Daktronics(DAKT) - 2024 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) Daktronics reported a significant financial turnaround for Q1 FY2024, with record net sales of $232.5 million, a 35.3% increase, leading to a $19.2 million net income and $19.3 million in operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $508.0 million as of July 29, 2023, driven by higher cash and new long-term debt, while shareholders' equity improved to $221.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 29, 2023 | April 29, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $45,775 | $23,982 | | Accounts receivable, net | $125,613 | $109,979 | | Inventories | $144,794 | $149,448 | | Total current assets | $386,658 | $342,657 | | Total Assets | $508,018 | $468,104 | | Liabilities & Equity | | | | Total current liabilities | $204,417 | $210,163 | | Long-term debt, net | $41,422 | $17,750 | | Total liabilities | $286,971 | $267,226 | | Total Shareholders' Equity | $221,047 | $200,878 | Condensed Consolidated Statements of Operations Net sales grew 35.3% to $232.5 million for the three months ended July 29, 2023, with gross profit margin more than doubling to 30.6%, yielding a $19.2 million net income Quarterly Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended July 29, 2023 | Three Months Ended July 30, 2022 | | :--- | :--- | :--- | | Net sales | $232,531 | $171,920 | | Gross profit | $71,147 | $25,794 | | Gross Profit Margin | 30.6% | 15.0% | | Operating income (loss) | $40,216 | $(5,519) | | Net income (loss) | $19,196 | $(5,326) | | Diluted EPS | $0.42 | $(0.12) | Condensed Consolidated Statements of Cash Flows The company generated $19.3 million in cash from operating activities for Q1 FY2024, a significant improvement from the prior year, increasing total cash to $54.4 million Cash Flow Summary (in thousands) | Activity | Three Months Ended July 29, 2023 | Three Months Ended July 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $19,250 | $(22,815) | | Net cash used in investing activities | $(5,706) | $(10,372) | | Net cash provided by financing activities | $16,356 | $24,128 | | Net increase (decrease) in cash | $29,660 | $(8,979) | Notes to the Condensed Consolidated Financial Statements Key notes detail new accounting standard adoption, strong revenue growth in Live Events and High School Park and Recreation, and new financing including a $25 million convertible note, which resulted in a $7.3 million non-cash charge and a 31.7% effective tax rate - As of July 29, 2023, the company had remaining performance obligations of $386.6 million, with approximately $320.9 million expected to be recognized as revenue over the next 12 months[50] - On May 11, 2023, the company closed on a new $75 million senior credit facility and issued a $25 million convertible note, terminating its prior credit agreement[58][62] - The convertible note is accounted for under the fair value option, and a $7.3 million non-cash expense was recorded due to the increase in its fair value, primarily driven by the rise in the company's stock price[66][67][115] - The effective tax rate for the quarter was 31.7%, compared to 15.8% in the prior year, with the increase attributed to the non-taxable fair value adjustment of the convertible note[75][117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes record quarterly net sales of $232.5 million and a gross profit margin surge to 30.6% to higher production and a stable supply chain, with product order backlog decreasing to $323.7 million - Product order backlog was $323.7 million as of July 29, 2023, a decrease from $469.1 million a year prior, attributed to faster order fulfillment due to stabilized supply chains and increased capacity[102] Net Sales by Segment (in thousands) | Segment | Q1 FY2024 | Q1 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Commercial | $46,883 | $40,118 | 16.9% | | Live Events | $91,999 | $56,383 | 63.2% | | High School Park and Recreation | $56,234 | $35,809 | 57.0% | | Transportation | $21,369 | $19,540 | 9.4% | | International | $16,046 | $20,070 | (20.0)% | | Total | $232,531 | $171,920 | 35.3% | - The increase in gross profit percentage to 30.6% is attributed to record sales volume over a fixed manufacturing cost structure, past strategic pricing actions, stabilization of input costs, and fewer operational disruptions compared to the prior year[107] - Cash flow from operations improved by $42.1 million year-over-year, driven by a $24.5 million increase in net income and a $7.3 million non-cash fair value charge on the convertible debt[118][119] Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile remains largely unchanged, except for increased interest rate risk exposure from new ABL and Delayed Draw Loan facilities - The company entered into new credit facilities (ABL and Delayed Draw Loan) during the quarter, which are subject to interest rate risks, with no other material changes in exposure to interest rate, foreign currency, or commodity risks[133][134] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of July 29, 2023, due to a material weakness in internal control over financial reporting related to revenue contracts - The CEO and CFO concluded that disclosure controls and procedures were not effective as of July 29, 2023, due to a material weakness in internal control over financial reporting[135] - The material weakness relates to the ineffective operation of transactional level controls for revenue contracts recognized over time, stemming from insufficient training of control operators[137] - A remediation plan is underway, which involves providing additional training to revenue control operators on the expected level of precision for executing these controls[138] Part II. Other Information Legal Proceedings The company is involved in various legal actions in the normal course of business, with no expected material adverse effect on its financial condition or operations - Management believes that the disposition of ongoing legal matters will not have a material adverse effect on the company's financial condition or results of operations[140] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for FY2023 - Investors are referred to the risk factors described in the Annual Report on Form 10-K for the fiscal year ended April 29, 2023, as there have been no material updates[141] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company did not repurchase any shares of its common stock during Q1 FY2024 - No shares of common stock were repurchased by the company during the first quarter of fiscal 2024[142]