dakt20210731

dakt20210731_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2021

☐ 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)

(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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of August 30, 2021 was 45,357,234.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

FORM 10-Q

For the Quarter Ended July 31, 2021

Table of Contents

		Page
Part I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of July 31, 2021 and May 1, 2021	1
	Condensed Consolidated Statements of Operations for the Three Months Ended July 31, 2021 and August 1, 2020	2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended July 31, 2021 and August 1, 2020	3
	Condensed Consolidated Statements of Shareholders' Equity for the Three Months Ended July 31, 2021 and August 1, 2020	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended July 31, 2021 and August 1, 2020	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18

Part II.	Other Information	18
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

Index to Exhibits		19
Signatures		20

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

	*July 31,*			*May 1,*
	*2021*			*2021*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	74,658		$	77,590
Restricted cash		2,541			2,812
Accounts receivable, net		78,497			67,808
Inventories		84,514			74,356
Contract assets		38,133			32,799
Current maturities of long-term receivables		1,756			1,462
Prepaid expenses and other current assets		9,821			7,445
Income tax receivables		635			731
Total current assets		290,555			265,003

Property and equipment, net		56,208			58,682
Long-term receivables, less current maturities		1,390			1,635
Goodwill		8,311			8,414
Intangibles, net		1,780			2,083
Investment in affiliates and other assets		26,271			27,403
Deferred income taxes		11,941			11,944
TOTAL ASSETS	$	396,456		$	375,164

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	57,775		$	40,251
Contract liabilities		67,507			64,495
Accrued expenses		27,650			30,672
Warranty obligations		9,986			10,464
Income taxes payable		496			738
Total current liabilities		163,414			146,620

Long-term warranty obligations		15,395			15,496
Long-term contract liabilities		10,586			10,720
Other long-term obligations		7,848			7,816
Long-term income taxes payable		654			548
Deferred income taxes		378			410
Total long-term liabilities		34,861			34,990

SHAREHOLDERS' EQUITY:
Common Stock, no par value, authorized 115,000,000 shares; 46,444,603 and 46,264,576 shares issued at July 31, 2021 and May 1, 2021, respectively		61,172			60,575
Additional paid-in capital		47,117			46,595
Retained earnings		99,701			96,016
Treasury Stock, at cost, 1,266,401 and 1,297,409 shares at July 31, 2021 and May 1, 2021, respectively		(7,101	)		(7,297	)
Accumulated other comprehensive loss		(2,708	)		(2,335	)
TOTAL SHAREHOLDERS' EQUITY		198,181			193,554
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	396,456		$	375,164

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	*Three Months Ended*
	*July 31,*			*August 1,*
	*2021*			*2020*
Net sales	$	144,732		$	143,644
Cost of sales		112,544			107,883
Gross profit		32,188			35,761

Operating expenses:
Selling		11,795			11,556
General and administrative		7,571			7,124
Product design and development		7,162			7,532
		26,528			26,212
Operating income		5,660			9,549

Nonoperating (expense) income:
Interest income		153			85
Interest expense		(16	)		(73	)
Other (expense) income, net		(868	)		(627	)

Income before income taxes		4,929			8,934
Income tax expense		1,244			1,467
Net income	$	3,685		$	7,467

Weighted average shares outstanding:
Basic		45,139			44,654
Diluted		45,419			44,751

Earnings per share:
Basic	$	0.08		$	0.17
Diluted	$	0.08		$	0.17

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	*Three Months Ended*
	*July 31,*			*August 1,*
	*2021*			*2020*

Net income	$	3,685		$	7,467

Other comprehensive (loss) income:
Cumulative translation adjustments		(373	)		1,037
Total other comprehensive (loss) income, net of tax		(373	)		1,037
Comprehensive income	$	3,312		$	8,504

See notes to condensed consolidated financial statements.

Table of Contents

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 May 1, 2021	$	60,575	$	46,595	$	96,016	$	(7,297	)	$	(2,335	)	$	193,554
Net income		—		—		3,685		—			—			3,685
Cumulative translation adjustments		—		—		—		—			(373	)		(373	)
Share-based compensation		—		518		—		—			—			518
Employee savings plan activity		597		—		—		—			—			597
Treasury stock reissued		—		4		—		196			—			200
Balance as of July 31, 2021	$	61,172	$	47,117	$	99,701	$	(7,101	)	$	(2,708	)	$	198,181

See notes to condensed consolidated financial statements.

