820 |
| | — |
| | — |
| | — |
| | — |
| | 820 |
|
Dividends declared ($0.07 per share) | — |
| | — |
| | (3,121 | ) | | — |
| | — |
| | (3,121 | ) |
Balance as of July 28, 2018 | 55,608 |
| | 40,979 |
| | 108,558 |
| | (1,834 | ) | | (3,866 | ) | | 199,445 |
|
Net income | — |
| | — |
| | 8,606 |
| | — |
| | — |
| | 8,606 |
|
Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | (555 | ) | | (555 | ) |
Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
|
Share-based compensation | — |
| | 612 |
| | — |
| | — |
| | — |
| | 612 |
|
Tax payments related to RSU issuances | — |
| | (246 | ) | | — |
| | — |
| | — |
| | (246 | ) |
Dividends declared ($0.07 per share) | — |
| | — |
| | (3,131 | ) | | — |
| | — |
| | (3,131 | ) |
Balance as of October 27, 2018 | $ | 55,608 |
| | $ | 41,345 |
| | $ | 114,033 |
| | $ | (1,834 | ) | | $ | (4,415 | ) | | $ | 204,737 |
|
| | | | | | | | | | | |
See notes to condensed consolidated financial statements.
|
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
| |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
| | DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
|
| | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | January 28, 2017 | November 2, 2019 | | October 27, 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | $ | 9,372 |
| | $ | 9,433 |
| $ | 14,304 |
| | $ | 13,180 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
| | |
|
Depreciation and amortization | 13,335 |
| | 13,941 |
| 8,724 |
| | 9,300 |
|
Impairment of intangible assets | — |
| | 830 |
| |
(Gain) loss on sale of property, equipment and other assets | (1,211 | ) | | 23 |
| |
Gain (loss) on sale of property, equipment and other assets | | 30 |
| | (93 | ) |
Share-based compensation | 1,978 |
| | 2,204 |
| 1,184 |
| | 1,263 |
|
Contingent consideration adjustment | | — |
| | (956 | ) |
Equity in loss of affiliate | 401 |
| | 78 |
| 241 |
| | 265 |
|
Provision for doubtful accounts | (55 | ) | | 898 |
| (535 | ) | | 51 |
|
Deferred income taxes, net | 3,429 |
| | (286 | ) | (64 | ) | | (85 | ) |
Change in operating assets and liabilities | (296 | ) | | 18,266 |
| (34,156 | ) | | (368 | ) |
Net cash provided by operating activities | 26,953 |
| | 45,387 |
| |
Net cash (used in) provided by operating activities | | (10,272 | ) | | 22,557 |
|
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
| |
| | |
|
Purchases of property and equipment | (10,865 | ) | | (6,709 | ) | (9,768 | ) | | (9,833 | ) |
Proceeds from sale of property, equipment and other assets | 2,107 |
| | 166 |
| |
Proceeds from sales of property, equipment and other assets | | 149 |
| | 182 |
|
Purchases of marketable securities | (5,211 | ) | | (18,098 | ) | — |
| | (9,209 | ) |
Proceeds from sales or maturities of marketable securities | 13,751 |
| | 14,594 |
| 22,775 |
| | 12,034 |
|
Purchases of equity investment | (1,027 | ) | | (1,374 | ) | |
Net cash used in investing activities | (1,245 | ) | | (11,421 | ) | |
Purchases of and loans to equity investment | | (896 | ) | | (854 | ) |
Acquisitions, net of cash acquired | | — |
| | (2,250 | ) |
Net cash provided by (used in) investing activities | | 12,260 |
| | (9,930 | ) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
| | |
|
Payments on notes payable | — |
| | (8 | ) | |
Proceeds from exercise of stock options | 514 |
| | 343 |
| |
Principal payments on long-term obligations | (1,036 | ) | | (912 | ) | (1,931 | ) | | (431 | ) |
Dividends paid | (9,311 | ) | | (10,566 | ) | (4,500 | ) | | (6,252 | ) |
Proceeds from exercise of stock options | | — |
| | 57 |
|
Payments for common shares repurchased | — |
| | (1,825 | ) | (1,682 | ) | | — |
|
Tax payments related to RSU issuances | (311 | ) | | (261 | ) | (199 | ) | | (246 | ) |
Net cash used in financing activities | (10,144 | ) | | (13,229 | ) | (8,312 | ) | | (6,872 | ) |
| | | | | | |
EFFECT OF EXCHANGE RATE CHANGES | 667 |
| | (680 | ) | |
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 16,231 |
| | 20,057 |
| |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | | (94 | ) | | 73 |
|
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | (6,418 | ) | | 5,828 |
|
| | | | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | |
| | |
| |
| | |
|
Beginning of period | 32,839 |
| | 28,526 |
| 35,742 |
| | 29,755 |
|
End of period | $ | 49,070 |
| | $ | 48,583 |
| $ | 29,324 |
| | $ | 35,583 |
|
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash payments for: | |
| | |
| |
| | |
|
Interest | $ | 161 |
| | $ | 171 |
| $ | 117 |
| | $ | 84 |
|
Income taxes, net of refunds | 7,449 |
| | 114 |
| 1,051 |
| | 954 |
|
| | | | | | |
Supplemental schedule of non-cash investing and financing activities: | |
| | |
| |
| | |
|
Demonstration equipment transferred to inventory | 72 |
| | 218 |
| $ | — |
| | $ | 97 |
|
Purchase of property and equipment included in accounts payable | 1,163 |
| | 397 |
| |
Purchases of property and equipment included in accounts payable | | 1,469 |
| | 2,348 |
|
Contributions of common stock under the ESPP | 1,681 |
| | 840 |
| 1,577 |
| | 820 |
|
| | | | | | |
See notes to consolidated financial statements. | |
| | |
| |
See notes to condensed consolidated financial statements. | | |
| | |
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share data)
(unaudited)
Note 1. Basis of Presentation and Summary of Critical Accounting Policies
Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) isare the world's industry leader in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions affecting the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at April 29, 201727, 2019, has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended April 29, 2017,27, 2019, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange Commission.Commission ("SEC"). The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Daktronics, Inc. operates on a 52- toor 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. The ninefiscal year ended April 27, 2019 consisted of 52 weeks. Fiscal 2020 will be a 53-week year; therefore, the six months ended January 27, 2018 and January 28, 2017 containedNovember 2, 2019 contains operating results for 3927 weeks while the six months ended October 27, 2018 contains operating results for 26 weeks.
Investments in affiliates over which we have significant influence are accounted for underThe following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the equity methodcondensed consolidated balance sheets that sum to the totals of accounting. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.
The aggregate amount of investments accounted for under the equity method was $3,303 and $2,678 at January 27, 2018 and April 29, 2017, respectively. The equity method requires us to report our share of losses up to our equity investment amount. Cash paid for investments in affiliates is includedsame amounts shown in the Purchases of equity investment line item in ourcondensed consolidated statementsstatement of cash flows. Our proportional share of the respective affiliate’s earnings or losses is included in the Other (expense) income, net line item in our consolidated statements of operations. For the nine months ended January 27, 2018, our share of the losses of our affiliates was $401.flows:
The aggregate amount of investments accounted for under the cost method was $42 at January 27, 2018 and April 29, 2017, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value, and it is not practical to estimate their fair value. |
| | | | | | | |
| November 2, 2019 | | October 27, 2018 |
Cash and cash equivalents | $ | 29,265 |
| | $ | 35,557 |
|
Restricted cash | 59 |
| | 26 |
|
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows | $ | 29,324 |
| | $ | 35,583 |
|
Recent Accounting Pronouncements
There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019, other than described in the Accounting Standards Adopted section below.
Accounting Standards Adopted
In AugustFebruary 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments, which reduces the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We early adopted ASU 2016-15 during the second quarter of fiscal 2018. Adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Accordingly, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statements of cash flows. We early adopted ASU 2016-18 during the second quarter of fiscal 2018 and applied its provisions retrospectively. Other than the change in presentation within the statements of cash flows, the adoption of ASU 2016-18 did not have an impact on our consolidated financial statements.
Accounting Standards Not Yet Adopted
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the U.S. Tax Cuts and Jobs Act. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2018-02 will have on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019, and will require adoption on a prospective basis. We are currently evaluating the effect that adopting ASU 2017-04 will have on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other than Inventory, which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. This update eliminates the exception by requiring entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for us on April 29, 2018. We are currently evaluating the effect that adopting ASU 2016-16 will have on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2016-13 will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (that is, lessees and lessors). ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases) and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) entities with an additional transition method to adopt the new standard, and (iii) lessors with a practical expedient for separating components of a contract.
We adopted ASU 2016-02 and its related guidance during the first quarter of fiscal 2020 for all agreements existing as of April 28, 2019. We elected the "comparatives under Accounting Standards Codification ("ASC") 840 option" as a transitional method, which allows us to initially apply the new lease requirements at the effective date. Comparative periods were not adjusted and will continue to be reported in accordance with prior lease guidance under ASC 840. We elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating leases related assets or liabilities for leases with a lease term of less than one year. We have also elected the practical expedient to not separate lease and non-lease components in the lease payments for all asset classes. This adoption did not have an impact on our condensed consolidated statements of operations, shareholders' equity and cash flows, and there was no adjustment to retained earnings. As of April 28, 2019, we recognized a right of use asset for operating leases of $11,101 and a current and non-current lease liability for operating leases of $2,745 and $8,356, respectively. The right of use operating assets are included in the "Investment in affiliates and other assets" line item, the current lease liabilities are included in the "Accrued expenses" line item, and the non-current lease liabilities are included in the "Other long-term obligations" line item in our condensed consolidated balance sheet. See "Note 12. Leases" for more information.
Accounting Standards Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2018, with early2019 and will require adoption permitted.on a prospective basis. We are currently evaluating the effect that adopting ASU 2016-022017-04 will have on our condensed consolidated financial statements and related disclosures.
In May 2014,June 2016, the FASB issued ASU 2014-09,2016-13, Revenue from ContractsMeasurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with Customers (Topic 606).early adoption permitted, and will require adoption on a modified retrospective basis. We are currently evaluating the effect that adopting ASU 2014-09 is a comprehensive revenue recognition model that requires a company2016-13, including all subsequent amendments and improvements to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. TheASC Topic 326 issued by FASB, has also issued ASUs 2016-08, 2016-10, 2016-12, and 2016-20 to clarify guidance with respect to principal versus agent considerations and the identification of performance obligations and licensing, to issue guidancewill have on certain narrow areas, and to add practical expedients. We will adopt ASU 2014-09our condensed consolidated financial statements and related guidance under the modified retrospective method during the first quarter of fiscal 2019. The implementation team has completed its evaluation of the revenue arrangements, analyzed contracts to identify key provisions impacted by Accounting Standards Codification ("ASC") 606, assessed the applicable accounting, and reviewed existing accounting policies and internal controls. We are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under ASC 606. As a result of the evaluation performed to date, we do not anticipate that the adoption will significantly change the timing or amount of revenue recognized, based upon our current assessment of "point in time" and "over time" revenue recognition. Therefore, we do not anticipate that the adoption of ASU 2014-09 will materially impact our consolidated results of operations and financial statements, other than the additional disclosure requirements.disclosures.
Note 2. Investments in Affiliates
Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting in accordance with the provisions of ASC 323, Investments – Equity Method and Joint Ventures. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting in accordance with the provisions of ASC 321, Investments – Equity Securities. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.
The aggregate amount of investments accounted for under the equity method was $3,415 and $3,657 at November 2, 2019 and April 27, 2019, respectively. The equity method requires us to report our share of losses up to our equity investment amount. Cash paid for investments in affiliates and loans to affiliates are included in the "Purchases of and loans to equity investment" line item in our condensed consolidated statements of cash flows. Our proportional share of the respective affiliates' earnings or losses is included in the "Other income (expense), net" line item in our condensed consolidated statements of operations. For the six months ended November 2, 2019 and October 27, 2018, our share of the losses of our affiliates was $241 and $265, respectively.
The aggregate amount of investments without readily determinable fair values was $42 at November 2, 2019 and April 27, 2019. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value, and it is not practical to estimate their fair value. We record equity investments without readily determinable fair values at cost, less any impairment, adjusted for observable price changes. During the six months ended November 2, 2019, we did not record any changes in the measurement of such investments.
Note 3. Earnings Per Share ("EPS")
BasicWe follow the provisions of ASC 260, Earnings Per Share, where basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in our earnings.
The following is a reconciliation of the net income and common share amounts used in the calculation of basic and diluted EPS for the three and ninesix months ended JanuaryNovember 2, 2019 and October 27, 2018 and January 28, 2017:2018:
| | | Net (loss) income | | Shares | | Per share (loss) income | Net income | | Shares | | Per share income |
For the three months ended January 27, 2018 | | | | | | |
Basic (loss) earnings per share | $ | (6,189 | ) | | 44,518 |
| | $ | (0.14 | ) | |
Dilution associated with stock compensation plans | — |
| | — |
| | — |
| |
Diluted (loss) earnings per share | $ | (6,189 | ) | | 44,518 |
| | $ | (0.14 | ) | |
For the three months ended January 28, 2017 | | | | | | |
Basic (loss) earnings per share | $ | (5,127 | ) | | 44,102 |
| | $ | (0.12 | ) | |
Dilution associated with stock compensation plans | — |
| | — |
| | — |
| |
Diluted (loss) earnings per share | $ | (5,127 | ) | | 44,102 |
| | $ | (0.12 | ) | |
For the nine months ended January 27, 2018 | | | | | | |
For the three months ended November 2, 2019 | | | | | | |
Basic earnings per share | $ | 9,372 |
| | 44,403 |
| | $ | 0.21 |
| $ | 7,274 |
| | 45,115 |
| | $ | 0.16 |
|
Dilution associated with stock compensation plans | — |
| | 395 |
| | — |
| — |
| | 152 |
| | — |
|
Diluted earnings per share | $ | 9,372 |
| | 44,798 |
| | $ | 0.21 |
| $ | 7,274 |
| | 45,267 |
| | $ | 0.16 |
|
For the nine months ended January 28, 2017 | | | | | | |
For the three months ended October 27, 2018 | | | | | | |
Basic earnings per share | $ | 9,433 |
| | 44,071 |
| | $ | 0.21 |
| $ | 8,606 |
| | 44,780 |
| | $ | 0.19 |
|
Dilution associated with stock compensation plans | — |
| | 135 |
| | — |
| — |
| | 170 |
| | — |
|
Diluted earnings per share | $ | 9,433 |
| | 44,206 |
| | $ | 0.21 |
| $ | 8,606 |
| | 44,950 |
| | $ | 0.19 |
|
For the six months ended November 2, 2019 | | | | | | |
Basic earnings per share | | $ | 14,304 |
| | 45,114 |
| | $ | 0.32 |
|
Dilution associated with stock compensation plans | | — |
| | 247 |
| | — |
|
Diluted earnings per share | | $ | 14,304 |
| | 45,361 |
| | $ | 0.32 |
|
For the six months ended October 27, 2018 | | | | | | |
Basic earnings per share | | $ | 13,180 |
| | 44,717 |
| | $ | 0.29 |
|
Dilution associated with stock compensation plans | | — |
| | 277 |
| | — |
|
Diluted earnings per share | | $ | 13,180 |
| | 44,994 |
| | $ | 0.29 |
|
Options outstanding to purchase 1,2032,282 shares of common stock with a weighted average exercise price of $11.459.90 for the three months ended January 27, 2018November 2, 2019 and 1,3542,377 shares of common stock with a weighted average exercise price of $13.869.94 for the three months ended January 28, 2017October 27, 2018 were not included in the computation of diluted (loss) earnings per share because the effects would be anti-dilutive.
