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 1934For the quarterly period ended
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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.
YesIndicate 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).
YesIndicate 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
☐ NoThe number of shares of the registrant’s common stock outstanding as of August 24, 2020March 1, 2021 was 44,615,015.44,966,381.
DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended August 1, 2020
Page | |||
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) |
January 30, | May 2, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 76,877 | $ | 40,398 | ||||
Restricted cash | 3,884 | 14 | ||||||
Marketable securities | 248 | 1,230 | ||||||
Accounts receivable, net | 63,212 | 72,577 | ||||||
Inventories | 72,312 | 86,803 | ||||||
Contract assets | 30,310 | 35,467 | ||||||
Current maturities of long-term receivables | 1,736 | 3,519 | ||||||
Prepaid expenses and other current assets | 7,554 | 9,629 | ||||||
Income tax receivables | 87 | 548 | ||||||
Property and equipment and other assets available for sale | 2,020 | 1,817 | ||||||
Total current assets | 258,240 | 252,002 | ||||||
Property and equipment, net | 61,805 | 67,484 | ||||||
Long-term receivables, less current maturities | 754 | 1,114 | ||||||
Goodwill | 8,262 | 7,743 | ||||||
Intangibles, net | 2,396 | 3,354 | ||||||
Investment in affiliates and other assets | 23,608 | 27,683 | ||||||
Deferred income taxes | 13,382 | 13,271 | ||||||
TOTAL ASSETS | $ | 368,447 | $ | 372,651 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 32,692 | $ | 47,834 | ||||
Contract liabilities | 53,292 | 50,897 | ||||||
Accrued expenses | 26,664 | 36,626 | ||||||
Warranty obligations | 10,766 | 9,764 | ||||||
Income taxes payable | 2,079 | 844 | ||||||
Total current liabilities | 125,493 | 145,965 | ||||||
Long-term warranty obligations | 15,696 | 15,860 | ||||||
Long-term contract liabilities | 10,587 | 10,707 | ||||||
Other long-term obligations | 23,059 | 22,105 | ||||||
Long-term income taxes payable | 554 | 582 | ||||||
Deferred income taxes | 490 | 452 | ||||||
Total long-term liabilities | 50,386 | 49,706 | ||||||
SHAREHOLDERS' EQUITY: | ||||||||
Common Stock, no par value, authorized 115,000,000 shares; 46,264,576 and 45,913,209 shares issued at January 30, 2021 and May 2, 2020, respectively | 60,575 | 60,010 | ||||||
Additional paid-in capital | 46,091 | 44,627 | ||||||
Retained earnings | 95,759 | 85,090 | ||||||
Treasury Stock, at cost, 1,297,409 and 1,343,281 shares at January 30, 2021 and May 2, 2020, respectively | (7,297 | ) | (7,470 | ) | ||||
Accumulated other comprehensive loss | (2,560 | ) | (5,277 | ) | ||||
TOTAL SHAREHOLDERS' EQUITY | 192,568 | 176,980 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 368,447 | $ | 372,651 |
|
See notes to condensed consolidated financial statements. |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) | ||||||||
August 1, 2020 | May 2, 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 44,609 | $ | 40,398 | ||||
Restricted cash | 96 | 14 | ||||||
Marketable securities | 1,230 | 1,230 | ||||||
Accounts receivable, net | 88,608 | 72,577 | ||||||
Inventories | 81,435 | 86,803 | ||||||
Contract assets | 33,261 | 35,467 | ||||||
Current maturities of long-term receivables | 3,306 | 3,519 | ||||||
Prepaid expenses and other current assets | 7,595 | 9,629 | ||||||
Income tax receivables | 260 | 548 | ||||||
Property and equipment and other assets available for sale | 1,966 | 1,817 | ||||||
Total current assets | 262,366 | 252,002 | ||||||
Property and equipment, net | 66,059 | 67,484 | ||||||
Long-term receivables, less current maturities | 739 | 1,114 | ||||||
Goodwill | 8,048 | 7,743 | ||||||
Intangibles, net | 3,070 | 3,354 | ||||||
Investment in affiliates and other assets | 26,526 | 27,683 | ||||||
Deferred income taxes | 13,312 | 13,271 | ||||||
TOTAL ASSETS | $ | 380,120 | $ | 372,651 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 48,255 | $ | 47,834 | ||||
Contract liabilities | 50,159 | 50,897 | ||||||
Accrued expenses | 33,941 | 36,626 | ||||||
Warranty obligations | 10,648 | 9,764 | ||||||
Income taxes payable | 1,107 | 844 | ||||||
Total current liabilities | 144,110 | 145,965 | ||||||
Long-term warranty obligations | 16,412 | 15,860 | ||||||
Long-term contract liabilities | 10,715 | 10,707 | ||||||
Other long-term obligations | 21,469 | 22,105 | ||||||
Long-term income taxes payable | 723 | 582 | ||||||
Deferred income taxes | 469 | 452 | ||||||
Total long-term liabilities | 49,788 | 49,706 | ||||||
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) |
Three Months Ended | Nine Months Ended | |||||||||||||||
January 30, | February 1, | January 30, | February 1, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales | $ | 94,139 | $ | 127,657 | $ | 365,150 | $ | 482,824 | ||||||||
Cost of sales | 70,198 | 103,175 | 272,134 | 372,750 | ||||||||||||
Gross profit | 23,941 | 24,482 | 93,016 | 110,074 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 12,004 | 16,552 | 36,214 | 51,026 | ||||||||||||
General and administrative | 6,389 | 8,640 | 20,777 | 26,698 | ||||||||||||
Product design and development | 5,784 | 8,442 | 20,053 | 29,063 | ||||||||||||
24,177 | 33,634 | 77,044 | 106,787 | |||||||||||||
Operating (loss) income | (236 | ) | (9,152 | ) | 15,972 | 3,287 | ||||||||||
Nonoperating (expense) income: | ||||||||||||||||
Interest income | 52 | 233 | 203 | 664 | ||||||||||||
Interest expense | (92 | ) | 13 | (249 | ) | (53 | ) | |||||||||
Other (expense) income, net | (913 | ) | (331 | ) | (2,377 | ) | (652 | ) | ||||||||
(Loss) income before income taxes | (1,189 | ) | (9,237 | ) | 13,549 | 3,246 | ||||||||||
Income tax expense (benefit) | (975 | ) | 3,497 | 2,880 | 1,676 | |||||||||||
Net (loss) income | $ | (214 | ) | $ | (12,734 | ) | $ | 10,669 | $ | 1,570 | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 45,064 | 45,189 | 44,908 | 45,139 | ||||||||||||
Diluted | 45,064 | 45,189 | 45,061 | 45,412 | ||||||||||||
(Loss) earnings per share: | ||||||||||||||||
Basic | $ | 0.00 | $ | (0.28 | ) | $ | 0.24 | $ | 0.03 | |||||||
Diluted | $ | 0.00 | $ | (0.28 | ) | $ | 0.24 | $ | 0.03 |
|
See notes to condensed consolidated financial statements. |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (in thousands, except per share data) (unaudited) | ||||||||
August 1, 2020 | May 2, 2020 | |||||||
SHAREHOLDERS' EQUITY: | ||||||||
Common Stock, no par value, authorized 115,000,000 shares; 45,913,210 and 45,913,209 shares issued at August 1, 2020 and May 2, 2020, respectively | 60,010 | 60,010 | ||||||
Additional paid-in capital | 45,192 | 44,627 | ||||||
Retained earnings | 92,557 | 85,090 | ||||||
Treasury Stock, at cost, 1,343,281 and 1,343,281 shares at August 1, 2020 and May 2, 2020, respectively | (7,297 | ) | (7,470 | ) | ||||
Accumulated other comprehensive loss | (4,240 | ) | (5,277 | ) | ||||
TOTAL SHAREHOLDERS' EQUITY | 186,222 | 176,980 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 380,120 | $ | 372,651 | ||||
See notes to condensed consolidated financial statements. |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited) |
Three Months Ended | Nine Months Ended | |||||||||||||||
January 30, | February 1, | January 30, | February 1, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net (loss) income | $ | (214 | ) | $ | (12,734 | ) | $ | 10,669 | $ | 1,570 | ||||||
Other comprehensive income (loss): | ||||||||||||||||
Cumulative translation adjustments | 1,296 | 51 | 2,717 | (329 | ) | |||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax | 0 | 0 | 0 | 44 | ||||||||||||
Total other comprehensive income (loss), net of tax | 1,296 | 51 | 2,717 | (285 | ) | |||||||||||
Comprehensive income (loss) | $ | 1,082 | $ | (12,683 | ) | $ | 13,386 | $ | 1,285 |
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 | |||||||
August 1, 2020 | August 3, 2019 | ||||||
Net sales | $ | 143,644 | $ | 180,256 | |||
Cost of sales | 107,883 | 134,751 | |||||
Gross profit | 35,761 | 45,505 | |||||
Operating expenses: | |||||||
Selling | 11,556 | 18,297 | |||||
General and administrative | 7,124 | 9,093 | |||||
Product design and development | 7,532 | 10,500 | |||||
26,212 | 37,890 | ||||||
Operating income | 9,549 | 7,615 | |||||
Nonoperating (expense) income: | |||||||
Interest income | 85 | 269 | |||||
Interest expense | (73 | ) | (35 | ) | |||
Other (expense) income, net | (627 | ) | 193 | ||||
Income before income taxes | 8,934 | 8,042 | |||||
Income tax expense | 1,467 | 1,012 | |||||
Net income | $ | 7,467 | $ | 7,030 | |||
Weighted average shares outstanding: | |||||||
Basic | 44,654 | 45,089 | |||||
Diluted | 44,751 | 45,261 | |||||
Earnings per share: | |||||||
Basic | $ | 0.17 | $ | 0.16 | |||
Diluted | $ | 0.17 | $ | 0.16 | |||
See notes to condensed 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 May 2, 2020 | $ | 60,010 | $ | 44,627 | $ | 85,090 | $ | (7,470 | ) | $ | (5,277 | ) | $ | 176,980 | ||||||||||
Net income | 0 | 0 | 7,467 | 0 | 0 | 7,467 | ||||||||||||||||||
Cumulative translation adjustments | 0 | 0 | 0 | 0 | 1,037 | 1,037 | ||||||||||||||||||
Share-based compensation | 0 | 539 | 0 | 0 | 0 | 539 | ||||||||||||||||||
Treasury stock reissued | 0 | 26 | 0 | 173 | 0 | 199 | ||||||||||||||||||
Balance as of August 1, 2020 | 60,010 | 45,192 | 92,557 | (7,297 | ) | (4,240 | ) | 186,222 | ||||||||||||||||
Net income | 0 | 0 | 3,416 | 0 | 0 | 3,416 | ||||||||||||||||||
Cumulative translation adjustments | 0 | 0 | 0 | 0 | 384 | 384 | ||||||||||||||||||
Share-based compensation | 0 | 508 | 0 | 0 | 0 | 508 | ||||||||||||||||||
Tax payments related to RSU issuances | 0 | (125 | ) | 0 | 0 | 0 | (125 | ) | ||||||||||||||||
Balance as of October 31, 2020 | 60,010 | 45,575 | 95,973 | (7,297 | ) | (3,856 | ) | 190,405 | ||||||||||||||||
Net loss | 0 | 0 | (214 | ) | 0 | 0 | (214 | ) | ||||||||||||||||
Cumulative translation adjustments | 0 | 0 | 0 | 0 | 1,296 | 1,296 | ||||||||||||||||||
Share-based compensation | 0 | 516 | 0 | 0 | 0 | 516 | ||||||||||||||||||
Employee savings plan activity | 565 | 0 | 0 | 0 | 0 | 565 | ||||||||||||||||||