Table of Contents

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 May 2, 2020	$	60,010	$	44,627	$	85,090	$	(7,470	)	$	(5,277	)	$	176,980
Net income		—		—		7,467		—			—			7,467
Cumulative translation adjustments		—		—		—		—			1,037			1,037
Share-based compensation		—		539		—		—			—			539
Treasury stock reissued		—		26		—		173			—			199
Balance as of August 1, 2020	$	60,010	$	45,192	$	92,557	$	(7,297	)	$	(4,240	)	$	186,222

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	*Three Months Ended*
	*July 31,*			*August 1,*
	*2021*			*2020*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,685		$	7,467
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		4,052			4,337
Gain on sale of property, equipment and other assets		(106	)		(53	)
Share-based compensation		518			539
Equity in loss of affiliates		746			529
Provision for doubtful accounts		(421	)		1
Deferred income taxes, net		(32	)		(4	)
Change in operating assets and liabilities		(9,461	)		(4,271	)
Net cash (used in) provided by operating activities		(1,019	)		8,545

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,283	)		(3,155	)
Proceeds from sales of property, equipment and other assets		149			86
Purchases of and loans to equity investment		(718	)		(492	)
Net cash used in investing activities		(1,852	)		(3,561	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations		(200	)		(210	)
Net cash used in financing activities		(200	)		(210	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(132	)		(481	)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(3,203	)		4,293

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		80,402			40,412
End of period	$	77,199		$	44,705

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	—		$	43
Income taxes, net of refunds		980			786

Supplemental schedule of non-cash investing and financing activities:
Demonstration equipment transferred to inventory	$	46		$	—
Purchases of property and equipment included in accounts payable		868			969
Contributions of common stock under the ESPP		597			—

See notes to condensed consolidated financial statements.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share data)

(unaudited)

Note 1. Basis of Presentation

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are 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 accounting principles generally accepted in the United States of America ("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 disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at May 1, 2021, has been derived from the audited financial statements at that date, but it does not include all the information and disclosures 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 May 1, 2021, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange 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- 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 three months ended July 31, 2021 and August 1, 2020, contained operating results for 13 weeks.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statements of cash flows. Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees.

	*July 31,*		*August 1,*
	*2021*		*2020*
Cash and cash equivalents	$	74,658	$	44,609
Restricted cash		2,541		96
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows	$	77,199	$	44,705

Other Business Developments - Coronavirus Pandemic

During fiscal 2021, the global spread of the coronavirus pandemic ("COVID-19") and restrictions impacted our business and created significant volatility, uncertainty and global economic disruption. We took proactive steps to solidify our financial position and mitigate any adverse consequences. Our orders and sales decline, in fiscal 2021, indicate the impacts of the pandemic. To align our expenses to the change in the market, we reduced investments in capital assets, reduced executive pay and board member compensation for fiscal 2021, and instituted initiatives to reduce other costs in the business. On April 1, 2020, our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. In addition, throughout fiscal 2021, we temporarily furloughed employees to manage our cost structure to align with decreased demand.

A special voluntary retirement and voluntary exit incentive program ("Offering") and a reduction in force ("RIF") were instituted during the first quarter of fiscal 2021 to adjust our capacity and reduce on-going expenses due to the reduced revenue and uncertainties created by the COVID-19 pandemic. During the first quarter of fiscal 2021, 60 employees agreed to participate in the Offering and completed employment. The approximate cost of this Offering was $931. Under the RIF, employment was terminated with 108 employees with severance totaling $1,426.

We received governmental wage subsidies from various governmental programs related to COVID implications of $77 and $812 during the three months ended July 31, 2021 and August 1, 2020, respectively and recorded as a reduction of compensation expense, which is mostly included in the "Costs of sales" line item in our condensed consolidated statements of operations. We also have elected to defer payments of the employer portion of social security taxes during the payroll tax deferral period, which ended on December 31, 2020. As of July 31, 2021 the total amount of such deferral was $5,122, which is included in the "Accrued expenses" and in the "Other long-term obligations" line items in our condensed consolidated balance sheet. Per the terms of the deferral program, 50 percent of the deferred amount is due on December 31, 2021 with the remaining 50 percent due on December 31, 2022.

We continue to monitor guidance from international and domestic authorities, regarding the COVID-19 pandemic and may take additional actions based on their requirements and recommendations. Since late fiscal 2021, order and quoting activities have increased creating a strong backlog and positive outlook; however, there is no assurance that this trend will continue in future quarters. Supply chain disruptions continue to emerge as a result of several factors including - the pandemic, shipping container shortages, and the changes in global demand. Specifically, we are impacted by the global shortage of semiconductors and related electronic components, other materials needed for production, and freight availability. We expect headwinds in material, labor, freight availability and inflation as the world economies recover, which may cause volatility in our revenue cycles and production costs. While we cannot predict the length or severity of these conditions, it is reasonably possible they will continue to have some impact on our operations during fiscal 2022.