Options outstanding to purchase 1,2812,238 shares of common stock with a weighted average exercise price of $12.55$9.97 for the ninesix months ended January 27, 2018November 2, 2019 and 2,3802,129 shares of common stock with a weighted average exercise price of $13.27$10.15 for the ninesix months ended January 28, 2017October 27, 2018 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
Note 3. Share Repurchase Program4. Revenue Recognition
On June 17, 2016,Disaggregation of revenue
In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.
The following table presents our Boarddisaggregation of Directors approvedrevenue by segments:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended November 2, 2019 |
| Commercial | | Live Events | | High School Park and Recreation | | Transportation | | International | | Total |
Type of performance obligation | | | | | | | | | | | |
Unique configuration | $ | 9,007 |
| | $ | 41,413 |
| | $ | 5,186 |
| | $ | 12,419 |
| | $ | 10,542 |
| | $ | 78,567 |
|
Limited configuration | 26,654 |
| | 11,513 |
| | 24,127 |
| | 7,383 |
| | 13,124 |
| | 82,801 |
|
Service and other | 3,990 |
| | 6,393 |
| | 880 |
| | 528 |
| | 1,752 |
| | 13,543 |
|
| $ | 39,651 |
| | $ | 59,319 |
| | $ | 30,193 |
| | $ | 20,330 |
| | $ | 25,418 |
| | $ | 174,911 |
|
Timing of revenue recognition | | | | | | | | | | | |
Goods/services transferred at a point in time | $ | 27,304 |
| | $ | 13,169 |
| | $ | 22,112 |
| | $ | 7,521 |
| | $ | 13,500 |
| | $ | 83,606 |
|
Goods/services transferred over time | 12,347 |
| | 46,150 |
| | 8,081 |
| | 12,809 |
| | 11,918 |
| | 91,305 |
|
| $ | 39,651 |
| | $ | 59,319 |
| | $ | 30,193 |
| | $ | 20,330 |
| | $ | 25,418 |
| | $ | 174,911 |
|
| | | | | | | | | | | |
| Six Months Ended November 2, 2019 |
| Commercial | | Live Events | | High School Park and Recreation | | Transportation | | International | | Total |
Type of performance obligation | | | | | | | | | | | |
Unique configuration | $ | 21,972 |
| | $ | 87,000 |
| | $ | 11,216 |
| | $ | 24,316 |
| | $ | 26,220 |
| | $ | 170,724 |
|
Limited configuration | 53,889 |
| | 19,226 |
| | 47,927 |
| | 13,970 |
| | 23,054 |
| | 158,066 |
|
Service and other | 7,825 |
| | 12,399 |
| | 1,515 |
| | 1,062 |
| | 3,576 |
| | 26,377 |
|
| $ | 83,686 |
| | $ | 118,625 |
| | $ | 60,658 |
| | $ | 39,348 |
| | $ | 52,850 |
| | $ | 355,167 |
|
Timing of revenue recognition | | | | | | | | | | | |
Goods/services transferred at a point in time | $ | 55,007 |
| | $ | 22,289 |
| | $ | 44,711 |
| | $ | 14,218 |
| | $ | 23,688 |
| | $ | 159,913 |
|
Goods/services transferred over time | 28,679 |
| | 96,336 |
| | 15,947 |
| | 25,130 |
| | 29,162 |
| | 195,254 |
|
| $ | 83,686 |
| | $ | 118,625 |
| | $ | 60,658 |
| | $ | 39,348 |
| | $ | 52,850 |
| | $ | 355,167 |
|
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended October 27, 2018 |
| Commercial | | Live Events | | High School Park and Recreation | | Transportation | | International | | Total |
Type of performance obligation | | | | | | | | | | | |
Unique configuration | $ | 11,426 |
| | $ | 38,283 |
| | $ | 6,671 |
| | $ | 10,427 |
| | $ | 10,776 |
| | $ | 77,583 |
|
Limited configuration | 31,385 |
| | 11,467 |
| | 24,381 |
| | 7,195 |
| | 9,851 |
| | 84,279 |
|
Service and other | 3,258 |
| | 5,349 |
| | 528 |
| | 455 |
| | 1,240 |
| | 10,830 |
|
| $ | 46,069 |
| | $ | 55,099 |
| | $ | 31,580 |
| | $ | 18,077 |
| | $ | 21,867 |
| | $ | 172,692 |
|
Timing of revenue recognition | | | | | | | | | | | |
Goods/services transferred at a point in time | $ | 31,896 |
| | $ | 12,558 |
| | $ | 22,060 |
| | $ | 7,267 |
| | $ | 10,126 |
| | $ | 83,907 |
|
Goods/services transferred over time | 14,173 |
| | 42,541 |
| | 9,520 |
| | 10,810 |
| | 11,741 |
| | 88,785 |
|
| $ | 46,069 |
| | $ | 55,099 |
| | $ | 31,580 |
| | $ | 18,077 |
| | $ | 21,867 |
| | $ | 172,692 |
|
| | | | | | | | | | | |
| Six Months Ended October 27, 2018 |
| Commercial | | Live Events | | High School Park and Recreation | | Transportation | | International | | Total |
Type of performance obligation | | | | | | | | | | | |
Unique configuration | $ | 14,475 |
| | $ | 77,204 |
| | $ | 15,614 |
| | $ | 20,045 |
| | $ | 26,992 |
| | $ | 154,330 |
|
Limited configuration | 55,252 |
| | 17,285 |
| | 42,928 |
| | 14,278 |
| | 20,629 |
| | 150,372 |
|
Service and other | 6,911 |
| | 10,082 |
| | 1,158 |
| | 911 |
| | 3,116 |
| | 22,178 |
|
| $ | 76,638 |
| | $ | 104,571 |
| | $ | 59,700 |
| | $ | 35,234 |
| | $ | 50,737 |
| | $ | 326,880 |
|
Timing of revenue recognition | | | | | | | | | | | |
Goods/services transferred at a point in time | $ | 56,479 |
| | $ | 19,360 |
| | $ | 39,058 |
| | $ | 14,499 |
| | $ | 21,662 |
| | $ | 151,058 |
|
Goods/services transferred over time | 20,159 |
| | 85,211 |
| | 20,642 |
| | 20,735 |
| | 29,075 |
| | 175,822 |
|
| $ | 76,638 |
| | $ | 104,571 |
| | $ | 59,700 |
| | $ | 35,234 |
| | $ | 50,737 |
| | $ | 326,880 |
|
See "Note 5. Segment Reporting" for a stock repurchase program underdisaggregation of revenue by geography.
Contract balances
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which Daktronics, Inc. may purchase uprepresent an unconditional right to $40,000payment subject only to the passage of its outstanding sharestime, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the clients in excess of common stock. Under this program,revenue recognized to date.
The following table reflects the changes in our contract assets and liabilities:
|
| | | | | | | | | | | | | | |
| November 2, 2019 | | April 27, 2019 | | Dollar Change | | Percent Change |
Contract assets | $ | 34,395 |
| | $ | 33,704 |
| | $ | 691 |
| | 2.1 | % |
Contract liabilities - current | 48,387 |
| | 47,178 |
| | 1,209 |
| | 2.6 |
|
Contract liabilities - noncurrent | 10,578 |
| | 10,053 |
| | 525 |
| | 5.2 |
|
The changes in our contract assets and contract liabilities from April 27, 2019 to November 2, 2019 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no material impairments of contract assets for the six months ended November 2, 2019.
As of April 27, 2019, we may repurchase shares from time to timehad six contracts in open market transactionsprogress that were identified as loss contracts, for which we recorded a provision for losses of $2,353 and two remaining contracts with loss estimates of $360 as of November 2, 2019. These were included in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time. "Accrued expenses" line item in our condensed consolidated balance sheets.
During the first, second and third quartersix months ended November 2, 2019, we recognized revenue of fiscal 2018, we had no repurchases$39,352 related to our contract liabilities as of sharesApril 27, 2019.
Remaining performance obligations
As of November 2, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations was $239,902. We expect approximately $202,745 of our outstanding common stock. Duringremaining performance obligations to be recognized over the first quarter of fiscal 2017, we repurchased 284 shares of common stock at a totalnext 12 months with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements are $182,050 and $57,852, respectively. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, of $1,825,foreign currency exchange fluctuations and there were no other purchases during fiscal 2017. As of January 27, 2018, we had $38,175 ofproject deferrals are reflected or excluded in the remaining capacity under our current share repurchase program.performance obligation balance, as appropriate.
Note 4.5. Segment DisclosureReporting
We have organizedorganize and manage our business intoby the following five segments which meet the definition of reportable segments under ASC 280-10, Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type of customer or geography and are the same as our business units.
Our Commercial business unit primarily consists We evaluate segment performance based on operating results through contribution margin, which is comprised of sales ofgross profit less selling expense. We exclude general and administration expense, product design and development expense, non-operating income and expense, and income tax expense in the segment analysis. Separate financial information is available and regularly evaluated by our video display systems, digital billboards, Galaxy®chief operating decision-maker (CODM), who is our president and Fuelight™ product lines to resellers (primarily sign companies), Out-of-Home ("OOH") companies, national retailers, quick-serve restaurants, casinos and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales ofchief executive officer, in making resource allocation decisions for our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxysegments. ® displays and video display systems to primary and secondary education facilities. Our Transportation business unit primarily consists of sales of our Vanguard® and Galaxy® product lines to governmental transportation departments, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, and European transportation related products.
Our segment reporting presents results through gross profit less selling costs. Gross profit is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos, and supplies. Segment profit excludes general and administration expense, product development expense, interest income and expense, non-operating income and income tax expense. Assets are not allocated to the segments. Depreciation and amortization are allocated to each segment based on various financial measures; however, some depreciation and amortization are corporate in nature and remain unallocated. Our segments follow the same accounting policies as those described in Note 1 of our Annual Report on Form 10-K for the fiscal year ended April 29, 2017. Unabsorbed manufacturing costs are allocated to the business unit benefiting most from that manufacturing location's production capabilities. Unabsorbed costs of domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures.
We do not maintain information on sales by products; therefore, disclosure of such information is not practical.
The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | November 2, 2019 | | October 27, 2018 | | November 2, 2019 | | October 27, 2018 |
Net sales: | | | | | | | | | | | | | | |
Commercial | $ | 35,483 |
| | $ | 36,165 |
| | $ | 102,723 |
| | $ | 112,342 |
| $ | 39,651 |
| | $ | 46,069 |
| | $ | 83,686 |
| | $ | 76,638 |
|
Live Events | 45,167 |
| | 41,036 |
| | 191,432 |
| | 157,032 |
| 59,319 |
| | 55,099 |
| | 118,625 |
| | 104,571 |
|
High School Park and Recreation | 11,463 |
| | 12,653 |
| | 69,602 |
| | 68,977 |
| 30,193 |
| | 31,580 |
| | 60,658 |
| | 59,700 |
|
Transportation | 11,189 |
| | 9,130 |
| | 46,577 |
| | 39,517 |
| 20,330 |
| | 18,077 |
| | 39,348 |
| | 35,234 |
|
International | 27,014 |
| | 16,735 |
| | 62,019 |
| | 64,989 |
| 25,418 |
| | 21,867 |
| | 52,850 |
| | 50,737 |
|
| 130,316 |
| | 115,719 |
| | 472,353 |
| | 442,857 |
| 174,911 |
| | 172,692 |
| | 355,167 |
| | 326,880 |
|
| | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | |
Commercial | 7,546 |
| | 7,711 |
| | 21,085 |
| | 27,418 |
| 7,862 |
| | 11,757 |
| | 17,080 |
| | 18,651 |
|
Live Events | 9,747 |
| | 6,629 |
| | 43,056 |
| | 30,430 |
| 11,934 |
| | 12,312 |
| | 24,671 |
| | 22,545 |
|
High School Park and Recreation | 2,768 |
| | 3,198 |
| | 23,672 |
| | 21,900 |
| 9,224 |
| | 9,759 |
| | 19,411 |
| | 19,261 |
|
Transportation | 3,570 |
| | 2,325 |
| | 16,696 |
| | 12,966 |
| 7,003 |
| | 6,140 |
| | 13,757 |
| | 11,591 |
|
International | 4,936 |
| | 3,453 |
| | 11,308 |
| | 13,977 |
| 4,064 |
| | 2,789 |
| | 10,673 |
| | 8,956 |
|
| 28,567 |
| | 23,316 |
| | 115,817 |
| | 106,691 |
| 40,087 |
| | 42,757 |
| | 85,592 |
| | 81,004 |
|
| | | | | | | | | | | | | | |
Selling expense: | | | | | | | | |
Contribution margin: (1) | | | | | | | | |
Commercial | 4,415 |
| | 4,575 |
| | 13,778 |
| | 13,949 |
| 2,853 |
| | 7,050 |
| | 6,937 |
| | 9,524 |
|
Live Events | 3,843 |
| | 3,417 |
| | 10,562 |
| | 9,686 |
| 8,362 |
| | 8,918 |
| | 17,234 |
| | 15,903 |
|
High School Park and Recreation | 2,726 |
| | 2,581 |
| | 8,073 |
| | 7,532 |
| 5,988 |
| | 6,706 |
| | 12,580 |
| | 13,258 |
|
Transportation | 945 |
| | 952 |
| | 3,084 |
| | 3,461 |
| 5,895 |
| | 4,991 |
| | 11,347 |
| | 9,286 |
|
International | 3,342 |
| | 3,153 |
| | 10,063 |
| | 11,200 |
| 812 |
| | (1,033 | ) | | 3,020 |
| | 530 |
|
| 15,271 |
| | 14,678 |
| | 45,560 |
| | 45,828 |
| 23,910 |
| | 26,632 |
| | 51,118 |
| | 48,501 |
|
| | | | | | | | | | | | | | |
Non-allocated operating expenses: | | | | | | | | | | | | | | |
General and administrative | 8,335 |
| | 8,599 |
| | 26,138 |
| | 26,007 |
| 8,965 |
| | 8,574 |
| | 18,058 |
| | 17,111 |
|
Product design and development | 8,299 |
| | 6,973 |
| | 26,294 |
| | 21,142 |
| 10,121 |
| | 9,039 |
| | 20,621 |
| | 18,331 |
|
Operating (loss) income | (3,338 | ) | | (6,934 | ) | | 17,825 |
| | 13,714 |
| |
Operating income | | 4,824 |
| | 9,019 |
| | 12,439 |
| | 13,059 |
|
| | | | | | | | | | | | | | |
Nonoperating income (expense): | | | | | | | | | | | | | | |
Interest income | 158 |
| | 183 |
| | 520 |
| | 559 |
| 162 |
| | 188 |
| | 431 |
| | 385 |
|
Interest expense | (40 | ) | | (56 | ) | | (173 | ) | | (174 | ) | (31 | ) | | (2 | ) | | (66 | ) | | (41 | ) |
Other (expense) income, net | (487 | ) | | (305 | ) | | (429 | ) | | (250 | ) | |
Other income (expense), net | | (514 | ) | | (66 | ) | | (321 | ) | | (220 | ) |
| | | | | | | | | | | | | | |
(Loss) income before income taxes | (3,707 | ) | | (7,112 | ) | | 17,743 |
| | 13,849 |
| |
Income tax expense (benefit) | 2,482 |
| | (1,985 | ) | | 8,371 |
| | 4,416 |
| |
Net (loss) income | $ | (6,189 | ) | | $ | (5,127 | ) | | $ | 9,372 |
| | $ | 9,433 |
| |
Income before income taxes | | 4,441 |
| | 9,139 |
| | 12,483 |
| | 13,183 |
|
Income tax (benefit) expense | | (2,833 | ) | | 533 |
| | (1,821 | ) | | 3 |
|
Net income | | $ | 7,274 |
| | $ | 8,606 |
| | $ | 14,304 |
| | $ | 13,180 |
|
| | | | | | | | | | | | | | |
Depreciation, amortization and impairment: | | | | | | | | |
Depreciation and amortization: | | | | | | | | |
Commercial | $ | 1,550 |
| | $ | 1,616 |
| | $ | 4,628 |
| | $ | 4,777 |
| $ | 895 |
| | $ | 1,236 |
| | $ | 1,869 |
| | $ | 2,414 |
|
Live Events | 1,192 |
| | 1,245 |
| | 3,626 |
| | 3,798 |
| 1,394 |
| | 1,334 |
| | 2,792 |
| | 2,506 |
|
High School Park and Recreation | 401 |
| | 421 |
| | 1,245 |
| | 1,310 |
| 507 |
| | 517 |
| | 1,019 |
| | 960 |
|
Transportation | 281 |
| | 311 |
| | 860 |
| | 957 |
| 252 |
| | 277 |
| | 516 |
| | 551 |
|
International | 284 |
| | 423 |
| | 835 |
| | 1,914 |
| 563 |
| | 723 |
| | 1,087 |
| | 1,423 |
|
Unallocated corporate depreciation | 725 |
| | 683 |
| | 2,141 |
| | 2,015 |
| 730 |
| | 725 |
| | 1,441 |
| | 1,446 |
|
| $ | 4,433 |
| | $ | 4,699 |
| | $ | 13,335 |
| | $ | 14,771 |
| $ | 4,341 |
| | $ | 4,812 |
| | $ | 8,724 |
| | $ | 9,300 |
|
(1) Contribution margin consists of gross profit less selling expense.