Balance as of January 30, 2021 | $ | 60,575 | $ | 46,091 | $ | 95,759 | $ | (7,297 | ) | $ | (2,560 | ) | $ | 192,568 |
See notes to condensed consolidated financial statements. |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) | ||||||||
Three Months Ended | ||||||||
August 1, 2020 | August 3, 2019 | |||||||
Net income | $ | 7,467 | $ | 7,030 | ||||
Other comprehensive income (loss): | ||||||||
Cumulative translation adjustments | 1,037 | (526 | ) | |||||
Unrealized gain (loss) on available-for-sale securities, net of tax | — | 41 | ||||||
Total other comprehensive income (loss), net of tax | 1,037 | (485 | ) | |||||
Comprehensive income | $ | 8,504 | $ | 6,545 | ||||
See notes to condensed 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 27, 2019 | $ | 57,699 | $ | 42,561 | $ | 93,593 | $ | (1,834 | ) | $ | (4,356 | ) | $ | 187,663 | ||||||||||
Net income | 0 | 0 | 7,030 | 0 | 0 | 7,030 | ||||||||||||||||||
Cumulative translation adjustments | 0 | 0 | 0 | 0 | (526 | ) | (526 | ) | ||||||||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax | 0 | 0 | 0 | 0 | 41 | 41 | ||||||||||||||||||
Share-based compensation | 0 | 643 | 0 | 0 | 0 | 643 | ||||||||||||||||||
Employee savings plan activity | 779 | 0 | 0 | 0 | 0 | 779 | ||||||||||||||||||
Dividends declared ($0.05 per share) | 0 | 0 | (2,250 | ) | 0 | 0 | (2,250 | ) | ||||||||||||||||
Treasury stock purchase | 0 | 0 | 0 | (1,187 | ) | 0 | (1,187 | ) | ||||||||||||||||
Balance as of August 3, 2019 | 58,478 | 43,204 | 98,373 | (3,021 | ) | (4,841 | ) | 192,193 | ||||||||||||||||
Net income | 0 | 0 | 7,274 | 0 | 0 | 7,274 | ||||||||||||||||||
Cumulative translation adjustments | 0 | 0 | 0 | 0 | 146 | 146 | ||||||||||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax | 0 | 0 | 0 | 0 | 3 | 3 | ||||||||||||||||||
Share-based compensation | 0 | 541 | 0 | 0 | 0 | 541 | ||||||||||||||||||
Tax payments related to RSU issuances | 0 | (199 | ) | 0 | 0 | 0 | (199 | ) | ||||||||||||||||
Employee savings plan activity | 798 | 0 | 0 | 0 | 0 | 798 | ||||||||||||||||||
Dividends declared ($0.05 per share) | 0 | 0 | (2,250 | ) | 0 | 0 | (2,250 | ) | ||||||||||||||||
Treasury stock purchase | 0 | 0 | 0 | (495 | ) | 0 | (495 | ) | ||||||||||||||||
Balance as of November 2, 2019 | 59,276 | 43,546 | 103,397 | (3,516 | ) | (4,692 | ) | 198,011 | ||||||||||||||||
Net loss | 0 | 0 | (12,734 | ) | 0 | 0 | (12,734 | ) | ||||||||||||||||
Cumulative translation adjustments | 0 | 0 | 0 | 0 | 51 | 51 | ||||||||||||||||||
Share-based compensation | 0 | 550 | 0 | 0 | 0 | 550 | ||||||||||||||||||
Dividends declared ($0.05 per share) | 0 | 0 | (2,256 | ) | 0 | 0 | (2,256 | ) | ||||||||||||||||
Treasury stock purchase | 0 | 0 | 0 | (647 | ) | 0 | (647 | ) | ||||||||||||||||
Balance as of February 1, 2020 | $ | 59,276 | $ | 44,096 | $ | 88,407 | $ | (4,163 | ) | $ | (4,641 | ) | $ | 182,975 |
See notes to condensed 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 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. |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) |
Nine Months Ended | ||||||||
January 30, | February 1, | |||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 10,669 | $ | 1,570 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 12,848 | 13,197 | ||||||
Gain on sale of property, equipment and other assets | (244 | ) | (6 | ) | ||||
Share-based compensation | 1,563 | 1,734 | ||||||
Equity in loss of affiliates | 1,740 | 430 | ||||||
Provision for doubtful accounts | 1,551 | (477 | ) | |||||
Deferred income taxes, net | (21 | ) | (223 | ) | ||||
Change in operating assets and liabilities | 20,115 | (10,035 | ) | |||||
Net cash provided by operating activities | 48,221 | 6,190 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (6,935 | ) | (13,646 | ) | ||||
Proceeds from sales of property, equipment and other assets | 470 | 244 | ||||||
Proceeds from sales or maturities of marketable securities | 982 | 24,665 | ||||||
Purchases of and loans to equity investment | (1,328 | ) | (1,229 | ) | ||||
Net cash (used in) provided by investing activities | (6,811 | ) | 10,034 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Principal payments on long-term obligations | (431 | ) | (2,140 | ) | ||||
Dividends paid | 0 | (6,756 | ) | |||||
Payments for common shares repurchased | 0 | (2,329 | ) | |||||
Tax payments related to RSU issuances | (125 | ) | (199 | ) | ||||
Net cash used in financing activities | (556 | ) | (11,424 | ) | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (505 | ) | (166 | ) | ||||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 40,349 | 4,634 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||
Beginning of period | 40,412 | 35,742 | ||||||
End of period | $ | 80,761 | $ | 40,376 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 195 | $ | 3 | ||||
Income taxes, net of refunds | 1,491 | 460 | ||||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Demonstration equipment transferred to inventory | $ | 56 | $ | 10 | ||||
Purchases of property and equipment included in accounts payable | 527 | 954 | ||||||
Contributions of common stock under the ESPP | 565 | 1,577 |
See notes to condensed 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 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 | |||||||||
See notes to condensed consolidated financial statements. |
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) | |||||||
Three Months Ended | |||||||
August 1, 2020 | August 3, 2019 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 7,467 | $ | 7,030 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 4,337 | 4,383 | |||||
Loss on sale of property, equipment and other assets | (53 | ) | (26 | ) | |||
Share-based compensation | 539 | 643 | |||||
Equity in loss of affiliates | 529 | 118 | |||||
Provision for doubtful accounts | 1 | 5 | |||||
Deferred income taxes, net | (4 | ) | (40 | ) | |||
Change in operating assets and liabilities | (4,271 | ) | (30,331 | ) | |||
Net cash provided by (used in) operating activities | 8,545 | (18,218 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment | (3,155 | ) | (5,856 | ) | |||
Proceeds from sales of property, equipment and other assets | 86 | 73 | |||||
Proceeds from sales or maturities of marketable securities | — | 14,510 | |||||
Purchases of and loans to equity investment | (492 | ) | (455 | ) | |||
Net cash (used in) provided by investing activities | (3,561 | ) | 8,272 | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Principal payments on long-term obligations | (210 | ) | (1,221 | ) | |||
Dividends paid | — | (2,250 | ) | ||||
Payments for common shares repurchased | (1,187 | ) | |||||
Net cash used in financing activities | (210 | ) | (4,658 | ) | |||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (481 | ) | (37 | ) | |||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 4,293 | (14,641 | ) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||
Beginning of period | 40,412 | 35,742 | |||||
End of period | $ | 44,705 | $ | 21,101 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid (received) for: | |||||||
Interest | $ | 43 | $ | 33 | |||
Income taxes, net of refunds | 786 | 491 | |||||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Purchases of property and equipment included in accounts payable | 969 | 786 | |||||
Contributions of common stock under the ESPP | — | 779 | |||||
See notes to 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 generally accepted accounting principles 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 2, 2020, 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 2, 2020, which are contained in our Annual Report on FormDaktronics, Inc. operates on a 52-52- or 53-week53-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-week13-week periods following the beginning of each fiscal year. In each 53-week53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week13-week period. The fiscal year ended ending May 1, 2021 will consist of 52 weeks and the fiscal year ended May 2, 2020 was a 53-week53-week year; therefore, the threenine months ended August 1, 2020January 30, 2021 contains operating results for 1339 weeks while the threenine months ended August 3, 2019February 1, 2020 contains operating results for 1440 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 statementstatements of cash flows:
August 1, 2020 | August 3, 2019 | ||||||
Cash and cash equivalents | $ | 44,609 | $ | 20,762 | |||
Restricted cash | 96 | 339 | |||||
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows | $ | 44,705 | $ | 21,101 |
January 30, | February 1, | |||||||
2021 | 2020 | |||||||
Cash and cash equivalents | $ | 76,877 | $ | 40,316 | ||||
Restricted cash | 3,884 | 60 | ||||||
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows | $ | 80,761 | $ | 40,376 |
Other Business Developments - Coronavirus Pandemic
During the first quarternine months of fiscal 2021, we continued to see impacts of the global spread of the coronavirus pandemic ("COVID-19"COVID-19"), and restrictions, which grewcreated and continues to create significant volatility, uncertainty and global economic disruption. As disclosed in our Current Report on Form 8-K8-K filed on April 1, 2020, we are takinghave taken proactive steps to solidify our financial position and mitigate any adverse consequences. These steps includeincluded preserving liquidity by drawing down $15,000 of our existing line of credit, which is included in the "Other long-term obligations" line item in our condensed consolidated balance sheets. In addition, we are pursuing other sources of financing, reducing investments in capital assets, reducinghave reduced executive pay and board member compensation, and institutinghave or are continuing to institute initiatives to reduce other costs in the business. Our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. In addition, during the third quarter of fiscal 2021 and throughout fiscal 2021, we have temporarily furloughed employees to manage our cost structure to align with decreased demand. We believe these measures are necessaryhelp to help preserve our ability to borrow for liquidity needs and helpposition us be well positionedfor when the pandemic passes and our customers and economies begin to recover.
