Daktronics, Inc. Announces 2025 Fiscal Second Quarter Results

Generates Record Cash Flow on Strong Sales Growth

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

Fiscal Q2 2025 financial highlights include:

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

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

_{(2) Orders and backlog metrics are not measures defined by GAAP, and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts. For more information related to backlog, see Part I, Item 1. Business of our Annual Report on Form 10-K for the fiscal year ended April 27, 2024.}

Update on Business and Digital Transformation

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

Key components of this program include:

1. Carefully allocating resources to end market segments, prioritizing investments in areas where Daktronics has clear advantages and opportunities for above market growth at acceptable margins
2. Aligning product delivery with differing customer needs through a tiered product offering strategy with pricing aligned with value delivered
3. Achieving higher profit by reducing product input costs and focusing on efficiency improvements in manufacturing operations
4. Maximizing balance sheet efficiencies
5. Refining our critical business and financial management practices, including product pricing, business planning, and incentive compensation to fully support our performance objectives.
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As previously disclosed on October 21, 2024, the Board of Directors (the "Board”) has initiated a search for a new Chief Financial Officer. The Board is continuing to make progress on this search effort and will provide an additional update when the Company has more to announce.

Outlook

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

Second Quarter Results

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

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

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

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

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

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

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

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

Balance Sheet and Cash Flow

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

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

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

Webcast Information

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

About Daktronics

Daktronics has strong leadership positions in, and is the world's largest supplier of, large-screen video displays, electronic scoreboards, LED text and graphics displays, and related control systems. The Company excels in the control of display systems, including those that require integration of multiple complex displays showing real-time information, graphics, animation, and video. Daktronics designs, manufactures, markets and services display systems for customers around the world in four domestic business units: Live Events, Commercial, High School Park and Recreation, and Transportation, and one International business unit. For more information, visit the Company's website at: www.daktronics.com.

Safe Harbor Statement

Cautionary Notice: In addition to statements of historical fact, this news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and is intended to enjoy the protection of that Act. These forward-looking statements reflect the Company's expectations or beliefs concerning future events. The Company cautions that these and similar statements involve risk and uncertainties which could cause actual results to differ materially from our expectations, including, but not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts and orders, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, increased regulation, and other risks described in the company's SEC filings, including its Annual Report on Form 10-K for its 2024 fiscal year. Forward-looking statements are made in the context of information available as of the date stated. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.

For more information contact:

INVESTOR RELATIONS:

Sheila M. Anderson, Chief Financial Officer

Tel (605) 692-0200

[email protected]

Alliance Advisors IR

Carolyn Capaccio / Jody Burfening

[email protected]