No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| January��27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | November 2, 2019 | | October 27, 2018 | | November 2, 2019 | | October 27, 2018 |
Net sales: | | | | | | | | | | | | | | |
United States | $ | 98,297 |
| | $ | 94,174 |
| | $ | 396,155 |
| | $ | 363,766 |
| $ | 147,106 |
| | $ | 145,936 |
| | $ | 296,566 |
| | $ | 267,261 |
|
Outside United States | 32,019 |
| | 21,545 |
| | 76,198 |
| | 79,091 |
| 27,805 |
| | 26,756 |
| | 58,601 |
| | 59,619 |
|
| $ | 130,316 |
| | $ | 115,719 |
| | $ | 472,353 |
| | $ | 442,857 |
| $ | 174,911 |
| | $ | 172,692 |
| | $ | 355,167 |
| | $ | 326,880 |
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| January 27, 2018 | | April 29, 2017 | | | | | November 2, 2019 | | April 27, 2019 | | | | |
Property and equipment, net of accumulated depreciation: | | | | | | |
|
| | | | | | |
|
|
United States | $ | 58,333 |
| | $ | 62,425 |
| | | |
|
| $ | 59,655 |
| | $ | 59,192 |
| | | |
|
|
Outside United States | 5,962 |
| | 4,324 |
| | | | | 7,508 |
| | 6,122 |
| | | | |
| $ | 64,295 |
| | $ | 66,749 |
| | | |
|
| $ | 67,163 |
| | $ | 65,314 |
| | | |
|
|
We have numerous customers worldwide for sales of our products and services;services, and no customer accounted for 10% or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services except with respect toservices.
We have numerous raw material and component suppliers, and no supplier accounts for 10% or more of our dependence on two major digital billboard customerscost of sales; however, we have a number of single-source suppliers that could limit our supply or cause delays in our Commercial business unit. obtaining raw material and components needed in manufacturing.
Note 6. Marketable Securities
We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320, Investments – Debt and Equity Securities. Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of November 2, 2019, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.
As of November 2, 2019 and April 27, 2019, our available-for-sale securities consisted of the following:
|
| | | | | | | | | | | |
| Amortized Cost | | Unrealized Losses | | Fair Value |
Balance as of November 2, 2019 | | | | | |
Certificates of deposit | $ | 2,717 |
| | $ | — |
| | $ | 2,717 |
|
U.S. Government sponsored entities | 745 |
| | — |
| | 745 |
|
Municipal bonds | 156 |
| | — |
| | 156 |
|
| $ | 3,618 |
| | $ | — |
| | $ | 3,618 |
|
Balance as of April 27, 2019 | |
| | |
| | |
|
Certificates of deposit | $ | 3,464 |
| | $ | — |
| | $ | 3,464 |
|
U.S. Government securities | 10,779 |
| | (5 | ) | | 10,774 |
|
U.S. Government sponsored entities | 10,510 |
| | (28 | ) | | 10,482 |
|
Municipal bonds | 1,626 |
| | (2 | ) | | 1,624 |
|
| $ | 26,379 |
| | $ | (35 | ) | | $ | 26,344 |
|
Realized gains or losses on investments are recorded in our condensed consolidated statements of operations as "Other income (expense), net." Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of
accumulated other comprehensive loss into earnings based on the specific identification method. In the six months ended November 2, 2019 and October 27, 2018, the reclassifications from accumulated other comprehensive loss to net earnings were immaterial.
All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of November 2, 2019 were as follows:
|
| | | | | | | | | | | |
| Less than 12 months | | 1-5 Years | | Total |
Certificates of deposit | $ | 1,734 |
| | $ | 983 |
| | $ | 2,717 |
|
U.S. Government sponsored entities | 745 |
| | — |
| | 745 |
|
Municipal bonds | 156 |
| | — |
| | 156 |
|
| $ | 2,635 |
| | $ | 983 |
| | $ | 3,618 |
|
Note 5. Marketable Securities
We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320, Investments – Debt and Equity Securities. Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of January 27, 2018, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.
As of January 27, 2018 and April 29, 2017, our available-for-sale securities consisted of the following:
|
| | | | | | | | | | | | | | | |
| Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Balance as of January 27, 2018 | | | | | | | |
Certificates of deposit | $ | 8,918 |
| | $ | — |
| | $ | — |
| | $ | 8,918 |
|
U.S. Government sponsored entities | 9,104 |
| | — |
| | (73 | ) | | 9,031 |
|
Municipal bonds | 6,001 |
| | — |
| | (13 | ) | | 5,988 |
|
| $ | 24,023 |
| | $ | — |
| | $ | (86 | ) | | $ | 23,937 |
|
Balance as of April 29, 2017 | |
| | |
| | |
| | |
|
Certificates of deposit | $ | 12,487 |
| | $ | — |
| | $ | — |
| | $ | 12,487 |
|
U.S. Government securities | 400 |
| | — |
| | — |
| | 400 |
|
U.S. Government sponsored entities | 12,260 |
| | — |
| | (22 | ) | | 12,238 |
|
Municipal bonds | 7,574 |
| | 14 |
| | — |
| | 7,588 |
|
| $ | 32,721 |
| | $ | 14 |
| | $ | (22 | ) | | $ | 32,713 |
|
Realized gains or losses on investments are recorded in our consolidated statements of operations as other income (expense), net. Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the nine months ended January 27, 2018 and January 28, 2017, the reclassifications from accumulated other comprehensive loss to earnings were immaterial.
All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of January 27, 2018 were as follows:
|
| | | | | | | | | | | |
| Less than 12 months | | 1-5 Years | | Total |
Certificates of deposit | $ | 5,207 |
| | $ | 3,711 |
| | $ | 8,918 |
|
U.S. Government sponsored entities | 999 |
| | 8,032 |
| | 9,031 |
|
Municipal bonds | 2,598 |
| | 3,390 |
| | 5,988 |
|
| $ | 8,804 |
| | $ | 15,133 |
| | $ | 23,937 |
|
Note 6.7. Business Combinations
ADFLOWAJT Systems, Inc. Acquisition
We acquired the net assets of AJT Systems, Inc. ("AJT"), a Florida-based company, on June 21, 2018. The results of its operations have a contingent liability related to a prior yearbeen included in our condensed consolidated financial statements since the date of acquisition. We have not made pro forma disclosures about our acquisition of ADFLOW Networks, Inc. ("ADFLOW"), on March 15, 2016. For more information relatedAJT because the results of its operations are not material to our condensed consolidated financial statements.
AJT is a developer of real-time live to air graphics rendering and video server systems for the broadcast TV industry. This acquisition will allow our organization to grow and strengthen our solution offerings to the ADFLOWmarket. This acquisition see "Note 4. Business Combinations" of our Annual Reportwas primarily funded with cash on Form 10-K for the fiscal year ended April 29, 2017. The fair value of such contingent consideration is estimated as of the acquisition date,hand and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires us to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable. See "Note 13. Fair Value Measurement" for more information.
Note 7. Sale of Non-Digital Division
In September 2017, we sold our non-digital division assets, primarily consisting of inventory, non-digital manufacturing equipment, patented and unpatented technology and know-how, customer lists, and backlog, net of warranty obligations and accounts payable with payments made over a net book value of $517. We recorded a gain of $1,267 on the disposal, which is included in cost of goods sold in the International business unit.three-year period.
Note 8. Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the ninesix months ended January 27, 2018November 2, 2019 were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Live Events | | Commercial | | Transportation | | International | | Total |
Balance as of April 29, 2017 | $ | 2,274 |
| | $ | 3,199 |
| | $ | 45 |
| | $ | 2,294 |
| | $ | 7,812 |
|
Foreign currency translation | 38 |
| | 258 |
| | 38 |
| | 323 |
| | 657 |
|
Balance as of January 27, 2018 | $ | 2,312 |
| | $ | 3,457 |
| | $ | 83 |
| | $ | 2,617 |
| | $ | 8,469 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Live Events | | Commercial | | Transportation | | International | | Total |
Balance as of April 27, 2019 | $ | 2,276 |
| | $ | 3,218 |
| | $ | 49 |
| | $ | 2,346 |
| | $ | 7,889 |
|
Foreign currency translation | 9 |
| | 64 |
| | 9 |
| | 3 |
| | 85 |
|
Balance as of November 2, 2019 | $ | 2,285 |
| | $ | 3,282 |
| | $ | 58 |
| | $ | 2,349 |
| | $ | 7,974 |
|
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. We performedperform our annual analysis during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third fiscal quarter.
In conducting our impairment testing, we compare the fair value of each of our business units to the related carrying value of the allocated assets. We utilize the income approach based on discounted projected cash flows to estimate the fair value of each unit. The projected cash flows use many estimates including market conditions and expected market demand; our ability to grow or maintain market share and gross profit; and our expected expenditures for capital and operating expenses. Assets shared or not directly attributed to a reportable segment's activities are allocated to the reportable segment based on sales and other measures.
We performed our annual impairment test for our third quarter in fiscal 2018,2019, which wasbegan on October 29, 2017. The result of the analysis indicated2018 and concluded no goodwill impairment existedexisted. We are currently in the process of completing our annual analysis as of that date.the first business day of our third quarter of fiscal 2020, which began on November 4, 2019.
Note 9. Inventories
Inventories consisted of the following:
|
| | | | | | | |
| January 27, 2018 | | April 29, 2017 |
Raw materials | $ | 26,833 |
| | $ | 24,801 |
|
Work-in-process | 11,813 |
| | 7,366 |
|
Finished goods | 31,805 |
| | 34,319 |
|
| $ | 70,451 |
| | $ | 66,486 |
|
Note 9. Selected Financial Statement Data
Inventories consisted of the following:
|
| | | | | | | |
| November 2, 2019 | | April 27, 2019 |
Raw materials | $ | 33,203 |
| | $ | 30,789 |
|
Work-in-process | 9,104 |
| | 8,239 |
|
Finished goods | 36,930 |
| | 39,804 |
|
| $ | 79,237 |
| | $ | 78,832 |
|
Property and equipment, net consisted of the following:
|
| | | | | | | |
| November 2, 2019 | | April 27, 2019 |
Land | $ | 2,176 |
| | $ | 1,738 |
|
Buildings | 67,561 |
| | 66,403 |
|
Machinery and equipment | 99,811 |
| | 96,486 |
|
Office furniture and equipment | 6,157 |
| | 6,195 |
|
Computer software and hardware | 52,735 |
| | 55,460 |
|
Equipment held for rental | 287 |
| | 287 |
|
Demonstration equipment | 7,547 |
| | 7,422 |
|
Transportation equipment | 7,993 |
| | 7,715 |
|
| 244,267 |
| | 241,706 |
|
Less accumulated depreciation | 177,104 |
| | 176,392 |
|
| $ | 67,163 |
| | $ | 65,314 |
|
Note 10. Receivables
We invoice customers based on a billing schedule as established in our contracts. We sometimes have the ability to file a contractor’s lien against the product installed as collateral and to file claims against surety bonds to protect our interest in receivables. Foreign sales are at times secured by irrevocable letters of credit or bank guarantees. Accounts receivable are reported net of an allowance for doubtful accounts of $2,311$2,516 and $2,610$2,208 at January 27, 2018November 2, 2019 and April 29, 2017,27, 2019, respectively. Included in accounts receivable as of January 27, 2018November 2, 2019 and April 29, 201727, 2019 was $2,044$717 and $1,857,$440, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.
In connection with certain sales transactions, we have entered into salessome contracts with customers, we agree to installment payments exceeding twelve months and sales-type leases.12 months. The present value of these contracts and leases are recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts and lease receivables, including accrued interest and current maturities, was $4,147$6,325 and $4,890$3,514 as of January 27, 2018November 2, 2019 and April 29, 2017,27, 2019, respectively. Contract and lease receivables bearing annual interest rates of 4.85.0 to 10.09.0 percent are due in varying annual installments through August 2024. The face amountvalue of long-term receivables was $4,547 and $5,201$5,234 as of JanuaryNovember 2, 2019 and $3,271 as of April 27, 2018 and April 29, 2017, respectively.2019.
Note 11. Share Repurchase Program
On June 17, 2016, our Board of Directors approved a stock repurchase program under which we may purchase up to $40,000 of the Company's outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time.
During the six months ended October 27, 2018, we had no repurchases of shares of our outstanding common stock. During the six months ended November 2, 2019, we repurchased 270 shares of common stock at a total cost of $1,682. As of November 2, 2019, we had $36,493 of remaining capacity under our current share repurchase program.
Note 12. Leases
We lease facilities and various equipment to manufacture products and provide employee collaboration space and tools. These are all classified as operating leases and have initial lease terms ranging from one to five years. These operating leases do not contain material
residual value guarantees or material restrictive covenants. Our lease in Sioux Falls, SD has a purchase option. We do not have any financing leases.
We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. The operating lease right-of-use asset includes any prepaid lease payments and initial direct costs and excludes any lease incentives and impairments. Some of our leases include options to extend the term, which is only included in the right-of-use assets and lease liability calculation when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and we have elected to account for all asset classes as a single lease component. Our operating leases also typically require payment of real estate taxes, insurance, and common area maintenance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Our total variable lease costs are immaterial.
Operating lease cost is recognized on a straight-line basis over the lease term, and short-term lease cost is recognized when paid. Both are recognized in cost of sales and operating expenses in the condensed consolidated statements of operations. The lease cost was as follows:
|
| | | | | | | | |
| | Three Months Ended November 2, 2019 | | Six Months Ended November 2, 2019 |
Operating lease cost(1) | | $ | 1,010 |
| | $ | 1,862 |
|
(1) Includes short-term leases, which are immaterial.