During fiscal 2020, we offered a special voluntary retirement and voluntary exit incentive program ("Offering") and during the first quarternine months of fiscal 2021, we conducted a reductiontwo reductions in force ("RIF") to adjust our capacity and reduce on-going expenses due to the reduced revenue and uncertainties created by the COVID-19COVID-19 pandemic. Under the Offering, employees had until June 2020 to choose to participate. During the first quarter of fiscal 2021, 60 employees agreed to participate in the Offering and completed employment in June 2020.employment. The approximate cost of this Offering was $931.$931 during the first quarter of fiscal 2021. Under the RIF, employment was terminated with 108 employees with severance totaling $1,426.
We received $812 in total governmental wage subsidies from various governmental programs related to COVID implications of $254 and $1,632 during the three and nine months ended January 30, 2021, respectively and recorded such as a reduction of compensation expense, which is mostly included in the "Costs of sales" line item in our condensed consolidated statements of operations.
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-K10-K for the fiscal year ended May 2, 2020, other than described in the Accounting Standards Adopted section below.
Accounting Standards Adopted
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04,
In June 2016, the FASB issued ASU 2016-13, 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 2016-132016-13 improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, and will require adoption on a modified retrospective basis. We adopted ASU 2016-132016-13 and its related guidance during the first quarter of fiscal 2021 and the adoption did not have a material impact on our condensed consolidated financial statements.
We estimate an allowance for doubtful accounts using a loss rate method. We measure all expected credit losses for financial assets held
A reconciliation of the beginning and ending allowance for doubtful accounts is as follows:
Allowance for Doubtful Accounts: | ||||
Balance as of May 2, 2020 | $ | 2,828 | ||
Charged to costs and expenses | 735 | |||
Deductions (1) | (241 | ) | ||
Balance as of August 1, 2020 | $ | 3,322 |
Allowance | ||||
for Doubtful | ||||
Accounts: | ||||
Balance as of May 2, 2020 | $ | 2,828 | ||
Charged to costs and expenses | 2,724 | |||
Deductions (1) | (1,392 | ) | ||
Balance as of January 30, 2021 | $ | 4,160 |
(1) Includes accounts determined to be uncollectibleaccount collections and charged against reserves.
Accounting Standards Not Yet Adopted
There are no significant ASU's issued not yet adopted as of August 1, 2020.January 30, 2021.
Note 2. Investments in Affiliates
Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting, recording the investment at cost and then subsequently adjusting to account for our share of the affiliates profit or losses, in accordance with the provisions of Accounting Standards Codification ("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, recording the investment at cost and then subsequently adjusting for any changes in ownership or dividends, 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. 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 cashThe aggregate amount of investments accounted for under the equity method was $16,728$15,517 and $17,257 at August 1, 2020 January 30, 2021 and May 2, 2020, 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 threenine months ended AugustJanuary 30, 2021 and February 1, 2020 and August 3, 2019,, our share of the losses of our affiliates was $529$1,740 and $118,$430, respectively. We purchased services for research and development activities from our equity method investments. The total of these related party transactions was $661 for the nine months ended January 30, 2021, which was included in the "Product design and development" line item in in our condensed consolidated statement of operations and $201 of this remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheet.
Note 3. Earnings Per Share ("EPS")
We 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 nine months ended AugustJanuary 30, 2021 and February 1, 2020 and August 3, 2019:
Net (loss) income | Shares | Per share (loss) income | ||||||||||
For the three months ended January 30, 2021 | ||||||||||||
Basic (loss) earnings per share | $ | (214 | ) | 45,064 | $ | (0.00 | ) | |||||
Dilution associated with stock compensation plans | — | 0 | — | |||||||||
Diluted (loss) earnings per share | $ | (214 | ) | 45,064 | $ | (0.00 | ) | |||||
For the three months ended February 1, 2020 | ||||||||||||
Basic (loss) earnings per share | $ | (12,734 | ) | 45,189 | $ | (0.28 | ) | |||||
Dilution associated with stock compensation plans | — | 0 | — | |||||||||
Diluted (loss) earnings per share | $ | (12,734 | ) | 45,189 | $ | (0.28 | ) | |||||
For the nine months ended January 30, 2021 | ||||||||||||
Basic earnings per share | $ | 10,669 | 44,908 | $ | 0.24 | |||||||
Dilution associated with stock compensation plans | — | 153 | — | |||||||||
Diluted earnings per share | $ | 10,669 | 45,061 | $ | 0.24 | |||||||
For the nine months ended February 1, 2020 | ||||||||||||
Basic earnings per share | $ | 1,570 | 45,139 | $ | 0.03 | |||||||
Dilution associated with stock compensation plans | — | 273 | — | |||||||||
Diluted earnings per share | $ | 1,570 | 45,412 | $ | 0.03 |
Net income | Shares | Per share income | ||||||||
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 | |||||
For the three months ended August 3, 2019 | ||||||||||
Basic earnings per share | $ | 7,030 | 45,089 | $ | 0.16 | |||||
Dilution associated with stock compensation plans | — | 172 | — | |||||||
Diluted earnings per share | $ | 7,030 | 45,261 | $ | 0.16 |
Options outstanding to purchase 2,1192,337 shares of common stock with a weighted average exercise price of $9.96$8.70 for the three months ended August 1, 2020January 30, 2021 and 2,1972,193 shares of common stock with a weighted average exercise price of $10.03$9.92 for the three months ended August 3, 2019February 1, 2020 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
Options outstanding to purchase 2,268 shares of common stock with a weighted average exercise price of $9.29 for the nine months ended January 30, 2021 and 2,223 shares of common stock with a weighted average exercise price of $9.95 for the nine months ended February 1, 2020 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.
Note 4. Revenue Recognition
In accordance with ASC 606-10-50,606-10-50, 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 disaggregation of revenue by segments:
Three Months Ended January 30, 2021 | ||||||||||||||||||||||||
High School | ||||||||||||||||||||||||
Commercial | Live Events | Park and Recreation | Transportation | International | Total | |||||||||||||||||||
Type of performance obligation | ||||||||||||||||||||||||
Unique configuration | $ | 2,087 | $ | 14,006 | $ | 3,604 | $ | 7,880 | $ | 5,155 | $ | 32,732 | ||||||||||||
Limited configuration | 24,630 | 4,536 | 10,424 | 3,273 | 7,391 | 50,254 | ||||||||||||||||||
Service and other | 3,368 | 4,788 | 616 | 616 | 1,765 | 11,153 | ||||||||||||||||||
$ | 30,085 | $ | 23,330 | $ | 14,644 | $ | 11,769 | $ | 14,311 | $ | 94,139 | |||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||
Goods/services transferred at a point in time | $ | 25,092 | $ | 5,720 | $ | 9,163 | $ | 3,436 | $ | 7,785 | $ | 51,196 | ||||||||||||
Goods/services transferred over time | 4,993 | 17,610 | 5,481 | 8,333 | 6,526 | 42,943 | ||||||||||||||||||
$ | 30,085 | $ | 23,330 | $ | 14,644 | $ | 11,769 | $ | 14,311 | $ | 94,139 |
Nine Months Ended January 30, 2021 | ||||||||||||||||||||||||
High School | ||||||||||||||||||||||||
Commercial | Live Events | Park and Recreation | Transportation | International | Total | |||||||||||||||||||
Type of performance obligation | ||||||||||||||||||||||||
Unique configuration | $ | 14,322 | $ | 83,283 | $ | 16,363 | $ | 24,579 | $ | 15,534 | $ | 154,081 | ||||||||||||
Limited configuration | 69,796 | 14,566 | 52,808 | 15,364 | 24,268 | 176,802 | ||||||||||||||||||
Service and other | 10,829 | 14,777 | 1,994 | 1,647 | 5,020 | 34,267 | ||||||||||||||||||
$ | 94,947 | $ | 112,626 | $ | 71,165 | $ | 41,590 | $ | 44,822 | $ | 365,150 | |||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||
Goods/services transferred at a point in time | $ | 71,210 | $ | 18,670 | $ | 48,249 | $ | 15,740 | $ | 25,432 | $ | 179,301 | ||||||||||||
Goods/services transferred over time | 23,737 | 93,956 | 22,916 | 25,850 | 19,390 | 185,849 | ||||||||||||||||||
$ | 94,947 | $ | 112,626 | $ | 71,165 | $ | 41,590 | $ | 44,822 | $ | 365,150 |
Three Months Ended February 1, 2020 | ||||||||||||||||||||||||
High School | ||||||||||||||||||||||||
Commercial | Live Events | Park and Recreation | Transportation | International | Total | |||||||||||||||||||
Type of performance obligation | ||||||||||||||||||||||||
Unique configuration | $ | 7,209 | $ | 27,459 | $ | 1,511 | $ | 7,857 | $ | 9,195 | $ | 53,231 | ||||||||||||
Limited configuration | 26,304 | 6,436 | 12,422 | 5,580 | 10,609 | 61,351 | ||||||||||||||||||
Service and other | 3,367 | 6,676 | 842 | 479 | 1,711 | 13,075 | ||||||||||||||||||
$ | 36,880 | $ | 40,571 | $ | 14,775 | $ | 13,916 | $ | 21,515 | $ | 127,657 | |||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||
Goods/services transferred at a point in time | $ | 26,555 | $ | 8,614 | $ | 11,080 | $ | 5,683 | $ | 11,008 | $ | 62,940 | ||||||||||||
Goods/services transferred over time | 10,325 | 31,957 | 3,695 | 8,233 | 10,507 | 64,717 | ||||||||||||||||||
$ | 36,880 | $ | 40,571 | $ | 14,775 | $ | 13,916 | $ | 21,515 | $ | 127,657 |
Nine Months Ended February 1, 2020 | ||||||||||||||||||||||||
High School | ||||||||||||||||||||||||
Commercial | Live Events | Park and Recreation | Transportation | International | Total | |||||||||||||||||||
Type of performance obligation | ||||||||||||||||||||||||
Unique configuration | $ | 29,181 | $ | 114,459 | $ | 12,727 | $ | 32,173 | $ | 35,415 | $ | 223,955 | ||||||||||||
Limited configuration | 80,193 | 25,662 | 60,349 | 19,550 | 33,663 | 219,417 | ||||||||||||||||||
Service and other | 11,192 | 19,075 | 2,357 | 1,541 | 5,287 | 39,452 | ||||||||||||||||||
$ | 120,566 | $ | 159,196 | $ | 75,433 | $ | 53,264 | $ | 74,365 | $ | 482,824 | |||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||
Goods/services transferred at a point in time | $ | 81,562 | $ | 30,903 | $ | 55,791 | $ | 19,901 | $ | 34,696 | $ | 222,853 | ||||||||||||
Goods/services transferred over time | 39,004 | 128,293 | 19,642 | 33,363 | 39,669 | 259,971 | ||||||||||||||||||
$ | 120,566 | $ | 159,196 | $ | 75,433 | $ | 53,264 | $ | 74,365 | $ | 482,824 |
Three Months Ended August 1, 2020 | |||||||||||||||||||||||
Commercial | Live Events | High School 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 |
Three Months Ended August 3, 2019 | |||||||||||||||||||||||
Commercial | Live Events | High School Park and Recreation | Transportation | International | Total | ||||||||||||||||||
Type of performance obligation | |||||||||||||||||||||||
Unique configuration | $ | 12,965 | $ | 45,587 | $ | 6,030 | $ | 11,897 | $ | 15,678 | $ | 92,157 | |||||||||||
Limited configuration | 27,235 | 7,713 | 23,800 | 6,587 | 9,930 | 75,265 | |||||||||||||||||
Service and other | 3,835 | 6,006 | 635 | 534 | 1,824 | 12,834 | |||||||||||||||||
$ | 44,035 | $ | 59,306 | $ | 30,465 | $ | 19,018 | $ | 27,432 | $ | 180,256 | ||||||||||||
Timing of revenue recognition | |||||||||||||||||||||||
Goods/services transferred at a point in time | $ | 27,703 | $ | 9,120 | $ | 22,599 | $ | 6,697 | $ | 10,188 | $ | 76,307 | |||||||||||
Goods/services transferred over time | 16,332 | 50,186 | 7,866 | 12,321 | 17,244 | 103,949 | |||||||||||||||||
$ | 44,035 | $ | 59,306 | $ | 30,465 | $ | 19,018 | $ | 27,432 | $ | 180,256 |
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 clientscustomers in excess of revenue recognized to date.