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 May 1, 2021.

Accounting Standards Adopted

There are no significant Accounting Standard Updates ("ASU's") issued that were adopted in the three-months ended July 31, 2021.

Accounting Standards Not Yet Adopted

There are no significant ASU's issued not yet adopted as of July 31, 2021.

Note 2. Investments in Affiliates

The aggregate amount of investments accounted for under the equity method was $19,141 and $19,887 at July 31, 2021 and May 1, 2021, respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income, net" line item in our condensed consolidated statements of operations. For the three months ended July 31, 2021 and August 1, 2020, our share of the losses of our affiliates was $746 and $529, respectively. We purchased services for research and development activities from our equity method investments. The total of these related party transactions was $470 for the three months ended July 31, 2021, which was included in the "Product design and development" line item in in our condensed consolidated statement of operations and $275 of this remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheet. There were no related party transactions for the three months ended August 1, 2020.

Note 3. Earnings Per Share ("EPS")

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 months ended July 31, 2021 and August 1, 2020:

	*Net income*		*Shares*		*Per share income*
For the three months ended July 31, 2021
Basic earnings per share	$	3,685		45,139	$	0.08
Dilution associated with stock compensation plans		—		280		—
Diluted earnings per share	$	3,685		45,419	$	0.08
For the three months ended August 1, 2020
Basic earnings per share	$	7,467		44,654	$	0.17
Dilution associated with stock compensation plans		—		97		—
Diluted earnings per share	$	7,467		44,751	$	0.17

Options outstanding to purchase 1,810 shares of common stock with a weighted average exercise price of $9.52 for the three months ended July 31, 2021 and 2,119 shares of common stock with a weighted average exercise price of $9.96 for the three months ended August 1, 2020 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Note 4. Revenue Recognition

Disaggregation of revenue

The following table presents our disaggregation of revenue by segments:

	*Three Months Ended July 31, 2021*
					*High School*
	*Commercial*		*Live Events*		*Park and Recreation*		*Transportation*		*International*		*Total*
Type of performance obligation
Unique configuration	$	3,587	$	41,508	$	4,166	$	6,541	$	5,883	$	61,685
Limited configuration		25,907		5,842		22,957		5,352		11,545		71,603
Service and other		3,287		5,037		771		665		1,684		11,444
	$	32,781	$	52,387	$	27,894	$	12,558	$	19,112	$	144,732
Timing of revenue recognition
Goods/services transferred at a point in time	$	26,379	$	6,829	$	21,941	$	5,571	$	12,019	$	72,739
Goods/services transferred over time		6,402		45,558		5,953		6,987		7,093		71,993
	$	32,781	$	52,387	$	27,894	$	12,558	$	19,112	$	144,732

	*Three Months Ended August 1, 2020*
					*High School*
	*Commercial*		*Live Events*		*Park and Recreation*		*Transportation*		*International*		*Total*
Type of performance obligation
Unique configuration	$	8,727	$	41,975	$	7,668	$	7,724	$	4,012	$	70,106
Limited configuration		22,555		5,419		20,688		6,266		8,653		63,581
Service and other		3,224		4,080		587		508		1,558		9,957
	$	34,506	$	51,474	$	28,943	$	14,498	$	14,223	$	143,644
Timing of revenue recognition
Goods/services transferred at a point in time	$	22,892	$	6,214	$	19,368	$	6,374	$	9,179	$	64,027
Goods/services transferred over time		11,614		45,260		9,575		8,124		5,044		79,617
	$	34,506	$	51,474	$	28,943	$	14,498	$	14,223	$	143,644

See "Note 5. Segment Reporting" for a disaggregation of revenue by geography.

Contract balances

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the customers in excess of revenue recognized to date.

The following table reflects the changes in our contract assets and liabilities:

	*July 31,*		*May 1,*		*Dollar*			*Percent*
	*2021*		*2021*		*Change*			*Change*
Contract assets	$	38,133	$	32,799	$	5,334			16.3	%
Contract liabilities - current		67,507		64,495		3,012			4.7	%
Contract liabilities - noncurrent		10,586		10,720		(134	)		(1.3	)%

The changes in our contract assets and contract liabilities from May 1, 2021 to July 31, 2021 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 three months ended July 31, 2021.

For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for these contracts are included in the "Contract assets" and "Contract liabilities" line items in our condensed consolidated balance sheets. Changes in unearned service-type warranty contracts, net were as follows:

	*July 31,*
	*2021*
Balance at beginning of period	$	24,590
New contracts sold		10,165
Less: reductions for revenue recognized		(

SEC Form 10-Q filed by Daktronics, Inc.