The weighted average remaining lease term and discount rate related to operating leases include:
|
| | | |
| | November 2, 2019 |
Weighted average remaining lease term | | 5.3 years |
|
Weighted average discount rate | | 3.5 | % |
Supplemental unaudited cash flow information related to operating leases include:
|
| | | | | | | | |
| | Three Months Ended November 2, 2019 | | Six Months Ended November 2, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 787 |
| | $ | 1,603 |
|
Future minimum operating lease payments as of, and subsequent to, November 2, 2019 under ASC 842 are as follows:
|
| | | | |
| | Operating Leases(1) |
Fiscal years ending | | |
2020 | | $ | 1,536 |
|
2021 | | 2,711 |
|
2022 | | 1,993 |
|
2023 | | 1,206 |
|
2024 | | 1,085 |
|
Thereafter | | 2,398 |
|
Total lease payments | | 10,929 |
|
Less imputed interest | | (944 | ) |
Total lease liabilities | | $ | 9,985 |
|
(1) Includes $3,879 to extend the term of our Sioux Falls, South Dakota manufacturing facility.
Note 11.13. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence
As of JanuaryApril 27, 20182019 and April 29, 2017,November 2, 2019, $1,072 and $1,981, respectively, were included in the "Accrued expenses" line item in our condensed consolidated balance sheets for a probable and reasonably estimated cost to settle a patent litigation claim. The costs are included in cost of sales in the High School Park and Recreation business unit.
For other unresolved legal proceedings or claims, we diddo not believe there wasis a reasonable probability that any material loss for these various claims or legal actions, including reviews, inspections or other legal proceedings, if any, wouldwill be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. In the opinion of management,We do not expect the ultimate liability of allthese unresolved legal proceedings is not expectedor claims to have a material effect on our financial position, liquidity or capital resources.
Warranties: We offer a standard parts coverage warranty for periods varying from one to five years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of warranties on some installations can vary from one to 10 years. The specific terms and conditions of these warranties vary primarily depending on the type of product sold. We estimate the costs which may be incurred under the contractual warranty obligations and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly.
During fiscal 2016, we discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH applications built prior to fiscal 2013. The device failure causes a visual defect in the display. Over the past three years, we have deployed preventative maintenance to sites impacted and repaired the defective devices in our repair center. When certain site locations have exceeded an acceptable failure rate, we have refurbished the display to meet customers’ expectations under contractual obligations. During fiscal 2017, 2016, and 2015 we recognized warranty expense for probable and reasonably estimated costs to remediate this issue of $1,766, $9,174, and $1,168, respectively. We recognized warranty expense related to this issue of $4,034 during the nine months ended January 27, 2018. This increased expense level is not the result of a new issue, but is primarily based on our decision to preserve our market leadership. We elected to expand the refurbishments for customer relationship purposes. As of January 27, 2018, we had $3,066 remaining in accrued warranty obligations for the estimate of probable future claims related to this issue. Although many of our contractual warranty arrangements are nearing expiration for products with this issue, we may incur additional discretionary costs to maintain customer relationships or for higher than expected failure rates. Accordingly, it is possible that the ultimate cost to resolve this matter may increase and be materially different from the amount of the current estimate and accrual.
Changes in our warranty obligation for the ninesix months ended January 27, 2018November 2, 2019 consisted of the following:
| | | | Amount | | November 2, 2019 |
Beginning accrued warranty obligations | | $ | 27,899 |
| | $ | 24,470 |
|
Warranties issued during the period | | 9,652 |
| | 6,425 |
|
Settlements made during the period | | (13,581 | ) | | (5,355 | ) |
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations | | 5,230 |
| | 445 |
|
Ending accrued warranty obligations | | $ | 29,200 |
| | $ | 25,985 |
|
Performance guarantees: We have entered into standby letters of credit and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction typeconstruction-type contracts. As of January 27, 2018,November 2, 2019, we had outstanding letters of credit and surety bonds in the amount of $13,39615,184 and $8,3308,372, respectively. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms whichbut are generally one year.
Leases: We lease vehicles, office spaceenter into written agreements with our customers, and equipment for various global salesthose agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss. We make efforts to negotiate reasonable caps and service locations, including manufacturing space inlimitations on the United States and China. Somerecovery of these leases, including the lease for manufacturing facilities in Sioux Falls, South Dakota, include provisions for extensions or purchase. The lease for the facilities in Sioux Falls, South Dakota, can be extended for an additional five years past its current term, which ends March 31, 2022, and it contains an option to purchase the property subject to the leasesuch damages. As of November 2, 2019, we were not aware of any indemnification claim from March 31, 2017 to March 31, 2022 for a customer.$9,000, which approximates fair value. If the lease is extended, the purchase option increases to $9,090 for the year ending March 31, 2023 and $9,180 for the year ending March 31, 2024. Rental expense for operating leases was $2,568 and $2,358 for the nine months ended January 27, 2018 and January 28, 2017, respectively.
Future minimum payments under noncancelable operating leases, excluding executory costs such as management and maintenance fees, with initial or remaining terms of one year or more consisted of the following at January 27, 2018:
|
| | | | |
Fiscal years ending | | Amount |
2018 | | $ | 775 |
|
2019 | | 2,624 |
|
2020 | | 2,101 |
|
2021 | | 1,771 |
|
2022 | | 1,437 |
|
Thereafter | | 544 |
|
| | $ | 9,252 |
|
Purchase commitments: From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year. As of January 27, 2018,November 2, 2019, we were obligated under the following conditional and unconditional purchase commitments, which included $350 in conditional purchase commitments:
| | Fiscal years ending | | Amount | | Amount |
2018 | | $ | 665 |
| |
2019 | | 2,675 |
| |
2020 | | 1,898 |
| | $ | 3,161 |
|
2021 | | 313 |
| | 4,644 |
|
2022 | | 143 |
| | 2,692 |
|
2023 | | | 1,820 |
|
2024 | | | 113 |
|
Thereafter | | 380 |
| | 153 |
|
| | $ | 6,074 |
| | $ | 12,583 |
|
Note 12.14. Income Taxes
We are subject to U.S. Federal income tax as well ascalculate the provision for income taxes during interim reporting periods by applying an estimate of multiple state and foreign jurisdictions.the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to various factors and operating in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation. As a resultWe recorded an effective tax rate benefit of 63.8 percent and 14.6 percent for the expirationthree and six months ended November 2, 2019, respectively, and an effective tax rate expense of statutes5.8 percent and 0.0 percent for the three and six months ended October 27, 2018. The changes in the effective tax rates are primarily driven by differences in estimated tax credits proportionate to estimated pre-tax book income for each period.
We are subject to U.S. federal income tax as well as income taxes of limitations, ourmultiple state and foreign jurisdictions. Fiscal years 2016, 2017, 2018 and 2019 remain open to federal tax examinations, and fiscal years 2015, 2016, 2017, 2018 and 2017 are the remaining years2019 remain open under statutes of limitations for federal andvarious state income tax examinations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2008.2009. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our condensed consolidated statement of operations.
As of January 27, 2018,November 2, 2019, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely. Additionally, we had $3,179$735 of unrecognized tax benefits which would reduce our effective tax rate if recognized.
On December 22, 2017, President Trump signed the U.S. Tax Cuts and Jobs Act (the “Tax Act”) into law. The Tax Act makes broad and complex changes to the U.S. tax code. Some of the most significant provisions of the Tax Act impacting us include a reduction of the U.S. federal corporate income tax rate from 35% to 21%, a one-time "deemed repatriation" tax on previously untaxed accumulated earnings and profits of certain subsidiaries in non-U.S. jurisdictions, and a transition of U.S. international taxation from a worldwide tax system to a territorial tax system.
GAAP accounting for income taxes requires us to record the impact of any tax law change in the quarter the law change is enacted. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 which provides additional guidance allowing companies to record provisional amounts during a measurement period, not to exceed one year from the enactment date of the Tax Act, to account for the impacts of the Tax Act in their financial statements when companies do not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for the effects of the changes in the Tax Act. We have accounted for the impacts of the Tax Act to the extent a reasonable estimate could be made during the quarter ended January 27, 2018. We will continue to refine our estimates throughout the measurement period or until the accounting is complete, and the impact of the Tax Act may differ from these estimates, possibly materially, due to, among other things, changes in estimates and assumptions that we have made.
As a result, we have recorded a provisional reduction to our net deferred tax asset (which represents future tax benefits) of $3,679 which resulted in a corresponding increase to income tax expense for the quarter ended January 27, 2018. The revaluation of our net deferred tax asset is subject to further adjustments during the measurement period due to the complexity of determining our net deferred tax asset as of the enactment date of the Tax Act. Some of the information necessary to determine the accounting impacts of the tax rate change includes finalization of our fiscal 2018 tax return as well as refining the analysis of which existing deferred balances at the enactment date will reverse in fiscal 2018 and which deferred balances will reverse after fiscal 2018.
Additionally, we have recorded a provisional increase to income tax expense of $601 for the one-time deemed repatriation tax. The estimate of the deemed repatriation tax is based, in part, on the amount of cash and other specified assets anticipated to be held by Daktronics’ foreign subsidiaries as of April 28, 2018. As a result, the final amount may change as the amounts are finalized. We plan to pay the tax payable in installments in accordance with the Tax Act.
Note 13.15. Fair Value Measurement
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three levels of inputs which may be utilized when measuring fair value.
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).
Level 3 - Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.
The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at January 27, 2018November 2, 2019 and April 29, 201727, 2019 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.
| | | Fair Value Measurements | Fair Value Measurements |
| Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
Balance as of January 27, 2018 | | | | | | | | |
Balance as of November 2, 2019 | | | | | | | | |
Cash and cash equivalents | $ | 49,042 |
| | $ | — |
| | $ | — |
| | $ | 49,042 |
| $ | 29,265 |
| | $ | — |
| | $ | — |
| | $ | 29,265 |
|
Restricted cash | 28 |
| | — |
| | — |
| | 28 |
| 59 |
| | — |
| | — |
| | 59 |
|
Available-for-sale securities: | |
| | |
| | | | | |
| | |
| | | | |
Certificates of deposit | — |
| | 8,918 |
| | — |
| | 8,918 |
| — |
| | 2,717 |
| | — |
| | 2,717 |
|
U.S. Government sponsored entities | — |
| | 9,031 |
| | — |
| | 9,031 |
| — |
| | 745 |
| | — |
| | 745 |
|
Municipal bonds | — |
| | 5,988 |
| | — |
| | 5,988 |
| — |
| | 156 |
| | — |
| | 156 |
|
Derivatives - asset position | — |
| | 64 |
| | — |
| | 64 |
| — |
| | 70 |
| | — |
| | 70 |
|
Derivatives - liability position | — |
| | (720 | ) | | — |
| | (720 | ) | — |
| | (233 | ) | | — |
| | (233 | ) |
Contingent liability | — |
| | — |
| | (1,034 | ) | | (1,034 | ) | |
Acquisition-related contingency consideration | | — |
| | — |
| | (895 | ) | | (895 | ) |
| $ | 49,070 |
| | $ | 23,281 |
| | $ | (1,034 | ) | | $ | 71,317 |
| $ | 29,324 |
| | $ | 3,455 |
| | $ | (895 | ) | | $ | 31,884 |
|
Balance as of April 29, 2017 | |
| | |
| | | | |
| |
Balance as of April 27, 2019 | | |
| | |
| | | | |
|
Cash and cash equivalents | $ | 32,623 |
| | $ | — |
| | $ | — |
| | $ | 32,623 |
| $ | 35,383 |
| | $ | — |
| | $ | — |
| | $ | 35,383 |
|
Restricted cash | 216 |
| | — |
| | — |
| | 216 |
| 359 |
| | — |
| | — |
| | 359 |
|
Available-for-sale securities: | |
| | |
| | | | | |
| | |
| | | | |
Certificates of deposit | — |
| | 12,487 |
| | — |
| | 12,487 |
| — |
| | 3,464 |
| | — |
| | 3,464 |
|
U.S. Government securities | 400 |
| | — |
| | — |
| | 400 |
| 10,774 |
| | — |
| | — |
| | 10,774 |
|
U.S. Government sponsored entities | — |
| | 12,238 |
| | — |
| | 12,238 |
| — |
| | 10,482 |
| | — |
| | 10,482 |
|
Municipal bonds | — |
| | 7,588 |
| | — |
| | 7,588 |
| — |
| | 1,624 |
| | — |
| | 1,624 |
|
Derivatives - asset position | — |
| | 64 |
| | — |
| | 64 |
| — |
| | 91 |
| | — |
| | 91 |
|
Derivatives - liability position | — |
| | (277 | ) | | — |
| | (277 | ) | — |
| | (4 | ) | | — |
| | (4 | ) |
Contingent liability | — |
| | — |
| | (1,891 | ) | | (1,891 | ) | |
Acquisition-related contingency consideration | | — |
| | — |
| | (3,065 | ) | | (3,065 | ) |
| $ | 33,239 |
| | $ | 32,100 |
| | $ | (1,891 | ) | | $ | 63,448 |
| $ | 46,516 |
| | $ | 15,657 |
| | $ | (3,065 | ) | | $ | 59,108 |
|
A roll forward of the Level 3 contingent liability,liabilities, both short- and long-term, for the ninesix months ended January 27, 2018November 2, 2019 is as follows:
| | Contingent liability as of April 29, 2017 | | $ | 1,891 |
| |
Acquisition-related contingency consideration as of April 27, 2019 | | | $ | 3,065 |
|
Additions | | | 50 |
|
Settlements | | (1,009 | ) | | (2,291 | ) |
Interest | | 30 |
| | 34 |
|
Foreign currency translation | | 122 |
| | 37 |
|
Contingent liability as of January 27, 2018 | | $ | 1,034 |
| |
Acquisition-related contingency consideration as of November 2, 2019 | | | $ | 895 |
|
The following methods and assumptions were used to estimate the fair value of each class of financial instrument. There have been no changes in the valuation techniques used by us to value our financial instruments.
Cashinstruments since the end of fiscal 2019. For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 27, 2019 for the methods and cash equivalents: Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value.
Restricted cash: Consists of cash and cash equivalents held in bank deposit accountsassumptions used to secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value.
Certificates of deposit: Consists of time deposit accounts with original maturities of less than three years and various yields. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments from a third-party financial institution. The carrying amount approximates fair value.
U.S. Government securities:Consists of U.S. Government treasury bills, notes, and bonds with original maturities of less than three years and various yields. The fair value of these securities was measured using quoted market prices in active markets.
U.S. Government sponsored entities: Consists of Fannie Mae and Federal Home Loan Bank investment grade debt securities trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments. The contractual maturities of these investments vary from one month to three years.
Municipal bonds: Consist of investment grade municipal bonds trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The contractual maturities of these investments vary from two to three years. The fair value of these bonds was measured based on valuations observed in less active markets than Level 1 investments.
Derivatives – currency forward contracts: Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 14. Derivative Financial Instruments" for more information regarding our derivatives.
Contingent liability: Consists ofestimate the fair value of a liability measured on expected future payments relating to a business acquisition if futureeach class of financial performance measures are achieved. The contingent liability was calculated by estimating the discounted present value of expected future payments for estimated performance measure attainment. To estimate future performance measure attainment, we utilized significant unobservable inputs as of January 27, 2018 and April 29, 2017. The unobservable inputs included management expectations and forecasts for business performance and an estimated discount rate based on current borrowing interest rates. To the extent that these assumptions changed or actual results differed from these estimates, the fair value of the contingent consideration liability could change. The contingent liability is presented in other long-term obligations in our consolidated balance sheets.