The following table reflects the changes in our contract assets and liabilities:
August 1, 2020 | May 2, 2020 | Dollar Change | Percent Change | |||||||||||
Contract assets | $ | 33,261 | $ | 35,467 | $ | (2,206 | ) | (6.2 | )% | |||||
Contract liabilities - current | 50,159 | 50,897 | (738 | ) | (1.4 | ) | ||||||||
Contract liabilities - noncurrent | 10,715 | 10,707 | 8 | 0.1 |
January 30, | May 2, | Dollar | Percent | |||||||||||||
2021 | 2020 | Change | Change | |||||||||||||
Contract assets | $ | 30,310 | $ | 35,467 | $ | (5,157 | ) | (14.5 | )% | |||||||
Contract liabilities - current | 53,292 | 50,897 | 2,395 | 4.7 | % | |||||||||||
Contract liabilities - noncurrent | 10,587 | 10,707 | (120 | ) | (1.1 | )% |
The changes in our contract assets and contract liabilities from May 2, 2020 to August 1, 2020January 30, 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 threenine months ended August 1, 2020.
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:
August 1, 2020 | ||||
Balance at beginning of period | $ | 24,490 | ||
New contracts sold | 8,188 | |||
Less: reductions for revenue recognized | (9,115 | ) | ||
Foreign currency translation and other | 250 | |||
Balance at end of period | $ | 23,813 |
January 30, | ||||
2021 | ||||
Balance at beginning of period | $ | 24,490 | ||
New contracts sold | 49,471 | |||
Less: reductions for revenue recognized | (48,818 | ) | ||
Foreign currency translation and other | 194 | |||
Balance at end of period | $ | 25,337 |
As of August 1, 2020 January 30, 2021 and May 2, 2020, our contracts in progress that were identified as loss contracts were immaterial. For these contracts, the provision for losses are included in the "Accrued expenses" line item in our condensed consolidated balance sheets.
During the threenine months ended August 1, 2020,January 30, 2021, we recognized revenue of $30,358$42,851 related to our contract liabilities as of May 2, 2020.
Remaining performance obligations
As of August 1, 2020,January 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations was $245,756.$248,643. We expect approximately $204,878$211,787 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements at August 1, 2020January 30, 2021 are $191,717$194,534 and $54,039,$54,109, 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, foreign currency exchange fluctuations and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate.
Note 5. Segment Reporting
We organize and manage our business by the following five5 segments which meet the definition of reportable segments under ASC 280-10, 280-10,Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type or geography and are the same as our business units. We evaluate segment performance based on operating results through contribution margin, which is comprised of gross 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 chief operating decision-maker (CODM), who is our president and chief executive officer, in making resource allocation decisions for our segments. Our CODM evaluates segment performance to the GAAP measure of gross profit. We exclude general and administration expense, product design and development expense, non-operating income and expense, and income tax expense (benefit) in the segment analysis.
The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
Three Months Ended | |||||||
August 1, 2020 | August 3, 2019 | ||||||
Net sales: | |||||||
Commercial | $ | 34,506 | $ | 44,035 | |||
Live Events | 51,474 | 59,306 | |||||
High School Park and Recreation | 28,943 | 30,465 | |||||
Transportation | 14,498 | 19,018 | |||||
International | 14,223 | 27,432 | |||||
143,644 | 180,256 | ||||||
Gross profit: | |||||||
Commercial | 7,742 | 9,218 | |||||
Live Events | 9,354 | 12,737 | |||||
High School Park and Recreation | 10,476 | 10,187 | |||||
Transportation | 5,143 | 6,754 | |||||
International | 3,046 | 6,609 | |||||
35,761 | 45,505 | ||||||
Contribution margin: (1) | |||||||
Commercial | 4,441 | 4,084 | |||||
Live Events | 7,138 | 8,872 | |||||
High School Park and Recreation | 7,915 | 6,592 | |||||
Transportation | 4,381 | 5,452 | |||||
International | 330 | 2,208 | |||||
24,205 | 27,208 | ||||||
Non-allocated operating expenses: | |||||||
General and administrative | 7,124 | 9,093 | |||||
Product design and development | 7,532 | 10,500 | |||||
Operating income | 9,549 | 7,615 | |||||
Nonoperating income (expense): | |||||||
Interest income | 85 | 269 | |||||
Interest expense | (73 | ) | (35 | ) | |||
Other (expense) income, net | (627 | ) | 193 | ||||
Income before income taxes | 8,934 | 8,042 | |||||
Income tax expense | 1,467 | 1,012 | |||||
Net income | $ | 7,467 | $ | 7,030 | |||
Depreciation and amortization: | |||||||
Commercial | $ | 772 | $ | 974 | |||
Live Events | 1,451 | 1,398 | |||||
High School Park and Recreation | 496 | 512 | |||||
Transportation | 237 | 264 | |||||
International | 693 | 524 | |||||
Unallocated corporate depreciation | 688 | 711 | |||||
$ | 4,337 | $ | 4,383 |
Three Months Ended | Nine Months Ended | |||||||||||||||
January 30, | February 1, | January 30, | February 1, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales: | ||||||||||||||||
Commercial | $ | 30,085 | $ | 36,880 | $ | 94,947 | $ | 120,566 | ||||||||
Live Events | 23,330 | 40,571 | 112,626 | 159,196 | ||||||||||||
High School Park and Recreation | 14,644 | 14,775 | 71,165 | 75,433 | ||||||||||||
Transportation | 11,769 | 13,916 | 41,590 | 53,264 | ||||||||||||
International | 14,311 | 21,515 | 44,822 | 74,365 | ||||||||||||
Total company net sales | 94,139 | 127,657 | 365,150 | 482,824 | ||||||||||||
Gross profit: | ||||||||||||||||
Commercial | 8,410 | 5,399 | 24,730 | 22,479 | ||||||||||||
Live Events | 4,256 | 7,815 | 20,910 | 32,486 | ||||||||||||
High School Park and Recreation | 6,437 | 3,184 | 25,410 | 22,595 | ||||||||||||
Transportation | 3,845 | 4,316 | 14,300 | 18,073 | ||||||||||||
International | 993 | 3,768 | 7,666 | 14,441 | ||||||||||||
23,941 | 24,482 | 93,016 | 110,074 | |||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 12,004 | 16,552 | 36,214 | 51,026 | ||||||||||||
General and administrative | 6,389 | 8,640 | 20,777 | 26,698 | ||||||||||||
Product design and development | 5,784 | 8,442 | 20,053 | 29,063 | ||||||||||||
24,177 | 33,634 | 77,044 | 106,787 | |||||||||||||
Operating (loss) income | (236 | ) | (9,152 | ) | 15,972 | 3,287 | ||||||||||
Nonoperating income (expense): | ||||||||||||||||
Interest income | 52 | 233 | 203 | 664 | ||||||||||||
Interest expense | (92 | ) | 13 | (249 | ) | (53 | ) | |||||||||
Other (expense) income, net | (913 | ) | (331 | ) | (2,377 | ) | (652 | ) | ||||||||
(Loss) income before income taxes | $ | (1,189 | ) | $ | (9,237 | ) | $ | 13,549 | $ | 3,246 | ||||||
Depreciation and amortization: | ||||||||||||||||
Commercial | $ | 760 | $ | 930 | $ | 2,253 | $ | 2,799 | ||||||||
Live Events | 1,436 | 1,395 | 4,311 | 4,187 | ||||||||||||
High School Park and Recreation | 464 | 501 | 1,452 | 1,520 | ||||||||||||
Transportation | 233 | 255 | 704 | 771 | ||||||||||||
International | 738 | 646 | 2,132 | 1,733 | ||||||||||||
Unallocated corporate depreciation | 653 | 746 | 1,996 | 2,187 | ||||||||||||
$ | 4,284 | $ | 4,473 | $ | 12,848 | $ | 13,197 |
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 | |||||||
August 1, 2020 | August 3, 2019 | ||||||
Net sales: | |||||||
United States | $ | 128,069 | $ | 149,460 | |||
Outside United States | 15,575 | 30,796 | |||||
$ | 143,644 | $ | 180,256 | ||||
August 1, 2020 | May 2, 2020 | ||||||
Property and equipment, net of accumulated depreciation: | |||||||
United States | $ | 56,822 | $ | 58,422 | |||
Outside United States | 9,237 | 9,062 | |||||
$ | 66,059 | $ | 67,484 |
Three Months Ended | Nine Months Ended | |||||||||||||||
January 30, | February 1, | January 30, | February 1, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales: | ||||||||||||||||
United States | $ | 78,152 | $ | 103,347 | $ | 314,674 | $ | 399,913 | ||||||||
Outside United States | 15,987 | 24,310 | 50,476 | 82,911 | ||||||||||||
$ | 94,139 | $ | 127,657 | $ | 365,150 | $ | 482,824 |
January 30, | May 2, | |||||||
2021 | 2020 | |||||||
Property and equipment, net of accumulated depreciation: | ||||||||
United States | $ | 52,657 | $ | 58,422 | ||||
Outside United States | 9,148 | 9,062 | ||||||
$ | 61,805 | $ | 67,484 |
We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10%10 percent 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.
We have numerous raw material and component suppliers, and no supplier accounts for 10%10 percent or more of our cost of sales; however, we have a number of single-source suppliers that could limit our supply or cause delays in obtaining raw material and components needed in manufacturing.
Amortized Cost | Unrealized Losses | Fair Value | |||||||||
Balance as of August 1, 2020 | |||||||||||
Certificates of deposit | $ | 1,230 | $ | — | $ | 1,230 | |||||
$ | 1,230 | $ | — | $ | 1,230 | ||||||
Balance as of May 2, 2020 | |||||||||||
Certificates of deposit | $ | 1,230 | $ | — | $ | 1,230 | |||||
$ | 1,230 | $ | — | $ | 1,230 |
Less than 12 months | Total | ||||||
Certificates of deposit | $ | 1,230 | $ | 1,230 | |||
$ | 1,230 | $ | 1,230 |
Note 7.6. Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the threenine months ended August 1, 2020January 30, 2021 were as follows:
Live Events | Commercial | Transportation | International | Total | |||||||||||||||
Balance as of May 2, 2020 | $ | 2,266 | $ | 3,144 | $ | 38 | $ | 2,295 | $ | 7,743 | |||||||||
Foreign currency translation | 13 | 91 | 13 | 188 | 305 | ||||||||||||||
Balance as of August 1, 2020 | $ | 2,279 | $ | 3,235 | $ | 51 | $ | 2,483 | $ | 8,048 |
Live Events | Commercial | Transportation | International | Total | ||||||||||||||||
Balance as of May 2, 2020 | $ | 2,266 | $ | 3,144 | $ | 38 | $ | 2,295 | $ | 7,743 | ||||||||||
Foreign currency translation | 30 | 205 | 29 | 255 | 519 | |||||||||||||||
Balance as of January 30, 2021 | $ | 2,296 | $ | 3,349 | $ | 67 | $ | 2,550 | $ | 8,262 |
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. Our annual analysis is performed during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third fiscal quarter. We performed our annual impairment test on November 4, 2019 2, 2020 and concluded no goodwill impairment existed. We plan to complete our annual analysis as of the first business day of our third quarter of fiscal 2021, which will begin on November 2, 2020.
In March 2020, we began to see the impacts from the COVID-19COVID-19 pandemic that could have a negative impact on our forecasted revenue and profitability and stock price declines. This, along with other market conditions, led us to perform an interim goodwill impairment analysis in the fourth quarter of fiscal 2020. After evaluating our results, events and circumstances, we determined no goodwill impairment was necessary. Although the COVID-19price. The COVID-19 pandemic continues to cause uncertainty, inso during the firstthird quarter of fiscal 2021, we considered if any new events had occurred or if circumstances had changed since our annual impairment such that it was more likely than not that the fair value of any of our reporting units was below its carrying amount,amount. While order volume was low during the quarter, the results did not impact our long-term outlook, and we did not identify any further impairment indicators; therefore, we did not perform an additional interim conduct further impairment analysis.
August 1, 2020 | May 2, 2020 | ||||||
Raw materials | $ | 33,076 | $ | 35,306 | |||
Work-in-process | 9,943 | 12,102 | |||||
Finished goods | 38,416 | 39,395 | |||||
$ | 81,435 | $ | 86,803 |
August 1, 2020 | May 2, 2020 | ||||||
Land | $ | 2,183 | $ | 2,183 | |||
Buildings | 69,967 | 68,804 | |||||
Machinery and equipment | 105,188 | 104,157 | |||||
Office furniture and equipment | 6,174 | 6,151 | |||||
Computer software and hardware | 53,691 | 53,441 | |||||
Equipment held for rental | 287 | 287 | |||||
Demonstration equipment | 8,368 | 8,473 | |||||
Transportation equipment | 7,783 | 7,944 | |||||
253,641 | 251,440 | ||||||
Less accumulated depreciation | 187,582 | 183,956 | |||||
$ | 66,059 | $ | 67,484 |
Note 9.7. 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 $3,322$4,160 and $2,828 at August 1, 2020 January 30, 2021 and May 2, 2020, respectively. Included in accounts receivable as of August 1, 2020 January 30, 2021 and May 2, 2020 was $741$1,219 and $687, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.
In some contracts with customers, we agree to installment payments exceeding 12 months. The present value of these contracts is 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, including accrued interest and current maturities, was $4,045$2,490 and $4,633 as of August 1, 2020 January 30, 2021 and May 2, 2020, respectively. Contract receivables bearing annual interest rates of 5.0 to 9.0 percent are due in varying annual installments through 2024.2024. The face value of long-term receivables was $4,327$2,618 as of August 1, 2020January 30, 2021 and $5,166 as of May 2, 2020.2020.
Note 8. Financing Agreements
On November 15, 2019, we entered into an amendment to extend the maturity date of our 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. On August 28, 2020, we entered into the third amendment to our credit agreement and a security agreement over certain assets. The third amendment adds a liquidity covenant and revises other financial covenants. The revolving amount of the agreement and note remains at $35,000, including up to $20,000 for commercial and standby letters of credit. The credit agreement and amendments require us to be in compliance with certain financial ratios, including the most sensitive covenant of interest bearing debt to earnings before income taxes, depreciation, and amortization of less than 2.5; and other covenants and contain customary events of default, including failure to comply with covenants, failure to pay or discharge material judgments and taxes, bankruptcy, failure to pay loans and fees, and change of control. The occurrence of an event of default by us would permit the lenders to terminate their commitments and accelerate loans repayment, obtain securitized assets, and require collateralization of outstanding letters of credit. As of January 30, 2021, $15,000 had been advanced to us under the loan portion of the line of credit, which is included in the "Other long-term obligations" line item in our condensed consolidated balance sheets, and the balance of letters of credit outstanding was approximately $6,710. As of January 30, 2021, $13,290 of the credit facility remains in place and available.
We evaluatedare sometimes required to obtain bank guarantees or other financial instruments for display installations and utilize a global bank to provide such instruments. If we are unable to complete the installation work, our receivablecustomer would draw on the banking arrangement, and contract assets asthe bank would subrogate its loss to Daktronics restricted cash accounts. As of August 1, 2020 and reserved for anticipated losses. Due to the uncertainty created by the COVID-19 pandemic, this loss may materially change from this estimate.January 30, 2021, we had $3,637 of such instruments outstanding.
As of January 30, 2021, we were in compliance with all applicable bank loan covenants.
Note 10.9. 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 threenine months ended August 1, 2020,January 30, 2021, we had 0 repurchases of shares of our outstanding common stock. During the threenine months ended August 3, 2019,February 1, 2020, we repurchased 187378 shares of common stock at a total cost of $1,187.$2,329. As of August 1, 2020,January 30, 2021, we had $32,539$35,846 of remaining capacity under our current share repurchase program.
As part of our COVID-19COVID-19 response, on April 1, 2020, our Board of Directors voted to suspend stock repurchases under our share repurchase program for the foreseeable future.
Note 11.10. Commitments and Contingencies
Litigation:
We are a party to legal proceedings and claims which arise during the ordinary course of business.As of August 1, 2020 and May 2, 2020 $2,118, we recorded a $2,072 reserve for the probable and $2,072, respectively, werereasonably estimated cost to settle a patent litigation claim, which was included in the "Accrued expenses" line item in our condensed consolidated balance sheets forsheets. During the third quarter of fiscal 2021, an appellate court ruled in our favor on this matter. Since we no longer estimate we have a probable loss, we recorded a credit to the "Cost of sales" line item in our condensed consolidated statement of operations and reasonably estimated cost to settle a patent litigation claim.removed the liability from our condensed consolidated balance sheet during the third quarter of fiscal 2021.
For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss wouldwill be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. We do not expect the ultimate liability of these unresolved legal proceedings or claims to have a material effect on our financial position, liquidity or capital resources.
Warranties:
Changes in our warranty obligation for theAugust 1, 2020 | ||||
Beginning accrued warranty obligations | $ | 25,624 | ||
Warranties issued during the period | 2,800 | |||
Settlements made during the period | (1,056 | ) | ||
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations | (308 | ) | ||
Ending accrued warranty obligations | $ | 27,060 |
January 30, | ||||
2021 | ||||
Beginning accrued warranty obligations | $ | 25,624 | ||
Warranties issued during the period | 6,473 | |||
Settlements made during the period | (4,115 | ) | ||
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations | (1,520 | ) | ||
Ending accrued warranty obligations | $ | 26,462 |
Performance guarantees:
We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts. As ofFiscal years ending | Amount | |||
2021 | $ | 2,831 | ||
2022 | 2,750 | |||
2023 | 1,755 | |||
2024 | 148 | |||
2025 | 113 | |||
Thereafter | 40 | |||
$ | 7,637 |
Note 12.11. Income Taxes
The provision for income taxes during interim reporting periods is calculated by applying an estimate of 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.period, adjusted for discrete items. Due to various factors, and operating in multiple state and foreign jurisdictions,including our estimate of annual income, our effective tax rate is subject to fluctuation.
Our effective tax rate for the three and nine months ended August 1, 2020January 30, 2021 was 16.482.0 percent and 21.3 percent, respectively, as compared to 12.6an effective tax rate benefit of 37.9 percent and 51.6 percent for the three and nine months ended August 3, 2019.February 1, 2020. The quarterly effective tax rate waschanges each period are primarily driven by the benefitmathematical calculations of estimated tax credits and other permanent difference levels proportionate to estimated pre-tax earnings similarlevels and the related changes in estimates of each of those variables through the year. For the three months ended January 30, 2021, the rate change was mainly driven by a return to provision benefit booked in proportion to an actual small pre-tax loss for the previous period.
We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2017, 2018,2019 and 2020 remain open to federal tax examinations, and fiscal years 2016, 2017,2018,2019 and 2020 remain open for various 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 2009.2010. 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 August 1, 2020,January 30, 2021, undistributed earnings of our foreign subsidiaries are considered to be reinvested indefinitely. Additionally, we had $723$554 of unrecognized tax benefits which would reduce our effective tax rate if recognized.