Non-recurring measurements: The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Certain long-lived assets such as goodwill, intangible assets and property and equipment are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
Other measurements using fair value: Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, costs and earnings in excess of billings and billings in excess of costs, accounts payable, warranty obligations, customer deposits, deferred revenue, and other long-term obligations, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.instrument.
Note 14.16. Derivative Financial Instruments
We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives onin the condensed consolidated balance sheetsheets within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of January 27, 2018November 2, 2019 and April 29, 2017,27, 2019, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in otherthe "Other income (expense), net.net" line item in the condensed consolidated statements of operations.
The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at January 27, 2018November 2, 2019 and April 29, 201727, 2019 were as follows:
| | | January 27, 2018 | | April 29, 2017 | November 2, 2019 | | April 27, 2019 |
| U.S. Dollars | | Foreign Currency | | U.S. Dollars | | Foreign Currency | U.S. Dollars | | Foreign Currency | | U.S. Dollars | | Foreign Currency |
Foreign Currency Exchange Forward Contracts: | | | | | | | | | | | | | | |
U.S. Dollars/Australian Dollars | 2,615 |
| | 3,408 |
| | 7,984 |
| | 10,669 |
| 1,611 |
| | 2,322 |
| | 2,688 |
| | 3,772 |
|
U.S. Dollars/Canadian Dollars | 1,424 |
| | 1,864 |
| | 256 |
| | 345 |
| 750 |
| | 998 |
| | 625 |
| | 821 |
|
U.S. Dollars/British Pounds | 6,402 |
| | 4,778 |
| | 4,936 |
| | 3,959 |
| 5,874 |
| | 4,585 |
| | 3,547 |
| | 2,680 |
|
U.S. Dollars/Singapore Dollars | 237 |
| | 312 |
| | 605 |
| | 844 |
| |
U.S. Dollars/Euros | (1,277 | ) | | (1,061 | ) | | 528 |
| | 491 |
| 3,755 |
| | 3,377 |
| | — |
| | — |
|
U.S. Dollars/Swiss Franc | 998 |
| | 989 |
| | — |
| | — |
| — |
| | — |
| | 927 |
| | 925 |
|
U.S. Dollars/Malaysian Ringgit | | — |
| | — |
| | 60 |
| | 246 |
|
As of January 27, 2018,November 2, 2019, there was an asset and liability of $64$70 and $720233, respectively,respectively; and as of April 29, 2017,27, 2019, there was an asset and liability of $64$91 and $2774, respectively, representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank. As of November 2, 2019, all contracts mature within 16 months.
Note 15.17. Subsequent Events
On March 1, 2018, our Board of Directors declared a regular quarterly dividend of $0.07 per share on our common stock payable on March 22, 2018November 15, 2019, we entered into an amendment to holders of recordextend the maturity date of our common stock on March 12, 2018.credit agreement and a related revolving bank note from November 15, 2019 to November 15, 2022 and to modify certain other terms and financial covenants.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (including exhibits and any information incorporated by reference herein) contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions and strategies for the future. These statements appear in a number of places in this Report and include all statements that are not historical statements of fact regarding the intent, belief or current expectations with respect to, among other things: (i.) our competition; (ii.) our financing plans; (iii.) trends affecting our financial condition or results of operations; (iv.) our growth strategy and operating strategy;strategies; (v.) the declaration and payment of dividends; (vi.) the timing and magnitude of future contracts; (vii.) raw material shortages and lead times; (viii.) fluctuations in margins; (ix.) the seasonality of our business; (x.) the introduction of new products and technology; (xi.) the amount and frequency of warranty claims; (xii.) our ability to manage the impact that new or adjusted tariffs may have on the cost of raw materials and (xii.components and our ability to sell product internationally; (xiii.) the resolution of litigation contingencies; and (xiv.) the timing and magnitude of any acquisitions or dispositions. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plans”“plan” and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein, including those discussed in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended April 29, 201727, 2019 in the section entitled “Item“Part I, Item 1A. Risk Factors” and "Item“Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,"” and those factors discussed in detail in our other filings with the Securities and Exchange Commission.
The following discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements included in this Report. The preparation of these condensed financial statements requires us to make estimates and judgments affecting the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate our estimates, including those related to total costs on long-term construction-type contracts, costs to be incurred for product warranties and extended maintenance contracts, bad debts, excess and obsolete inventory, income taxes, share-based compensation, goodwill impairment and contingencies. Our estimates are based on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.
OVERVIEW
We design, manufacture and sell a wide range of display systems to customers throughout the world. We focus our sales and marketing efforts on markets, geographical regions and products. Our five business segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and Canada. Disclosures related to our business segments are provided in "Note 4.5. Segment Disclosure"Reporting" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.
Our net sales and profitability historically have fluctuated due to the impact of large projectuniquely configured orders, such as display systems for professional sports facilities, colleges and universities, and spectacular projects in the commercial area, as well as the seasonality of the sports market. Large projectUniquely configured orders can include several displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules per the customer's needs. NetOutdoor installation sales can be impacted by outdoor weather conditions and gross profit percentages also have fluctuatedthe construction season. Our third fiscal quarter tends to be a slower quarter because it includes two holidays, it is affected by sports seasonality, and generally less outdoor construction work occurs due to other seasonal factors, including the impact of holidays, which primarily affects our third fiscal quarter.weather conditions.
Our gross margins on large custom and large standard orders tend to fluctuate more on uniquely configured orders than on small standardlimited configured orders. Large productUniquely configured orders involving competitive bidding and substantial subcontract work for product installation generally have lower gross margins. Although we follow the percentage of completionover time method of recognizing revenues for large customuniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.
Our backlog consistsremaining performance obligations ("backlog") consist of contractually binding sales agreements or purchase orders for integrated electronic display systems and related products and service. Orders are included in backlog when we expect to fill within the next 24 months. Orders, which we define as aare in receipt of an executed contract and any required deposits are booked and included in backlog.or security. As a result, certain orders for which we have received binding letters of intent or contracts will not be bookedincluded in backlog until all required contractual documents and deposits are received. In addition,Backlog can fluctuate due to large order bookings can vary significantly on a quarterly basis as a result ofand the timing and seasonality of large orders.net sales. Because order backlog fluctuates and may be subject to extended delivery schedules, orders may be canceled and orders have varied estimated
profitability, our profitability. Our backlog is not necessarily indicative of future net sales or net income. Backlog can fluctuate due to large order booking timing and seasonality. Backlog is not a measure defined by GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts.
For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation and Summary of Critical Accounting Policies" of the Notes to the Consolidated Financial Statements included elsewhere in this Report.
GENERAL
Our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We measure our success through estimated market share basedorganize into business units to focus on estimated market demand for digital displayscustomer loyalty over time to earn new and generating profits over the long-term. Our success is contingent on the depth and quality of our products, including related control systems, the depth of our service offerings and our technology serving these market demands. These qualities are important for our long-term successreplacement business because our products have a finite lifetimes,lifetime. See "Note 5. Segment Reporting" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report for further information. Our strategies include the creation of a comprehensive line of innovative solutions and we strivesystems and our ability to win replacement business from existing customers.create and leverage platform designs and technologies. These strategies align us to effectively deliver value to our varied customers and their market needs, while serving our stakeholders over the long-term. We focus on creating local capabilities for sales, service, and manufacturing in geographies with expected digital market opportunities. We believe consistently generating profitable growth will provide value to our stakeholders (customers, employees, shareholders, suppliers, and communities).
Increases in user adoption, the acceptance ofWe measure our success using a variety of measures including:
our percentage of market share by comparing our estimated revenue to the total estimated global digital solutions,display revenue,
our order growth compared to the overall digital market order change,
financial metrics such as annual order volume and profit change as compared to our previous financial results,
customer retention and expansion rates, and
our ability to generate profits over the long-term to provide a shareholder return.
Certain factors impact our ability to succeed in these strategies and impact our business units to varying degrees. For example, the overall cost to manufacture and the selling prices of our products have decreased over the years and are expected to continue to decrease in the future. Our competitors outside the U.S. are impacted differently by the global trade environment allowing them to avoid tariff costs or reduce prices. As a result, additional competitors have entered the market, and each year we must sell more product to generate the same or greater level of net sales as in previous fiscal years. However, the decline of digital solution pricing over the years hasand increased user adoption and applications have increased the size of the global market. With this positive demand, strong competition exists across all of our business units, which causes margin constraints.
Competitor offerings, actions and reactions also can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attracts competition, and competitors can use marketing or other tactics to win business.
Each of our business unit's long-term performance can be impacted by economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business can also attract competition, which generally reduces profitability.be seriously impacted.
We organize around customer segmentscan be impacted by short-term events like the U.S. Administrative trade actions in 2018 or a number of other factors that are disclosed in "Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019.
The outlook and geographic regions as further described in "Note 4. Segment Disclosure" of the Notes to the Consolidated Financial Statements included elsewhere in this Report. Each business segment also has unique key growth drivers and challenges.challenges by our business units include:
Commercial Business Unit: Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including:
Standard display product market growth due to market adoption and lower product costs, which drive marketplace expansion. Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit. We utilize a reseller network to distribute our standard products.
National accounts standard display market opportunities due to customers' desire to communicate their message, advertising and content consistently across the country. Increased demand is possible from national retailers, quick serve restaurants, petroleum businesses,retailers, and other nationwide organizations.
Additional standard display offerings using micro-light emitting diode ("LED") designs.
Increasing use of LED technologies replacing signage previously using liquid crystal display ("LCD") technology by existing and new customers.
Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and Times Square type locations.
Dynamic messaging systems demand growth due to market adoption and marketplace expansion.expanded use of this technology.
The use of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building.
The continued deployment of digital billboards as Out-of-Home ("OOH") advertising companies continue developing new sites and replacing digital billboards which are reaching end of life. This is dependent on there being no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, of billboards, as well as maintaining our current market share of thein a business that is concentrated in a few large OOH companies.
Replacement cycles within each of these areas.
Live Events Business Unit: Over the long-term, we believe growth in the Live Events business unit will result from a number of factors, including:
Facilities spending more on larger display systems to enhance the game-day and event experience for attendees.
Lower product costs, driving an expansion of the marketplace.
Our product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry.
The competitive nature of sports teams, which strive to out-perform their competitors with display systems.
The desire for high-definition video displays, which typically drives larger displays or higher resolution displays, both of which increase the average transaction size.
Dynamic messaging systemssystem needs throughout a sports facility.
Increasing use of LED technologies replacing signage previously using LCD technology in and surrounding live events facilities.
Replacement cycles within each of these areas.
High School Park and Recreation Business Unit: Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including:
Increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays versuscompared to traditional scoreboards.scoreboards and these systems' ability to provide or enhance academic curriculum offerings for students.
Increased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community.
TheLower system costs driving the use of more sophisticated displays in school athletic facilities, such as large integrated video systems.
Expanding control system options tailored for the markets' needs.
Transportation Business Unit: Over the long-term, we believe growth in the Transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications. Effective use of the United States transportation infrastructure requires intelligent transportation systems. This growth is highly dependent on government spending, primarily by state and federal governments, along with the continuing acceptance of private/public partnerships as an alternative funding source. Growth is also expected in dynamic messaging systems for advertising and way-finding use in public transport and airport terminals due to expanded market usage and displays, with LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.
International Business Unit: Over the long-term, we believe growth in the International business unit will result from achieving greater penetration in various geographies and building products more suited to individual markets. We continue to broaden our product offerings into the transportation segment in Europe and the Middle East. We also focus on sports facility, spectacular-type, OOH advertising products, and third-party advertisingarchitectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada.
Each Additional opportunities exist with expanded market usage of our business units is impacted by adverse economic conditions in different waysLED technology due to price considerations, usage of LED technology replacing prior LCD installations and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business also can be seriously impacted. Our Commercial and International business units are highly dependent on economic conditions in general.additional display offerings using micro-LEDs.
RESULTS OF OPERATIONS
Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. The fiscal year ended April 27, 2019 consisted of 52 weeks. Fiscal 2020 will be a 53-week year; therefore, the six months ended November 2, 2019 contains operating results for 27 weeks while the six months ended October 27, 2018 contains operating results for 26 weeks.
COMPARISON OF THE THREE MONTHS ENDED JANUARYNOVEMBER 2, 2019 AND OCTOBER 27, 2018 AND JANUARY 28, 2017
Net Sales
| | | Three Months Ended | Three Months Ended |
(in thousands) | January 27, 2018 | | January 28, 2017 | | Dollar Change | | Percent Change | November 2, 2019 | | October 27, 2018 | | Dollar Change | | Percent Change |
Net sales: | | | | | | | | | | | | | | |
Commercial | $ | 35,483 |
| | $ | 36,165 |
| | $ | (682 | ) | | (1.9 | )% | $ | 39,651 |
| | $ | 46,069 |
| | $ | (6,418 | ) | | (13.9 | )% |
Live Events | 45,167 |
| | 41,036 |
| | 4,131 |
| | 10.1 |
| 59,319 |
| | 55,099 |
| | 4,220 |
| | 7.7 |
|
High School Park and Recreation | 11,463 |
| | 12,653 |
| | (1,190 | ) | | (9.4 | ) | 30,193 |
| | 31,580 |
| | (1,387 | ) | | (4.4 | ) |
Transportation | 11,189 |
| | 9,130 |
| | 2,059 |
| | 22.6 |
| 20,330 |
| | 18,077 |
| | 2,253 |
| | 12.5 |
|
International | 27,014 |
| | 16,735 |
| | 10,279 |
| | 61.4 |
| 25,418 |
| | 21,867 |
| | 3,551 |
| | 16.2 |
|
| $ | 130,316 |
| | $ | 115,719 |
| | $ | 14,597 |
| | 12.6 | % | $ | 174,911 |
| | $ | 172,692 |
| | $ | 2,219 |
| | 1.3 | % |
Orders: | |
| | |
| | | | |
| |
| | |
| | | | |
|
Commercial | $ | 28,745 |
| | $ | 32,595 |
| | $ | (3,850 | ) | | (11.8 | )% | $ | 43,513 |
| | $ | 46,731 |
| | $ | (3,218 | ) | | (6.9 | )% |
Live Events | 39,911 |
| | 51,590 |
| | (11,679 | ) | | (22.6 | ) | 41,008 |
| | 43,641 |
| | (2,633 | ) | | (6.0 | ) |
High School Park and Recreation | 13,451 |
| | 14,178 |
| | (727 | ) | | (5.1 | ) | 22,853 |
| | 18,445 |
| | 4,408 |
| | 23.9 |
|
Transportation | 14,641 |
| | 19,621 |
| | (4,980 | ) | | (25.4 | ) | 16,992 |
| | 21,279 |
| | (4,287 | ) | | (20.1 | ) |
International | 29,405 |
| | 25,329 |
| | 4,076 |
| | 16.1 |
| 26,756 |
| | 21,260 |
| | 5,496 |
| | 25.9 |
|
| $ | 126,153 |
| | $ | 143,313 |
| | $ | (17,160 | ) | | (12.0 | )% | $ | 151,122 |
| | $ | 151,356 |
| | $ | (234 | ) | | (0.2 | )% |
Commercial: The decrease in net sales for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to lower order volumes in the on-premise niche and the timing of delivery of large custom projects in the spectacular niche which were partially offset by an increaseand lighter demand in the billboardon-premise niche, shipment activity duewhile the OOH niche remained relatively flat compared to changes of timing of customer demand as compared tothe same period last year.
The decrease in orders for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to the net result of decreases in the billboard niche and decreasessofter market in the on-premise niche due to a number of factors, including competitive market pricing, a delay of national account-based opportunities, and OOH niches, partially offset by an increase in large orders in the natural volatility of large project timing.