Note 13.12. Fair Value Measurement
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 August 1, 2020 January 30, 2021 and May 2, 2020 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 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Balance as of January 30, 2021 | ||||||||||||||||
Cash and cash equivalents | $ | 76,877 | $ | 0 | $ | 0 | $ | 76,877 | ||||||||
Restricted cash | 3,884 | 0 | 0 | 3,884 | ||||||||||||
Available-for-sale securities: | ||||||||||||||||
Certificates of deposit | 0 | 248 | 0 | 248 | ||||||||||||
Derivatives - asset position | 0 | 0 | 0 | 0 | ||||||||||||
Derivatives - liability position | 0 | (331 | ) | 0 | (331 | ) | ||||||||||
Acquisition-related contingent consideration | 0 | 0 | (311 | ) | (311 | ) | ||||||||||
$ | 80,761 | $ | (83 | ) | $ | (311 | ) | $ | 80,367 | |||||||
Balance as of May 2, 2020 | ||||||||||||||||
Cash and cash equivalents | $ | 40,398 | $ | 0 | $ | 0 | $ | 40,398 | ||||||||
Restricted cash | 14 | 0 | 0 | 14 | ||||||||||||
Available-for-sale securities: | ||||||||||||||||
Certificates of deposit | 0 | 1,230 | 0 | 1,230 | ||||||||||||
Derivatives - asset position | 0 | 261 | 0 | 261 | ||||||||||||
Derivatives - liability position | 0 | (17 | ) | 0 | (17 | ) | ||||||||||
Acquisition-related contingent consideration | 0 | 0 | (761 | ) | (761 | ) | ||||||||||
$ | 40,412 | $ | 1,474 | $ | (761 | ) | $ | 41,125 |
Fair Value Measurements | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Balance as of August 1, 2020 | |||||||||||||||
Cash and cash equivalents | $ | 44,609 | $ | — | $ | — | $ | 44,609 | |||||||
Restricted cash | 96 | — | — | 96 | |||||||||||
Available-for-sale securities: | |||||||||||||||
Certificates of deposit | — | 1,230 | — | 1,230 | |||||||||||
Derivatives - asset position | — | 36 | — | 36 | |||||||||||
Derivatives - liability position | — | (242 | ) | — | (242 | ) | |||||||||
Acquisition-related contingent consideration | — | — | (401 | ) | (401 | ) | |||||||||
$ | 44,705 | $ | 1,024 | $ | (401 | ) | $ | 45,328 | |||||||
Balance as of May 2, 2020 | |||||||||||||||
Cash and cash equivalents | $ | 40,398 | $ | — | $ | — | $ | 40,398 | |||||||
Restricted cash | 14 | — | — | 14 | |||||||||||
Available-for-sale securities: | |||||||||||||||
Certificates of deposit | — | 1,230 | — | 1,230 | |||||||||||
Derivatives - asset position | — | 261 | — | 261 | |||||||||||
Derivatives - liability position | — | (17 | ) | — | (17 | ) | |||||||||
Acquisition-related contingent consideration | — | — | (761 | ) | (761 | ) | |||||||||
$ | 40,412 | $ | 1,474 | $ | (761 | ) | $ | 41,125 |
A roll forward of the Level 3 contingent liabilities, both short- and long-term, for the threenine months ended August 1, 2020January 30, 2021 is as follows:
Acquisition-related contingent consideration as of May 2, 2020 | $ | 761 | ||
Additions | 33 | |||
Settlements | (400 | ) | ||
Interest | 7 | |||
Acquisition-related contingent consideration as of August 1, 2020 | $ | 401 |
Acquisition-related contingent consideration as of May 2, 2020 | $ | 761 | ||
Additions | 133 | |||
Settlements | (600 | ) | ||
Interest | 17 | |||
Acquisition-related contingent consideration as of January 30, 2021 | $ | 311 |
There have been no changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2020.2020. For additional information, see our Annual Report on Form 10-K10-K for the fiscal year ended May 2, 2020 for the methods and assumptions used to estimate the fair value of each class of financial instrument.
August 1, 2020 | May 2, 2020 | ||||||||||
U.S. Dollars | Foreign Currency | U.S. Dollars | Foreign Currency | ||||||||
Foreign Currency Exchange Forward Contracts: | |||||||||||
U.S. Dollars/Australian Dollars | 5,406 | 7,839 | 2,235 | 3,323 | |||||||
U.S. Dollars/Canadian Dollars | — | — | 452 | 648 | |||||||
U.S. Dollars/British Pounds | 2,149 | 1,650 | 3,160 | 2,424 | |||||||
U.S. Dollars/Euros | — | — | 1,881 | 1,689 |
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 and ability to maintain adequate liquidity; (iii.) trends affecting our financial condition or results of operations; (iv.) our growth and operating 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 components and our ability to sell product internationally; (xiii.) the resolution of litigation contingencies; (xiv.) the timing and magnitude of any acquisitions or dispositions; (xv.) the impact of governmental laws, regulations, and orders, including as a result of the COVID-19 pandemic caused by the coronavirus; and (xvi.) disruptions to our business caused by geopolitical events, military actions, work stoppages, natural disasters, or international health emergencies, such as the COVID-19 pandemic. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “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 May 2, 2020 in the section entitled “Part I, Item 1A. Risk Factors” and “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 of America ("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 5. Segment 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 uniquely 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. Uniquely configured orders can include several displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules per the customer's needs. OurHistorically, our third fiscal quarter sales and profit levels are lighter than other quarters due to the seasonality of our sports business, construction cycles, and the reduced number of production days due to holidays in the quarter.
Our gross margins tend to fluctuate more on uniquely configured orders than on limited configured orders. Uniquely configured orders involving competitive bidding and substantial subcontracting work for product installation generally have lower gross margins. Although we follow the over time method of recognizing revenues for uniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.
Backlog represents the dollar value of contractually binding sales agreements or purchase orders for integrated electronic display systems and related products and service.services which are expected to be recognized in net sales in the future. Orders are contractually binding purchase commitments from customers. Orders are included in backlog when we are in receipt of an executed contract and any required deposits or security. As a result, certainsecurity, and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Backlog can fluctuate due to large order bookingsOrders and the timing and seasonality of net sales. Because order backlog fluctuates and may be subject to extended delivery schedules, orders may be canceled and have varied estimated profitability. Our backlog isare not necessarily indicative of future net sales or net income. Backlog is not a measuremeasures 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.
Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlights fluctuations caused by seasonality and our large project business. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. We believe order information is useful to investors because it provides an indication of our market share. We believe backlog information is useful to investors to provide an indication of future revenues.
GENERAL
Our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visualaudiovisual communication systems. We organize into business units to focus on customer loyalty over time to earn new and replacement business because our products have a finite 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 systems and our ability to 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).
We 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 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, |
• | 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 and increased user adoption and applications have increased the size of the global market.
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 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
Outlook: The COVID-19 pandemic has created disruptions since its initial outbreak, first impacting our China operations. Beginning in February 2020, we created COVID-19 response teams to manage our local and global response activities. Using the guidance from the U.S. Centers for Disease Control and Prevention, the World Health Organization, and other applicable regulatory agencies, we enhanced or implemented robust health, safety, and cleaning protocols across our organization.
Throughout the first quarternine months of fiscal 2021, employees are workinghave worked from home where possible, and we have limited travel for the time being.has been limited. When unable to work safely or within the various regulations put in place in certain geographies and locations and becauseas a result of decreased demand, decreased, our sales, manufacturing and field service teams havetemporarily reduced capacity and furloughed employees.
Our sales teams have continued to engage our customers to promote our value, mostly virtually, across our diverse markets and geographies. However, our customers reduced their spend on audio-visualaudiovisual systems and related services duringthrough the first quarternine months of our fiscal year as they work through the economic and business implications of COVID-19. We took corresponding actions to reduce all operating expenses to align with expected order and sales declines expected throughfor the remainder of the year. These expense reductions vary in permanency and may change throughout the fiscal year.
Our supply chain team has remained alert to potential short supply situations and shipping disruptions, and, if necessary, we are utilizing alternative sources and shipping methods.
We expect the COVID-19 pandemic to continue to have an adverse impact on our revenue and our results of operations, the sizeamount and duration of which we are currently unable to predict. The global impact of COVID-19 continues to rapidly evolve. The extent to which COVID-19 will impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate severity and spread of the disease, the duration of the pandemic, the availability and effectiveness of vaccines, travel restrictions and social distancing requirements in the United States and other countries, the pace and extent of the economic recovery, and any change in trends and practices in how people gather. Given the speed and frequency of continuously evolving developments with respect to this pandemic, we cannot reasonably estimate the magnitude of the impact to our business.
In the near-term, our operating results are going to be challenged due to this crisis. We continue to manage our cost structure to meet the uncertain demand, while takingmaking additional cost reductions actions as needed. Our customers' businesses are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses. The performance and financial condition of our customers may cause us to alter our business terms or to cease doing business with a particular customer. Further, the potential impact of the COVID-19 pandemic on their businesses could adversely impact our customers' ability to pay us for work performed, and increaseincreasing our future estimate of credit losses.
In addition to the COVID-19 impacts noted above, the outlook and unique key growth drivers and challenges by our business units include:
Commercial Business Unit:
In the near-term, our customers who rely on advertising revenues for Out-of-Home ("OOH") advertising or who are reliant on customer foot-traffic to drive sales have been adversely impacted by stay-at-home or quarantine orders which started in March 2020 with varied or no published expiration. These customers are expected to delay their discretionary capital spending through the COVID-19 economic recovery.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 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 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 OOH advertising companies continue developing new sites and replacing digital billboards reaching end of life. This is dependent on no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, as well as maintaining our current market share in a business that is concentrated in a few large OOH companies. |
• | Replacement cycles within each of these areas. |
Live Events Business Unit:
Our customers have been adversely impacted by governmental limitations on the number of people allowed to gather in certain spaces which started in March 2020 with varied or no published expiration. In the near-term, our customers who rely on advertising and event revenues are expected to delay spending on projects because of the COVID-19 pandemic. Changes to theOver 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 system 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:
In the near-term, our customers who rely on advertising revenue for sports installations or who may be impacted by governmental tax revenue availability may choose to delay spending on projects because of the impacts on their business caused by the COVID-19 pandemic.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 compared to traditional 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. |
• | Lower 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:
In the near term, customers in the mass-transit and airport part of the market are expected to delay spending as a result of the limited use of this infrastructure and impact on their financial stability during the COVID-19 pandemic. In the long-term, roadway projects may be impacted due to reduced tax revenues. That impactOver the long-term, we believe growth in the Transportation business unit will result from increasing applications and acceptancea number 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 wayfinding 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.