Live Events: The increase in net sales for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to continued demand and the timing of customer needs. This year, net sales were impacted by projectsthe demand for upgraded or new solutions for arenas and professional baseball facilities renovation and construction project timeliness.sports stadiums.
Orders decreased for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago due to variabilitya decrease in order timing.the number of projects for college and universities venues.
High School Park and Recreation: The decrease in net sales for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to the variability in timing of customer demand.order delivery.
Orders decreasedincreased for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago due to fewer video project orders which have larger average selling pricesthe variability in this segment during the period.order timing.
Transportation: The increase in net sales for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to higher delivery needs from state transportation authorities during the quarter this year as compared to last year.variability of large order production timing caused by customer project schedules.
Orders decreased for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago decreased primarilywas due to the variability of timing caused by large order timing.projects.
International: Net sales for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago increased primarily due to increased market demand in OOH.the variability of timing caused by large spectacular and sports stadium projects.
Orders increased for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago primarily due to general variations in the volatilitytiming of largeaccount-based order timing.placements.
Product Order Backlog
The product order backlog as of January 27, 2018November 2, 2019 was $151$182 million as compared to $170$150 million as of January 28, 2017October 27, 2018 and $155$207 million at the end of the secondfirst quarter of fiscal 2018.2020. Historically, our product order backlog varies due to the seasonality of our business, the timing of large projects, and customer delivery schedules for these orders. The product order backlog as of January 27, 2018 decreased from January 28, 2017November 2, 2019 increased in our Commercial, Live Events and Transportationall business units increased in our International business unit, and remained relatively flat in our High School Park and Recreation business unit.from October 27, 2018.
Gross Profit
| | | Three Months Ended | Three Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales |
(in thousands) |
Commercial | $ | 7,546 |
| | 21.3 | % | |
| | $ | 7,711 |
| | 21.3 | % | $ | 7,862 |
| | 19.8 | % | |
| | $ | 11,757 |
| | 25.5 | % |
Live Events | 9,747 |
| | 21.6 |
| |
| | 6,629 |
| | 16.2 |
| 11,934 |
| | 20.1 |
| |
| | 12,312 |
| | 22.3 |
|
High School Park and Recreation
| 2,768 |
| | 24.1 |
| |
| | 3,198 |
| | 25.3 |
| 9,224 |
| | 30.6 |
| |
| | 9,759 |
| | 30.9 |
|
Transportation | 3,570 |
| | 31.9 |
| |
| | 2,325 |
| | 25.5 |
| 7,003 |
| | 34.4 |
| |
| | 6,140 |
| | 34.0 |
|
International | 4,936 |
| | 18.3 |
| |
| | 3,453 |
| | 20.6 |
| 4,064 |
| | 16.0 |
| |
| | 2,789 |
| | 12.8 |
|
| $ | 28,567 |
| | 21.9 | % | |
| | $ | 23,316 |
| | 20.1 | % | $ | 40,087 |
| | 22.9 | % | |
| | $ | 42,757 |
| | 24.8 | % |
Gross profit is net sales less cost of goods sold.sales. Cost of goods soldsales consists primarily of inventory, logistics related costs including tariffs and duties, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.
The increasedecrease in our gross profit percentage for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to higheran increase in tariff related expenses of approximately $1.1 million, or a 0.6% impact to gross profit, as last year at this time tariffs were just being introduced on US imports of aluminum, steel, and components from China. We also experienced additional expenses of approximately $3.0 million for project delivery costs and for an existing litigation claim estimate. Total warranty as a percent of sales volumes over relatively fixed infrastructure costs.decreased to 2.2% for the three months ended November 2, 2019 as compared to 2.5% during the three months ended October 27, 2018. The following describes the overall impact by business unit:
Commercial: The gross profit percentunit for the three months ended January 27, 2018November 2, 2019 compared to the same period one year ago remained relatively flat.ago:
Live Events:The gross profit percent increase for the three months ended January 27, 2018 compared to the same period one year ago was due to an increased volume of sales over relatively fixed infrastructure costsdecreased in our Commercial, Live Events, and lower warranty expenses.
High School Park and Recreation: Recreation business units for the reasons described above. Additionally, the Commercial business unit experienced increased costs related to products covered under long-term service agreements. The gross profit percent decrease forincreased in the three months ended January 27, 2018 as compared to the same period one year ago was primarily due to lower sales volumes over relatively fixed infrastructure costs and a change in sales mix.
Transportation: The gross profit percent increase for the three months ended January 27, 2018 compared to the same period one year ago wasTransportation business unit primarily due to higher sales volumes over relatively fixed infrastructure costs.
International: costs, which was partially offset by an increase in warranty expense. The gross profit percent decrease forincreased in the three months ended January 27, 2018 comparedInternational business unit primarily due to the same period one year ago was primarily the result oflower warranty expense and higher warranty expenses and an unfavorable sales mix, which were offset by increased volume of salesvolumes over relatively fixed infrastructure costs.
Selling ExpenseContribution Margin
| | | Three Months Ended | Three Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
(in thousands) | | |
Commercial | $ | 4,415 |
| | 12.4 | % | | (3.5 | )% | | $ | 4,575 |
| | 12.7 | % | $ | 2,853 |
| | 7.2 | % | | (59.5 | )% | | $ | 7,050 |
| | 15.3 | % |
Live Events | 3,843 |
| | 8.5 |
| | 12.5 |
| | 3,417 |
| | 8.3 |
| 8,362 |
| | 14.1 |
| | (6.2 | ) | | 8,918 |
| | 16.2 |
|
High School Park and Recreation | 2,726 |
| | 23.8 |
| | 5.6 |
| | 2,581 |
| | 20.4 |
| 5,988 |
| | 19.8 |
| | (10.7 | ) | | 6,706 |
| | 21.2 |
|
Transportation | 945 |
| | 8.4 |
| | (0.7 | ) | | 952 |
| | 10.4 |
| 5,895 |
| | 29.0 |
| | 18.1 |
| | 4,991 |
| | 27.6 |
|
International | 3,342 |
| | 12.4 |
| | 6.0 |
| | 3,153 |
| | 18.8 |
| 812 |
| | 3.2 |
| | (178.6 | ) | | (1,033 | ) | | (4.7 | ) |
| $ | 15,271 |
| | 11.7 | % | | 4.0 | % | | $ | 14,678 |
| | 12.7 | % | $ | 23,910 |
| | 13.7 | % | | (10.2 | )% | | $ | 26,632 |
| | 15.4 | % |
Contribution margin consists of gross profit less selling expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-relatedfacility-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos,demonstrations, customer relationship management systems, and supplies.
Contribution margin is impacted by the previously discussed sales and gross margin for each business unit. The impact of changes in selling expenses on each business unit's contribution margin are as follows:
Selling expense in our Commercial and High School Park and Recreation business unit forunits increased in the thirdsecond quarter of fiscal 2018 decreased2020 compared to the same quarter a year ago due to decreases in personnel expenses.related expenses and increased marketing efforts. Selling expense in our Live EventsInternational business unit increaseddecreased in the thirdsecond quarter of fiscal 20182020 compared to the same quarter a year ago due to increases in conventions/advertising expenses and higher bad debt expenses.recovery and a decrease in third-party commissions. Selling expense in our High School ParkLive Events and RecreationTransportation business unit increased inunits for the thirdsecond quarter of fiscal 20182020 remained relatively flat compared to the same quarter a year ago due to travel and entertainment expenses and conventions/advertising expenses. Selling expense remained relatively flat in our Transportation business unit in the third quarter of fiscal 2018 compared to the same quarter a year ago. Selling expense in our International business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to increases in personnel expenses and third-party commissions expenses.
Other Operating Expenses
| | | Three Months Ended | Three Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
(in thousands) |
General and administrative | $ | 8,335 |
| | 6.4 | % | | (3.1 | )% | | $ | 8,599 |
| | 7.4 | % | $ | 8,965 |
| | 5.1 | % | | 4.6 | % | | $ | 8,574 |
| | 5.0 | % |
Product design and development | $ | 8,299 |
| | 6.4 | % | | 19.0 | % | | $ | 6,973 |
| | 6.0 | % | $ | 10,121 |
| | 5.8 | % | | 12.0 | % | | $ | 9,039 |
| | 5.2 | % |
General and administrative expenses consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the costscost of supplies.
General and administrative expenses in the thirdsecond quarter of fiscal 2018 decreased2020 increased as compared to the same period one year ago primarily due to decreasesan increase in professional fees and personnel related expenses.
Product design and development expenses consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product design and development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through allour design efforts, we focus on standardizing display components and control systems for both single site and network displays.
Our costs for product design and development represent an allocated amount of costs based on time charges, professional services, materialsmaterial costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product design and development, while the rest is allocated to large contract work and is included in cost of goods sold.sales.
Product design and development expenses in the thirdsecond quarter of fiscal 20182020 increased as compared to the same period one year ago primarily due to increased labor costs and professional services assigned to product design and development projects relating to our strategy to accelerate the deployment of products and solutions to our markets.projects. To deliver value to our customers and servemeet the markets' expectations,needs, we plan toexpect an increase the level ofin expenditures for new or enhanced customer solutions forand to develop leading production technologies in the remainder of fiscal 2018 as compared to prior years.evolving micro-LED space.
Other Income and Expenses
| | | Three Months Ended | Three Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
(in thousands) |
Interest income, net | $ | 118 |
| | 0.1 | % | | (7.1 | )% | | $ | 127 |
| | 0.1 | % | $ | 131 |
| | 0.1 | % | | (29.6 | )% | | $ | 186 |
| | 0.1 | % |
Other (expense) income, net | $ | (487 | ) | | (0.4 | )% | | 59.7 | % | | $ | (305 | ) | | (0.3 | )% | |
Other income (expense), net | | $ | (514 | ) | | (0.3 | )% | | 678.8 | % | | $ | (66 | ) | | — | % |
Interest income, (expense), net: We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term marketing obligations.
InterestThe change in interest income, net infor the thirdsecond quarter of fiscal 20182020 compared to the same period one year ago remained relatively flat. As a result ofwas primarily due to the change in investment levels caused by the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.needs.
Other income (expense) income,, net: The change in other income and expense, net for the thirdsecond quarter of fiscal 20182020 as compared to the same period one year ago was primarily due to foreign currency volatility and the losses recorded from an equity method affiliate.volatility.
Income Taxes
The current-year rate was significantly impactedWe calculate the provision for income taxes during interim reporting periods by applying an estimate of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal incomeannual effective tax rate for corporations from 35% to 21%. Because we file our tax return based on ourthe full fiscal year the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense“ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiariesreporting period. Due to various factors, including operations in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"). Excluding the impact of this one-time expense,multiple jurisdictions worldwide, our effective tax rate was 46.9% for the three months ended January 27, 2018. is subject to fluctuation.
We expect our effective tax rate to be approximately 30% for the remainder of our fiscal year. In fiscal 2019, we expecthave recorded an effective tax rate benefit of approximately 21%, exclusive63.8 percent for the second quarter of any SAB 118 changesfiscal 2020 as compared to an effective tax rate expense of 5.8 percent for the second quarter of fiscal 2019. The change in estimate.the effective tax rate, as compared to the same period one year ago, is primarily driven by differences in estimated tax credits proportionate to estimated pre-tax book income for the period.
COMPARISON OF THE NINESIX MONTHS ENDED JANUARYNOVEMBER 2, 2019 AND OCTOBER 27, 2018 AND JANUARY 28, 2017
Net Sales
|
| | | | | | | | | | | | | | |
| Six Months Ended |
(in thousands) | November 2, 2019 | | October 27, 2018 | | Dollar Change | | Percent Change |
Net sales: | | | | | | | |
Commercial | $ | 83,686 |
| | $ | 76,638 |
| | $ | 7,048 |
| | 9.2 | % |
Live Events | 118,625 |
| | 104,571 |
| | 14,054 |
| | 13.4 |
|
High School Park and Recreation | 60,658 |
| | 59,700 |
| | 958 |
| | 1.6 |
|
Transportation | 39,348 |
| | 35,234 |
| | 4,114 |
| | 11.7 |
|
International | 52,850 |
| | 50,737 |
| | 2,113 |
| | 4.2 |
|
| $ | 355,167 |
| | $ | 326,880 |
| | $ | 28,287 |
| | 8.7 | % |
Orders: | | | | | | | |
|
Commercial | $ | 82,161 |
| | $ | 82,523 |
| | $ | (362 | ) | | (0.4 | )% |
Live Events | 107,977 |
| | 83,036 |
| | 24,941 |
| | 30.0 |
|
High School Park and Recreation | 53,405 |
| | 56,894 |
| | (3,489 | ) | | (6.1 | ) |
Transportation | 39,207 |
| | 43,195 |
| | (3,988 | ) | | (9.2 | ) |
International | 55,835 |
| | 45,318 |
| | 10,517 |
| | 23.2 |
|
| $ | 338,585 |
| | $ | 310,966 |
| | $ | 27,619 |
| | 8.9 | % |
Sales and orders in all business units were impacted as a result of the six months ended November 2, 2019 including 27 weeks compared to the more common 26 weeks. The six months ended October 27, 2018 contained 26 weeks.
For net sales, during the first six months ended November 2, 2019, we achieved a $13.2 million per week average run rate as compared to $12.6 million per week during the first six months ended October 27, 2018, or an approximate 4.6% increase. This change was driven by the order volume reasons described below and the timing of conversion related to the seasonality in our business.
|
| | | | | | | | | | | | | | |
| Nine Months Ended |
(in thousands) | January 27, 2018 | | January 28, 2017 | | Dollar Change | | Percent Change |
Net sales: | | | | | | | |
Commercial | $ | 102,723 |
| | $ | 112,342 |
| | $ | (9,619 | ) | | (8.6 | )% |
Live Events | 191,432 |
| | 157,032 |
| | 34,400 |
| | 21.9 |
|
High School Park and Recreation | 69,602 |
| | 68,977 |
| | 625 |
| | 0.9 |
|
Transportation | 46,577 |
| | 39,517 |
| | 7,060 |
| | 17.9 |
|
International | 62,019 |
| | 64,989 |
| | (2,970 | ) | | (4.6 | ) |
| $ | 472,353 |
| | $ | 442,857 |
| | $ | 29,496 |
| | 6.7 | % |
Orders: | | | | | | | |
|
Commercial | $ | 97,816 |
| | $ | 114,326 |
| | $ | (16,510 | ) | | (14.4 | )% |
Live Events | 145,246 |
| | 135,520 |
| | 9,726 |
| | 7.2 |
|
High School Park and Recreation | 60,368 |
| | 61,055 |
| | (687 | ) | | (1.1 | ) |
Transportation | 38,155 |
| | 46,290 |
| | (8,135 | ) | | (17.6 | ) |
International | 79,909 |
| | 78,164 |
| | 1,745 |
| | 2.2 |
|
| $ | 421,494 |
| | $ | 435,355 |
| | $ | (13,861 | ) | | (3.2 | )% |
For orders, during the first six months ended November 2, 2019, we achieved a $12.5 million per week average run rate as compared to $12.0 million per week during the first six months ended October 27, 2018, or an approximate 4.8% increase. We had an increase in orders placed during the first six months ended November 2, 2019 related to new releases of our product offerings.
Commercial: Net sales for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago decreasedincreased as a result of lower order volumes in the on-premise niche and the timing of delivery of large projects in the spectacular and OOH niches, while the on-premise niche partially offset by an increase inremained relatively flat compared to the billboard niche.same period last year.
The decrease in ordersOrders for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago was the net result of decreases in the on-premise and spectacular niches due to a number of factors including competitive market pricing, a delay of national account-based opportunities during the nine months ended January 27, 2018 asremained relatively flat compared to the same period last year, and the natural volatility of large project timing.year.
Live Events: The increase in net sales for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to continued demand and the timing of the demand for upgraded or new solutions for arenas and professional sports and colleges and universities.stadiums.
Orders increased for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago due to an increasedincrease in the number of projects infor professional sport arenas.sports and arena venues.
High School Park and Recreation: NetThe increase in net sales for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago remained relatively flat.was primarily due to the timing of converting orders and backlog into sales.
Orders decreased for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago due to fewerthe variability in order timing and a decrease in large sports video projects awarded during the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017.same period last year.
Transportation: The increase in net sales for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago was related to the variability caused by large order production timing.timing and continued demand for intelligent transportation systems.
Orders decreased for the ninesix months ended January 27, 2018 compared to the same period one year ago primarily due to variability caused by large order timing.
International: Net sales decreased in our International business unit for the nine months ended January 27, 2018 compared to the same period one year ago mainly due to timing of revenue recognition.
Orders increased for the nine months ended January 27, 2018November 2, 2019 compared to the same period one year ago primarily due to the volatilityvariability of timing caused by large projects.
International: Net sales increased in our International business unit for the six months ended November 2, 2019 compared to the same period one year ago mainly due to the variability of timing caused by large spectacular and sports stadium projects.
Orders increased for the six months ended November 2, 2019 compared to the same period one year ago primarily due to general variations in the timing of large contracts in professional sports stadium and account-based order timing.placements.
Gross Profit
| | | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales |
(in thousands) |
Commercial | $ | 21,085 |
| | 20.5 | % | | $ | 27,418 |
| | 24.4 | % | $ | 17,080 |
| | 20.4 | % | | $ | 18,651 |
| | 24.3 | % |
Live Events | 43,056 |
| | 22.5 |
| | 30,430 |
| | 19.4 |
| 24,671 |
| | 20.8 |
| | 22,545 |
| | 21.6 |
|
High School Park and Recreation
| 23,672 |
| | 34.0 |
| | 21,900 |
| | 31.7 |
| 19,411 |
| | 32.0 |
| | 19,261 |
| | 32.3 |
|
Transportation | 16,696 |
| | 35.8 |
| | 12,966 |
| | 32.8 |
| 13,757 |
| | 35.0 |
| | 11,591 |
| | 32.9 |
|
International | 11,308 |
| | 18.2 |
| | 13,977 |
| | 21.5 |
| 10,673 |
| | 20.2 |
| | 8,956 |
| | 17.7 |
|
| $ | 115,817 |
| | 24.5 | % | | $ | 106,691 |
| | 24.1 | % | $ | 85,592 |
| | 24.1 | % | | $ | 81,004 |
| | 24.8 | % |
Gross profit is net sales less cost of goods sold.sales. Cost of goods soldsales consists primarily of inventory, logistics related costs including tariffs and duties, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.
The increasedecrease in our gross profit percentage for the ninesix months ended January 27, 2018 compared to the same period one year ago was the net result of the changes described below:
Commercial: The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of higher warranty expenses and lower sales volumes over relatively fixed infrastructure costs.
Live Events: The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was the result of an increased volume of sales over relatively fixed infrastructure costs, improved performance on large projects as compared to original estimates.
High School Park and Recreation: The gross profit percent increase for the nine months ended January 27, 2018 as compared to the same period one year ago primarily was due to a favorable sales mix and improved productivity.
Transportation: The gross profit percent increase for the nine months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to an increased volumeincrease in tariff related expenses of approximately $2.6 million, or a 0.7% impact to gross profit, as last year at this time tariffs were just being introduced on US imports of aluminum, steel, and components from China. We also experienced additional expenses of approximately $3.0 million for project delivery costs and for an existing litigation claim estimate. Total warranty as a percent of sales over relatively fixed infrastructure costs.decreased to 2.2% for the three months ended November 2, 2019 as compared to 2.5% during the six months ended October 27,
International: 2018. The gross profit percent decreasefollowing describes the overall impact by business unit for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year agoago:
The gross profit percent decreased in our Commercial, Live Events, and High School Park and Recreation business units for the reasons described above, which was primarily the result of lowerpartially offset by higher sales volumes over a relatively fixed cost structureinfrastructure costs. The gross profit percent increased in the Transportation and International business units primarily due to higher warranty expenses, which were offset by the $1.2 million gain from the sale of our non-digital assets.sales volumes over relatively fixed infrastructure costs.
Selling ExpenseContribution Margin
| | | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
(in thousands) | | |
Commercial | $ | 13,778 |
| | 13.4 | % | | (1.2 | )% | | $ | 13,949 |
| | 12.4 | % | $ | 6,937 |
| | 8.3 | % | | (27.2 | )% | | $ | 9,524 |
| | 12.4 | % |
Live Events | 10,562 |
| | 5.5 |
| | 9.0 |
| | 9,686 |
| | 6.2 |
| 17,234 |
| | 14.5 |
| | 8.4 |
| | 15,903 |
| | 15.2 |
|
High School Park and Recreation | 8,073 |
| | 11.6 |
| | 7.2 |
| | 7,532 |
| | 10.9 |
| 12,580 |
| | 20.7 |
| | (5.1 | ) | | 13,258 |
| | 22.2 |
|
Transportation | 3,084 |
| | 6.6 |
| | (10.9 | ) | | 3,461 |
| | 8.8 |
| 11,347 |
| | 28.8 |
| | 22.2 |
| | 9,286 |
| | 26.4 |
|
International | 10,063 |
| | 16.2 |
| | (10.2 | ) | | 11,200 |
| | 17.2 |
| 3,020 |
| | 5.7 |
| | 469.8 |
| | 530 |
| | 1.0 |
|
| $ | 45,560 |
| | 9.6 | % | | (0.6 | )% | | $ | 45,828 |
| | 10.3 | % | $ | 51,118 |
| | 14.4 | % | | 5.4 | % | | $ | 48,501 |
| | 14.8 | % |
Contribution margin consists of gross profit less selling expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-relatedfacility-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos,demonstrations, customer relationship management systems, and supplies.
changes in selling expenses on each business unit's contribution margin are as follows:
All areas of selling expenses were impacted as a result of the six months ended November 2, 2019 including 27 weeks compared to the more common 26 weeks. The six months ended October 27, 2018 contained 26 weeks. Selling expense in our Commercial, Live Events, and High School Park and Recreation business units increased in the six months ended November 2, 2019 compared to the same period a year ago primarily due to personnel related expenses and increased marketing efforts. Selling expenses in our International business unit decreased in the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago primarily due to bad debt recovery and a decrease in third-party commission expenses.commissions. Selling expenseexpenses in our Live EventsTransportation business unit increasedremained relatively flat in the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago primarily due to increased conventions/advertising expenses, bad debt expenses, and travel and entertainment expenses. Selling expense in our High School Park and Recreation business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago due to increases in personnel expenses. Selling expense in our Transportation business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to lower bad debt expense. Selling expense in our International business unit declined in the nine months ended January 27, 2018 compared to the same period one year ago due to lower bad debt expenses, lower third-party commissions expenses and a $0.2 million intangible asset impairment that had been incurred in the first nine months of fiscal 2017 that was not incurred in the first nine months of fiscal 2018.ago.
Other Operating Expenses
| | | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
(in thousands) |
General and administrative | $ | 26,138 |
| | 5.5 | % | | 0.5 | % | | $ | 26,007 |
| | 5.9 | % | $ | 18,058 |
| | 5.1 | % | | 5.5 | % | | $ | 17,111 |
| | 5.2 | % |
Product design and development | $ | 26,294 |
| | 5.6 | % | | 24.4 | % | | $ | 21,142 |
| | 4.8 | % | $ | 20,621 |
| | 5.8 | % | | 12.5 | % | | $ | 18,331 |
| | 5.6 | % |
All areas of operating expenses were impacted as a result of the six months ended November 2, 2019 including 27 weeks compared to the more common 26 weeks. The six months ended October 27, 2018 contained 26 weeks.
General and administrative expenses consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the costscost of supplies.
General and administrative expenses in the ninesix months ended January 27, 2018November 2, 2019 increased as compared to the same period one year ago primarily due to increasesan increase in professional fees and personnel expenses and information technology software and hardwarerelated expenses.
Product design and development expenses consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product design and development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and
geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through allour design efforts, we focus on standardizing display components and control systems for both single site and network displays.
Our costs for product design and development represent an allocated amount of costs based on time charges, professional services, materialsmaterial costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product design and development, while the rest is allocated to large contract work and is included in cost of goods sold.sales.
Product design and development expenses in the ninesix months ended January 27, 2018November 2, 2019 as compared to the same period one year ago increased primarily due to increased labor costs and professional services assigned to product design and development projects relating to our strategy to accelerate the deployment of products and solutions to our markets.projects. To deliver value to our customers and servemeet the markets' expectations,needs, we plan toexpect an increase the level ofin expenditures for new or enhanced customer solutions for the remainder of fiscal 2018 as compared to prior years.solutions.
Other Income and Expenses
| | | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | | | January 28, 2017 | November 2, 2019 | | | | October 27, 2018 |
| Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
(in thousands) |
Interest income, net | $ | 347 |
| | 0.1 | % | | (9.9 | )% | | $ | 385 |
| | 0.1 | % | $ | 365 |
| | 0.1 | % | | 6.1 | % | | $ | 344 |
| | 0.1 | % |
Other (expense) income, net | $ | (429 | ) | | (0.1 | )% | | 71.6 | % | | $ | (250 | ) | | (0.1 | )% | |
Other income (expense), net | | $ | (321 | ) | | (0.1 | )% | | 45.9 | % | | $ | (220 | ) | | (0.1 | )% |
Interest income, (expense), net: We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term marketing obligations.
InterestThe change in interest income, net in the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago decreased as a result of lower long-term receivables which bear imputed interest rates. As a result ofwas primarily due to the change in investment levels caused by the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.needs.
Other income (expense) income,, net: The change in other income and expense, net for the ninesix months ended January 27, 2018November 2, 2019 compared to the same period one year ago was primarily due to foreign currency volatility, the losses recorded from an equity method affiliate, and an income tax penalty incurred on a late filing.volatility.
Income Taxes
Our effective tax rate benefit was 47.214.6 percent for the ninesix months ended January 27, 2018November 2, 2019 as compared to an effective tax rate of 31.90.0 percent for the ninesix months ended January 28, 2017.
October 27, 2018. The current-year rate was significantly impacted by the Tax Act, which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%. Because we file our tax return based on our fiscal year, the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense for the estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiarieschange in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB 118. Excluding the impact of this one-time expense, our effective tax rate, was 23%as compared to the same period one year ago, is primarily driven by differences in tax credits proportionate to estimated pre-tax book income for the nine months ended January 27, 2018, and we expect our effective tax rate to be approximately 48% for the remainder of our fiscal year. In fiscal 2019, we expect an effective tax rate of approximately 21%, exclusive of any SAB 118 changes in estimate.period.
LIQUIDITY AND CAPITAL RESOURCES | | | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | January 28, 2017 | | Percent Change | November 2, 2019 | | October 27, 2018 | | Percent Change |
(in thousands) |
Net cash (used in) provided by: | | | | | | | | | | |
Operating activities | $ | 26,953 |
| | $ | 45,387 |
| | (40.6 | )% | $ | (10,272 | ) | | $ | 22,557 |
| | (145.5 | )% |
Investing activities | (1,245 | ) | | (11,421 | ) | | (89.1 | ) | 12,260 |
| | (9,930 | ) | | (223.5 | ) |
Financing activities | (10,144 | ) | | (13,229 | ) | | (23.3 | ) | (8,312 | ) | | (6,872 | ) | | 21.0 |
|
Effect of exchange rate changes on cash | 667 |
| | (680 | ) | | (198.1 | ) | (94 | ) | | 73 |
| | (228.8 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | 16,231 |
| | $ | 20,057 |
| | (19.1 | )% | $ | (6,418 | ) | | $ | 5,828 |
| | (210.1 | )% |
Net cash (used in) provided by operating activities: Operating cash flows consist primarily of net income adjusted for non-cash items, including depreciation and amortization, stock-based compensation, deferred income taxes, and the effect of changes in operating assets and liabilities.
Net cash provided byused in operating activities was $27.0$10.3 million for the first ninesix months of fiscal 20182020 compared to net cash provided by operating activities of $45.4$22.6 million in the first ninesix months of fiscal 2017.2019. The $18.4$32.9 million decrease in cash fromused in operating activities from the first ninesix months of fiscal 20172019 to the first ninesix months of fiscal 20182020 was the net result of changes in net operating assets and liabilities of $18.6$33.8 million, a $1.4$0.6 million decrease in depreciation and amortization, and impairment, a $1.2$0.6 million gain on the sale of our non-digital division, a $0.9 million decrease in the provision for doubtful accounts, and a $0.1 million decrease in net income, adjusted by an increase of $3.7 million in deferred income taxes and a $0.1 million increase in other non-cash items, net.net, adjusted by a $1.1 million increase in net income and $1.0 million contingent liability adjustment.
The changes in operating assets and liabilities consisted of the following:
| | | Nine Months Ended | Six Months Ended |
| January 27, 2018 | | January 28, 2017 | November 2, 2019 | | October 27, 2018 |
(Increase) decrease: | | | | | | |
Accounts receivable | $ | 2,797 |
| | $ | 5,020 |
| $ | (37,478 | ) | | $ | (15,663 | ) |
Long-term receivables | 752 |
| | 1,991 |
| (1,860 | ) | | 711 |
|
Inventories | (4,462 | ) | | 7,790 |
| (607 | ) | | 5,225 |
|
Costs and estimated earnings in excess of billings | 3,954 |
| | (3,004 | ) | |
Contract assets | | (777 | ) | | 82 |
|
Prepaid expenses and other current assets | 221 |
| | 500 |
| (1,671 | ) | | 587 |
|
Income tax receivables | (2,115 | ) | | 4,556 |
| (3,212 | ) | | (683 | ) |
Investment in affiliates and other assets | 272 |
| | 139 |
| (661 | ) | | 57 |
|
Increase (decrease): | | | | | | |
Current marketing obligations and other payables | (385 | ) | | (106 | ) | |
Accounts payable | (9,829 | ) | | (4,744 | ) | 3,329 |
| | (2,141 | ) |
Customer deposits (billed or collected) | (4,210 | ) | | (1,529 | ) | |
Contract liabilities | | 1,696 |
| | 9,226 |
|
Accrued expenses | 4,220 |
| | 2,859 |
| 5,640 |
| | 3,424 |
|
Warranty obligations | (242 | ) | | (1,717 | ) | 345 |
| | (878 | ) |
Billings in excess of costs and estimated earnings | 3,532 |
| | 1,719 |
| |
Long-term warranty obligations | 1,588 |
| | 707 |
| 1,171 |
| | (348 | ) |
Income taxes payable | (447 | ) | | 1,525 |
| 332 |
| | (176 | ) |
Deferred revenue (billed or collected) | 3,251 |
| | 1,391 |
| |
Long-term marketing obligations and other payables | 807 |
| | 1,169 |
| (403 | ) | | 209 |
|
| $ | (296 | ) | | $ | 18,266 |
| $ | (34,156 | ) | | $ | (368 | ) |
Overall, changes in net operating assets and liabilities can be impacted by the timing of cash flows on large orders, which can cause significant short-term and seasonal fluctuations in inventory, accounts receivables, accounts payable, customer deposits, costscontract assets and earnings in excess of billings,liabilities, and various other operating assets and liabilities. Variability in costscontract assets and earnings in excess of billings and billings in excess of costsliabilities relates to the timing of billings on construction-type contracts and revenue recognition, which can vary significantly depending on contractual payment terms and build and installation schedules. Balances are also impacted by the seasonalitysports market seasonality.