• | 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. |
• | Expanded use of dynamic messaging systems for advertising and wayfinding 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:
In the near-term, our customers who rely on advertising, retail, event revenues and governmental tax revenue availability are expected to delay spending on projects due to the impacts caused by the COVID-19 pandemic. Changes to the ways and willingness of how people gather may change theOver 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 architectural lighting market opportunities and thea number of factors including:
• | 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. |
• | Continued focus on sports facility, spectacular-type, OOH advertising products, and architectural 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. |
• | Additional opportunities exist with expanded market usage of LED technology due to price considerations, usage of LED technology replacing prior LCD installations and 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 endedending May 1, 2021 will consist of 52 weeks and the fiscal year ended May 2, 2020 was a 53-week year; therefore, the threenine months ended AugustJanuary 30, 2021 contains operating results for 39 weeks while the nine months ended February 1, 2020 contains operating results for 13 weeks while the three months ended August 3, 2019 contains operating results for 1440 weeks.
COMPARISON OF THE THREE MONTHS ENDED AUGUSTJanuary 30, 2021 and February 1, 2020 AND AUGUST 3, 2019
Net Sales
Three Months Ended | ||||||||||||||
(in thousands) | August 1, 2020 | August 3, 2019 | Dollar Change | Percent Change | ||||||||||
Net sales: | ||||||||||||||
Commercial | $ | 34,506 | $ | 44,035 | $ | (9,529 | ) | (21.6 | )% | |||||
Live Events | 51,474 | 59,306 | (7,832 | ) | (13.2 | ) | ||||||||
High School Park and Recreation | 28,943 | 30,465 | (1,522 | ) | (5.0 | ) | ||||||||
Transportation | 14,498 | 19,018 | (4,520 | ) | (23.8 | ) | ||||||||
International | 14,223 | 27,432 | (13,209 | ) | (48.2 | ) | ||||||||
$ | 143,644 | $ | 180,256 | $ | (36,612 | ) | (20.3 | )% | ||||||
Orders: | ||||||||||||||
Commercial | $ | 25,533 | $ | 38,648 | $ | (13,115 | ) | (33.9 | )% | |||||
Live Events | 41,860 | 66,969 | (25,109 | ) | (37.5 | ) | ||||||||
High School Park and Recreation | 28,099 | 30,552 | (2,453 | ) | (8.0 | ) | ||||||||
Transportation | 13,089 | 22,215 | (9,126 | ) | (41.1 | ) | ||||||||
International | 13,572 | 29,079 | (15,507 | ) | (53.3 | ) | ||||||||
$ | 122,153 | $ | 187,463 | $ | (65,310 | ) | (34.8 | )% |
Three Months Ended | ||||||||||||||||
January 30, | February 1, | Dollar | Percent | |||||||||||||
(in thousands) | 2021 | 2020 | Change | Change | ||||||||||||
Net sales: | ||||||||||||||||
Commercial | $ | 30,085 | $ | 36,880 | $ | (6,795 | ) | (18.4 | )% | |||||||
Live Events | 23,330 | 40,571 | (17,241 | ) | (42.5 | ) | ||||||||||
High School Park and Recreation | 14,644 | 14,775 | (131 | ) | (0.9 | ) | ||||||||||
Transportation | 11,769 | 13,916 | (2,147 | ) | (15.4 | ) | ||||||||||
International | 14,311 | 21,515 | (7,204 | ) | (33.5 | ) | ||||||||||
$ | 94,139 | $ | 127,657 | $ | (33,518 | ) | (26.3 | )% | ||||||||
Orders: | ||||||||||||||||
Commercial | $ | 34,806 | $ | 36,898 | $ | (2,092 | ) | (5.7 | )% | |||||||
Live Events | 11,075 | 41,484 | (30,409 | ) | (73.3 | ) | ||||||||||
High School Park and Recreation | 16,366 | 20,447 | (4,081 | ) | (20.0 | ) | ||||||||||
Transportation | 12,991 | 16,203 | (3,212 | ) | (19.8 | ) | ||||||||||
International | 11,650 | 19,992 | (8,342 | ) | (41.7 | ) | ||||||||||
$ | 86,888 | $ | 135,024 | $ | (48,136 | ) | (35.6 | )% |
Sales and orders in all business units were impacted as a result of the economic downturn caused by the COVID-19 pandemic as well as the three months ended August 3, 2019 included 14 weeks compared to the more common 13 weeks. The three months ended August 1, 2020 contained 13 weeks.
During the quarter, order activity in all business units were lower as compared to prior periods due to loweroverall low market activity in lightprimarily resulting from customers delaying decisions or deferring upgrades and improvements due to the impact of the COVID-19 pandemic.
Product Order Backlog
The product order backlog as of August 1, 2020January 30, 2021 was $192$195 million as compared to $207$187 million as of August 3, 2019February 1, 2020 and $212$201 million at the end of the fourthsecond quarter of fiscal 2020.2021. 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 August 1, 2020January 30, 2021 increased in the High School ParkLive Events, Transportation, and Recreation and TransportationInternational business units and decreased in the Commercial Live Events, and InternationalHigh School Park and Recreation business units from August 3, 2019.
Gross Profit
Three Months Ended | |||||||||||||||
August 1, 2020 | August 3, 2019 | ||||||||||||||
Amount | As a Percent of Net Sales | Amount | As a Percent of Net Sales | ||||||||||||
(in thousands) | |||||||||||||||
Commercial | $ | 7,742 | 22.4 | % | $ | 9,218 | 20.9 | % | |||||||
Live Events | 9,354 | 18.2 | 12,737 | 21.5 | |||||||||||
High School Park and Recreation | 10,476 | 36.2 | 10,187 | 33.4 | |||||||||||
Transportation | 5,143 | 35.5 | 6,754 | 35.5 | |||||||||||
International | 3,046 | 21.4 | 6,609 | 24.1 | |||||||||||
$ | 35,761 | 24.9 | % | $ | 45,505 | 25.2 | % |
Three Months Ended | ||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||
As a Percent | As a Percent | |||||||||||||||
(in thousands) | Amount | of Net Sales | Amount | of Net Sales | ||||||||||||
Gross Profit: | ||||||||||||||||
Commercial | $ | 8,410 | 28.0 | % | $ | 5,399 | 14.6 | % | ||||||||
Live Events | 4,256 | 18.2 | 7,815 | 19.3 | ||||||||||||
High School Park and Recreation | 6,437 | 44.0 | 3,184 | 21.5 | ||||||||||||
Transportation | 3,845 | 32.7 | 4,316 | 31.0 | ||||||||||||
International | 993 | 6.9 | 3,768 | 17.5 | ||||||||||||
$ | 23,941 | 25.4 | % | $ | 24,482 | 19.2 | % |
Gross profit
is net sales less cost of sales. Cost of sales 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 decrease in ourimproved gross profit percentage forrate is a result of the three months ended August 1, 2020mix of service agreement and product sales and a $2.1 million litigation claim reversal in the third quarter of fiscal 2021 as compared to the same period one year ago was mostly related to lower sales volumes over relatively fixed infrastructure costs. We continued to seethird quarter of fiscal 2020. Excluding the global spreadimpact of the coronavirus pandemic (COVID-19) impact order volumes and took various steps to solidify our financial position and reduce expenses. Duringlitigation claim reversal, gross profit as a percentage of sales was 23.2 percent in the firstthird quarter of fiscal 2021. In addition, during the third quarter of fiscal 2021, we completed a special voluntary retirementhave lowered overall staffing and voluntary exit offering with 60 employees and we conducted a reduction in force of 108temporarily furloughed employees to adjust our capacity and reduce on-going expenses dueachieve lower operating costs to align with the uncertainties created by the COVID-19 pandemic. During the third quarter of fiscal 2020 we experienced additional expenses of approximately $1.1 million for project delivery costs. The approximate cost of these programs included in the "Costs of sales" line itemgross profit percentage increased in our condensed consolidated statements of operations was $1.2 million, which was offset by $0.6 million of governmental wage subsidies.
We earned a higher rate of gross profit on our service agreements due to reduced stand ready services conducted during the quarter. This was due to lower on-site demand as events were either not being held.held or held at a reduced frequency as compared to prior quarters. We believe this higher gross profit level will not be sustained in future quarters. TotalThis was offset by total warranty as a percent of sales was 1.6 percent for the three months ended August 1, 2020January 30, 2021 as compared to the same period one year ago remained relatively flat. The following describes the overall impact by business unit for1.3 percent during the three months ended AugustFebruary 1, 2020 compared to the same period one year ago:2020.
Three Months Ended | ||||||||||||||||
August 1, 2020 | August 3, 2019 | |||||||||||||||
Amount | As a Percent of Net Sales | Percent Change | Amount | As a Percent of Net Sales | ||||||||||||
(in thousands) | ||||||||||||||||
Commercial | $ | 4,441 | 12.9 | % | 8.7 | % | $ | 4,084 | 9.3 | % | ||||||
Live Events | 7,138 | 13.9 | (19.5 | ) | 8,872 | 15.0 | ||||||||||
High School Park and Recreation | 7,915 | 27.3 | 20.1 | 6,592 | 21.6 | |||||||||||
Transportation | 4,381 | 30.2 | (19.6 | ) | 5,452 | 28.7 | ||||||||||
International | 330 | 2.3 | (85.1 | ) | 2,208 | 8.0 | ||||||||||
$ | 24,205 | 16.9 | % | (11.0 | )% | $ | 27,208 | 15.1 | % |
Three Months Ended | ||||||||||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||||||||||
As a Percent | Dollar | Percent | As a Percent | |||||||||||||||||||||
(in thousands) | Amount | of Net Sales | Change | Change | Amount | of Net Sales | ||||||||||||||||||
Contribution Margin: | ||||||||||||||||||||||||
Commercial | $ | 5,061 | 16.8 | % | $ | 4,241 | 517.2 | % | $ | 820 | 2.2 | % | ||||||||||||
Live Events | 2,062 | 8.8 | (1,993 | ) | (49.1 | ) | 4,055 | 10.0 | ||||||||||||||||
High School Park and Recreation | 4,276 | 29.2 | 4,553 | (1,643.7 | ) | (277 | ) | (1.9 | ) | |||||||||||||||
Transportation | 3,212 | 27.3 | (46 | ) | (1.4 | ) | 3,258 | 23.4 | ||||||||||||||||
International | (2,674 | ) | (18.7 | ) | (2,748 | ) | (3,713.5 | ) | 74 | 0.3 | ||||||||||||||
$ | 11,937 | 12.7 | % | $ | 4,007 | 50.5 | % | $ | 7,930 | 6.2 | % |
Contribution margin
is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facility-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 demonstrations, customer relationship management systems, and supplies.Contribution margin is impacted by the previously discussed sales and gross margin for each business unit. Each business unit's contribution margin was impacted by a decrease in selling expenses in the first quarter of fiscal 2021 compared to the same quarter a year ago due to a decrease in personnel related expenses, offset by severance costs for reductions in force, as well ascontinued reductions in travel and entertainment, and in marketing, and convention related expenses due to limited ability to travel or delayed conventions, which was partly offset by a $1.3 million increase in bad debt expenses.