Net cash provided by (used in) investing activities: Net cash provided by investing activities totaled $12.3 million in the first six months of fiscal 2020 compared to net cash used in investing activities of $9.9 million in the sports markets.
first six months of fiscal 2019. Marketable securities, net totaled $22.8 million in the first six months of fiscal 2020 as compared to $2.8 million in the first six months of fiscal 2019. Purchases of property and equipment totaled $9.8 million in the first six months of fiscal 2020 and in the first six months of fiscal 2019. During the first six months of fiscal 2019, we had a net cash outflow of $2.3 million for the acquisition of assets of AJT Systems, Inc.
Net cash used in investing activities:Net cash used in investing activities totaled $1.2 million in the first nine months of fiscal 2018 compared to $11.4 million in the first nine months of fiscal 2017. The change in the amount of cash used in investing activities was the result of a net increase in marketable securities of $12.0 million in the first nine months of fiscal 2018 as compared to the first nine months of fiscal 2017. Purchases of property and equipment totaled $10.9 million in the first nine months of fiscal 2018 compared to $6.7 million in the first nine months of fiscal 2017. Proceeds from the sale of property, equipment and other assets totaled $2.1 million in the first nine months of fiscal 2018 compared to $0.2 million in the first nine months of fiscal 2017; this was mostly related to the sale of our non-digital division.
Net cash used in financing activities: Net cash used in financing activities was $10.1$8.3 million for the ninesix months ended January 27, 2018November 2, 2019 compared to $13.2$6.9 million in the same period one year ago. Principal payments on long-term obligations for the first six months of fiscal 2020 were $1.9 million compared to $0.4 million during the first six months of fiscal 2019, which was mostly related to contingent liability payments. Dividends of $9.3$4.5 million, or $0.21$0.10 per share, were paid to Daktronics shareholders during the first ninesix months of fiscal 2018,2020, as compared to dividends of $10.6$6.3 million, or $0.24$0.14 per share, paid to Daktronics shareholders during the first ninesix months of fiscal 2017. In2019. During the first ninesix months of fiscal 2017,2020, we used $1.8repurchased $1.7 million to purchase our commonof shares as part of the $40.0 million share repurchase plan authorized by our Board of Directors, and there have beenDirectors. There were no purchasesshare repurchases in the ninefirst six months ended January 27, 2018.of fiscal 2019.
Other Liquidity and Capital Resources Discussion: We have $6.6 millionThe timing and amounts of retainage on long-term contracts included in receivablesworking capital changes, dividend payments, stock repurchase program, and costs in excess of billings as of January 27, 2018, which we expect to collect within one year.capital spending impact our liquidity.
Working capital was $142.9126.6 million and $127.1$119.6 million at January 27, 2018November 2, 2019 and April 29, 2017,27, 2019, respectively. The changes in working capital, particularly changes in accounts receivable, accounts payable, inventory, and costs in excess of billingscontract assets and billings in excess of costs,liabilities, and the seasonality of the sports market seasonality can have a significant impact on the amount of net cash provided by operating activities largely due to the timing of payments and receipts. We have historically financed working capital needs through a combination of cash flow from operations and borrowings under bank credit agreements.
We have used and expect to continue to use cash balances to meet our short-term working capital requirements. On large productmultimillion-dollar orders, the time between order acceptance and project completion may extend up to andor exceed 2412 months depending on the amount of custom work and a customer’s delivery needs. We often receive down payments or progress payments on these product orders. To the extent
We had $3.9 million of retainage on long-term contracts included in receivables and contract assets as of November 2, 2019, which has an impact on our liquidity. We expect to collect these payments are not sufficient to fund the costs and other expenses associated with these orders, we useamounts within one year. When working capital is needed, we have historically financed our cash needs through a combination of cash flow from operations and borrowings under bank borrowings to finance these cash requirements.credit agreements. During the fourth quarter of fiscal 2019, we violated one of our bank covenants, but we received a waiver from our banking institution for the year ended April 27, 2019.
On November 15, 2016,2019, we entered into aan amendment to extend the maturity date of our credit agreement and a related revolving bank note with a U.S. bank. The agreement and note have a maturity date offrom November 15, 2019.2019 to November 15, 2022 and to modify certain other terms and financial covenants. The revolving amount of the agreement and note isremains at $35.0 million, including up to $15.0 million for commercial and standby letters of credits.credit. The interest rate ranges from LIBOR plus 145 basis pointscredit agreement is unsecured and requires us to LIBOR plus 195 basis points depending on the ratio of our interest-bearing debt to EBITDA. EBITDA is defined as net income before deductions for interest expense, income taxes, depreciationbe in compliance with certain financial ratios and amortization, all as determined in accordance with GAAP. The effective interest rate was 3.0 percent at January 27, 2018. We are assessed a loan fee equal to 0.125 percent per annum on any unused portion of the loan.other covenants. As of January 27, 2018,November 2, 2019, there were no advances to us under the loan portion of the line of credit, and the balance of letters of credit outstanding was approximately $10.7$9.6 million.
The credit agreement is unsecured and requires us to be in compliance with the following financial ratios:
A minimum fixed charge coverage ratio of at least 2 to 1 at the end of any fiscal year. The ratio is equal to (a) EBITDA less dividends or other distributions (with the exception of any U.S. bank approved special cash dividend), a capital expenditure reserve of $6 million, and income tax expenses paid in cash, but excluding cash used to repurchase any Daktronics, Inc. stock over (b) all principal and interest payments with respect to debt, excluding principal payments on the line of credit; and
A ratio of interest-bearing debt, excluding any marketing obligations, to EBITDA of less than 1 to 1 at the end of any fiscal quarter.
On November 15, 2016, we entered into an amended and restated loan agreement and a related revolving note and continuing and unlimitedunconditional guaranty agreement with another U.S. bank which supportssupported our credit needs outside of the United States. The revolving amount of the loan and guaranty havewas $20.0 million, with a maturity date of November 15, 2019. The revolving amount of the loan is $20.0 million. We intend to use the borrowings under the agreement to support credit needs for general corporate purposes outside the United States. This credit agreement is unsecured. It contains the same covenants as the credit agreement on the line of credit and contains an inter creditor agreement whereby the debt has a cross default provision with the primary credit agreement. Total credit allowed between the two credit agreements is limited to $40.0 million. The interest rate is equal to LIBOR plus 1.5 percent. As of January 27, 2018,November 2, 2019, there were no advances outstanding under the loan agreement. We did not renew this agreement. Therefore, the loan agreement and approximately $2.7 million in bank guaranteesrelated revolving note and guaranty expired and terminated according to their terms on November 15, 2019, and we have no continuing obligations or liability under this line of credit.
As of January 27, 2018, we were in compliance with all applicable bank loan covenants.agreement, revolving note, and guaranty.
We utilize cashare sometimes required to obtain bank guarantees or other financial instruments for display installations and we have a global banking relationship to provide such instruments. If we are unable to meet the terms of the arrangement, our customer would draw on handthe banking arrangement, and the bank would subrogate its loss to pay dividends to our investors. The following table summarizes the quarterly dividends declared and/or paid since the prior fiscal year endDaktronics. As of April 29, 2017:
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| | | |
Date Declared | Record Date | Payment Date | Amount per Share |
June 1, 2017 | June 13, 2017 | June 23, 2017 | $0.07 |
August 31, 2017 | September 11, 2017 | September 22, 2017 | $0.07 |
November 30, 2017 | December 11, 2017 | December 21, 2017 | $0.07 |
March 1, 2018 | March 12, 2018 | March 22, 2018 | $0.07 |
Although we expect to continue to pay dividends for the foreseeable future, the nature and amounts of dividends will be reviewed regularly and declared by the Board at its discretion.such instruments outstanding.
We are sometimes required to obtain performance bonds for display installations, and we have a bonding line available through a surety company for an aggregate of $150.0 million in bonded work outstanding. If we were unable to complete the work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. At January 27, 2018,November 2, 2019, we had $8.38.4 million of bonded work outstanding against this line.
Our business growth and profitability improvement strategies depend on investments in capital expenditures.expenditures and strategic investments. We are projecting capital expenditures to be less than $20$25 million for fiscal 20182020 for purchases of manufacturing equipment for new or enhanced product production, expanded capacity, investments in quality and reliability equipment, and continued information infrastructure investments. We also evaluate and may invest in new technologies or acquire companies aligned with our business strategy.
We believe our working capital available from all sources will be adequate to meet the cash requirements of our operations and strategies in the foreseeable future. If our growth extends beyond current expectations, profitability does not continue, or if we make anysignificant strategic investments, we may need to utilize and possibly increase our credit facilities or seek other means of financing. We anticipate we will be able to obtain any needed funds under commercially reasonable terms from our current lenders or other sources, although there canthis availability cannot be guaranteed.
Off-Balance Sheet Arrangements and Contractual Obligations
There has been no guaranteematerial change in our off-balance sheet arrangements and contractual obligations since the end of such. our 2019 fiscal year on April 27, 2019. For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 27, 2019.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019. We discuss our critical accounting estimates in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019. In the first quarter of fiscal 2020, we adopted new lease guidance, as described in "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report. There have been no other significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2019.
New Accounting Pronouncements
For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rates
Through JanuaryWe are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 27, 2018, most of our net sales were denominated2019. There have been no material changes in U.S. dollars, and our exposure to foreign currency exchange rate changes on net sales had not been significant. Forthese risks during the ninefirst six months ended January 27, 2018, net sales originating outside the United States were 16.1 percentof total net sales, of which a portion was denominated in Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, Brazilian reais or other currencies. We manufacture our products in the United States, China, Belgium, and Ireland. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. If we believed currency risk in any foreign location is significant, we would utilize foreign exchange hedging contracts to manage our exposure to the currency fluctuations.
Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. In addition, we may fund our foreign subsidiaries’ operating cash needs in the form of loans denominated in U.S. dollars. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $1.1 million. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area. We will continue to monitor and minimize our exposure to currency fluctuations and, when appropriate, use financial hedging techniques, including foreign currency forward contracts and options, to minimize the effect of these fluctuations. However, exchange rate fluctuations as well as differing economic conditions, changes in political climates, differing tax structures and other rules and regulations could adversely affect our ability to effectively hedge exchange rate fluctuations in the future.
We have foreign currency forward agreements in place to offset changes in the value of contracts with customers denominated in a foreign currency. The notional amount of these derivatives is $10.4 million, and all contracts mature within 19 months. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 14. Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements included elsewhere in this Report for further details.
Interest Rate Risks
Our exposure to market rate risk for changes in interest rates relates primarily to our marketing obligations and long-term accounts receivable. As of January 27, 2018, our outstanding marketing obligations were $0.5 million, all of which were in fixed rate obligations.
In connection with the sale of certain display systems, we have entered into various types of financing with customers. The aggregate amounts due from customers include an imputed interest element. The majority of these financings carry fixed rates of interest. As of January 27, 2018, our outstanding long-term receivables were $4.1 million. Each 25 basis point increase in interest rates would have an associated immaterial annual opportunity cost.
The following table provides maturities and weighted average interest rates on our financial instruments sensitive to changes in interest rates.
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| Fiscal Years (dollars in thousands) | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
Assets: | | | | | | | | | | | |
Long-term receivables, including current maturities: | | | | | | | | | | | |
Fixed-rate | $ | 572 |
| | $ | 2,030 |
| | $ | 689 |
| | $ | 447 |
| | $ | 341 |
| | $ | 68 |
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Average interest rate | 8.9 | % | | 8.7 | % | | 8.7 | % | | 8.5 | % | | 9.0 | % | | 9.0 | % |
Liabilities: | |
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Long- and short-term debt: | |
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Fixed-rate | $ | 379 |
| | $ | 575 |
| | $ | 1,013 |
| | $ | — |
| | $ | — |
| | $ | — |
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Average interest rate | 5.5 | % | | 4.5 | % | | 3.3 | % | | — | % | | — | % | | — | % |
Long-term marketing obligations, including current portion: | |
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Fixed-rate | $ | 131 |
| | $ | 200 |
| | $ | 109 |
| | $ | 10 |
| | $ | — |
| | $ | — |
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Average interest rate | 8.6 | % | | 7.8 | % | | 9.0 | % | | 9.0 | % | | — | % | | — | % |
Of our $49.0 million in cash balances at January 27, 2018, $40.8 million were denominated in U.S. dollars of which $3.7 million is held by our foreign subsidiaries. We have an additional $8.2 million in cash balances denominated in foreign currencies of which $7.1 million are maintained in accounts of our foreign subsidiaries. A portion of the cash held in foreign accounts is used to collateralize outstanding bank guarantees issued by our foreign subsidiaries.
Commodity Risk
We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our operations. Our financial results could be affected by the availability and changes in prices of these materials. Some of these materials are sourced from a limited number of suppliers or only a single supplier. These materials are also key source materials for our competitors. Therefore, if demand for these materials rises, we may experience increased costs and/or limited or unavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could impact our ability to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise suddenly and result in significantly higher costs of production. Our sourcing group works to implement strategies to mitigate these risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We have been impacted by longer lead times because of worldwide shortages; however, we believe that we have adequate sources of supply for our key materials.fiscal 2020.
Item 4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as of January 27, 2018,November 2, 2019, which is the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of January 27, 2018,November 2, 2019, our disclosure controls and procedures were effective.
Based on the evaluation described in the foregoing paragraph, our Chief Executive Officer and Chief Financial Officer concluded that during the quarter ended January 27, 2018,November 2, 2019, there was no change in our internal control over financial reporting which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 1A. RISK FACTORS
The discussion of our business and operations included in this Quarterly Report on Form 10-Q should be read together with the risk factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended April 29, 2017.27, 2019. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this Report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial condition or financial results.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Repurchases
DuringThe following table provides information about share repurchases of common stock during the nine months ended January 27, 2018, we did notsecond quarter of fiscal 2020:
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Period | Total number of shares purchased | Average price paid per share (including fees) | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the share repurchase program(1) |
August 4, 2019 - August 31, 2019 | 83,158 |
| $ | 5.95 |
| 83,158 |
| $ | 36,492,884 |
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Total | 83,158 |
| | 83,158 |
| |
(1) The share repurchases described in the above table were made pursuant to the $40.0 million share repurchase any sharesprogram authorized by the Board of our common stock.Directors on June 17, 2016.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS
A list of exhibits required to be filed as part of this report is set forth in the Index of Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.
SIGNATURES
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 thereunto duly authorized.
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| | /s/ Sheila M. Anderson |
| | Daktronics, Inc. |
| | Sheila M. Anderson |
| | Chief Financial Officer |
| | (Principal Financial Officer and |
| | Principal Accounting Officer) |
| | |
Date: | March 2, 2018November 27, 2019 | |
Index to Exhibits
Certain of the following exhibits are incorporated by reference from prior filings. The form with which each exhibit was filed and the date of filing are as indicated below; the reports described below are filed as Commission File No. 0-23246 unless otherwise indicated.
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101 | The following financial information from our Quarterly Report on Form 10-Q for the period ended January 27, 2018November 2, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements, and (vii) document and entity information. (1) |
| (1) | Filed herewith electronically. |