Three Months Ended | ||||||||||||||||
August 1, 2020 | August 3, 2019 | |||||||||||||||
Amount | As a Percent of Net Sales | Percent Change | Amount | As a Percent of Net Sales | ||||||||||||
(in thousands) | ||||||||||||||||
General and administrative | $ | 7,124 | 5.0 | % | (21.7 | )% | $ | 9,093 | 5.0 | % | ||||||
Product design and development | $ | 7,532 | 5.2 | % | (28.3 | )% | $ | 10,500 | 5.8 | % |
Reconciliation from non-GAAP contribution margin to operating margin GAAP measure is as well as the three months ended August 3, 2019 included 14 weeks compared to the more common 13 weeks. The three months ended August 1, 2020 contained 13 weeks.
Three Months Ended | ||||||||||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||||||||||
As a Percent | Dollar | Percent | As a Percent | |||||||||||||||||||||
(in thousands) | Amount | of Net Sales | Change | Change | Amount | of Net Sales | ||||||||||||||||||
Contribution margin | $ | 11,937 | 12.7 | % | $ | 4,007 | 50.5 | % | $ | 7,930 | 6.2 | % | ||||||||||||
General and administrative | 6,389 | 6.8 | (2,251 | ) | (26.1 | ) | 8,640 | 6.8 | ||||||||||||||||
Product design and development | 5,784 | 6.1 | (2,658 | ) | (31.5 | ) | 8,442 | 6.6 | ||||||||||||||||
Operating loss | $ | (236 | ) | (0.3 | )% | $ | 8,916 | (97.4 | )% | $ | (9,152 | ) | (7.2 | )% |
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 cost of supplies.General and administrative expenses
in theProduct 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 our 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, material 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 included in cost of sales.
Product design and development expenses in the firstthird quarter of fiscal 2021 decreased as compared to the same period one year ago primarily due to decreased labor costs and professional services assigned to product design and development projects as a resultprojects. We have lowered overall staffing, furloughed employees, and lowered the use of contractors in our responsedevelopment area to COVID-19.
Other Income and Expenses
Three Months Ended | ||||||||||||||||
August 1, 2020 | August 3, 2019 | |||||||||||||||
Amount | As a Percent of Net Sales | Percent Change | Amount | As a Percent of Net Sales | ||||||||||||
(in thousands) | ||||||||||||||||
Interest income, net | $ | 12 | — | % | (94.9 | )% | $ | 234 | 0.1 | % | ||||||
Other (expense) income, net | $ | (627 | ) | (0.4 | )% | (424.9 | )% | $ | 193 | 0.1 | % |
Three Months Ended | ||||||||||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||||||||||
As a Percent | Dollar | Percent | As a Percent | |||||||||||||||||||||
(in thousands) | Amount | of Net Sales | Change | Change | Amount | of Net Sales | ||||||||||||||||||
Interest (expense) income, net | $ | (40 | ) | (0.0 | )% | $ | (286 | ) | (116.3 | )% | $ | 246 | 0.2 | % | ||||||||||
Other (expense) income, net | $ | (913 | ) | (1.0 | )% | $ | (582 | ) | 175.8 | % | $ | (331 | ) | (0.3 | )% |
Interest (expense) income, 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 our line of credit and any long-term obligations.The change in interest income and expense, net for the firstthird quarter of fiscal 2021 compared to the same period one year ago was primarily due to the change in investment levels caused by the volatility of working capital needs and interest payments fromexpense for our existingdrawings on the line of credit.
Other (expense) income, net:
The change in other income and expense, net for theIncome Taxes
The provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.period, adjusted for discrete items. Due to various factors, including operations in multiple jurisdictions worldwide,our estimate of annual income, our effective tax rate is subject to fluctuation.
We have recorded an effective tax rate of 16.482.0 percent for the firstthird quarter of fiscal 2021 as compared to a negative effective tax rate of 37.9 percent for the third quarter of fiscal 2020. The tax rate changes each period are primarily driven by the mathematical calculations of estimated tax credits and other permanent difference levels proportionate to estimated pre-tax earnings levels and the related changes in estimates of each of those variables through the year. For the three months ended January 30, 2021, the rate change was mainly driven by a return to provision benefit booked in proportion to an actual small pre-tax loss for the quarter; whereas the three months ended February 1, 2020, was primarily driven by changes in the proportionate percentage of estimated tax credits and other permanent differences compared to estimated pre-tax earnings.
COMPARISON OF THE nine months ended January 30, 2021 and February 1, 2020
Net Sales
Nine Months Ended | ||||||||||||||||
January 30, | February 1, | Dollar | Percent | |||||||||||||
(in thousands) | 2021 | 2020 | Change | Change | ||||||||||||
Net sales: | ||||||||||||||||
Commercial | $ | 94,947 | $ | 120,566 | $ | (25,619 | ) | (21.2 | )% | |||||||
Live Events | 112,626 | 159,196 | (46,570 | ) | (29.3 | ) | ||||||||||
High School Park and Recreation | 71,165 | 75,433 | (4,268 | ) | (5.7 | ) | ||||||||||
Transportation | 41,590 | 53,264 | (11,674 | ) | (21.9 | ) | ||||||||||
International | 44,822 | 74,365 | (29,543 | ) | (39.7 | ) | ||||||||||
$ | 365,150 | $ | 482,824 | $ | (117,674 | ) | (24.4 | )% | ||||||||
Orders: | ||||||||||||||||
Commercial | $ | 92,929 | $ | 119,059 | $ | (26,130 | ) | (21.9 | )% | |||||||
Live Events | 93,619 | 149,461 | (55,842 | ) | (37.4 | ) | ||||||||||
High School Park and Recreation | 64,582 | 73,852 | (9,270 | ) | (12.6 | ) | ||||||||||
Transportation | 37,713 | 55,410 | (17,697 | ) | (31.9 | ) | ||||||||||
International | 55,864 | 75,827 | (19,963 | ) | (26.3 | ) | ||||||||||
$ | 344,707 | $ | 473,609 | $ | (128,902 | ) | (27.2 | )% |
Sales and orders in all business units were impacted as a result of the economic downturn caused by the COVID-19 pandemic as well as the nine months ended February 1, 2020 included 40 weeks compared to the more common 39 weeks. The nine months ended January 30, 2021 contained 39 weeks.
For net sales, during the first nine months ended January 30, 2021, we achieved a $9.4 million per week average run rate as compared to $12.1 million per week during the first nine months ended February 1, 2020, or an approximate 22 percent decrease. The change in sales was also related to fluctuations in the timing of order bookings, and related conversion to sales.
For orders, during the first nine months ended January 30, 2021, we achieved a $8.8 million per week average run rate as compared to $11.8 million per week during the first nine months ended February 1, 2020, or an approximate 25 percent decrease. The change in orders was also impacted by the timing of large contract orders which causes lumpiness.
Gross Profit and Contribution Margin
Nine Months Ended | ||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||
As a Percent | As a Percent | |||||||||||||||
(in thousands) | Amount | of Net Sales | Amount | of Net Sales | ||||||||||||
Gross Profit: | ||||||||||||||||
Commercial | $ | 24,730 | 26.0 | % | $ | 22,479 | 18.6 | % | ||||||||
Live Events | 20,910 | 18.6 | 32,486 | 20.4 | ||||||||||||
High School Park and Recreation | 25,410 | 35.7 | 22,595 | 30.0 | ||||||||||||
Transportation | 14,300 | 34.4 | 18,073 | 33.9 | ||||||||||||
International | 7,666 | 17.1 | 14,441 | 19.4 | ||||||||||||
$ | 93,016 | 25.5 | % | $ | 110,074 | 22.8 | % |
Gross profit is net sales less cost of sales. Cost of sales 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 increase in our gross profit percentage for the nine months ended January 30, 2021 compared to the same period one year ago was the result of the mix of service agreement and product sales, a $2.1 million litigation claim reversal in High School Park and Recreation, and the following impacts across all business units: $2.8 million of severance costs to reducing our workforce, offset by $1.6 million of COVID relief governmental subsidies. In addition, during fiscal 2021, we have lowered overall staffing and temporarily furloughed employees to achieve lower operating costs to align with the uncertainties created by the COVID-19 pandemic. During fiscal 2020, we experienced additional expenses of approximately $3.2 million for project delivery costs, and $2.5 million in tariff related expenses, decreasing the gross profit rate for the year.
We earned a higher rate of gross profit on our service agreements due to reduced stand ready services conducted during the nine months ended January 30, 2021. This was due to lower on-site demand as events were not being held. We believe this higher gross profit level will not be sustained in future quarters. Total warranty as a percent of sales decreased to 1.5 percent for the nine months ended January 30, 2021 as compared to 1.9 percent during the nine months ended February 1, 2020.
Nine Months Ended | ||||||||||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||||||||||
As a Percent | Dollar | Percent | As a Percent | |||||||||||||||||||||
(in thousands) | Amount | of Net Sales | Change | Change | Amount | of Net Sales | ||||||||||||||||||
Contribution Margin: | ||||||||||||||||||||||||
Commercial | $ | 14,283 | 15.0 | % | $ | 6,526 | 84.1 | % | $ | 7,757 | 6.4 | % | ||||||||||||
Live Events | 14,081 | 12.5 | (7,208 | ) | (33.9 | ) | 21,289 | 13.4 | ||||||||||||||||
High School Park and Recreation | 18,142 | 25.5 | 5,839 | 47.5 | 12,303 | 16.3 | ||||||||||||||||||
Transportation | 12,039 | 28.9 | (2,566 | ) | (17.6 | ) | 14,605 | 27.4 | ||||||||||||||||
International | (1,743 | ) | (3.9 | ) | (4,837 | ) | (156.3 | ) | 3,094 | 4.2 | ||||||||||||||
$ | 56,802 | 15.6 | % | $ | (2,246 | ) | (3.8 | )% | $ | 59,048 | 12.2 | % |
Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facility-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 demonstrations, customer relationship management systems, and supplies.
Contribution margin is impacted by the previously discussed sales and gross margin for each business unit. Each business unit's contribution margin was impacted as a result of the economic downturn caused by the COVID-19 pandemic, as well as the nine months ended February 1, 2020 included 40 weeks compared to the more common 39 weeks. The nine months ended January 30, 2021 contained 39 weeks. In addition, each business unit's contribution margin had a decrease in personnel related expenses offset by severance costs for reductions in force, as well as reductions in travel and entertainment, marketing, and convention related expenses. This was partially offset by a $2.0 million increase in bad debt expenses. We have lowered overall staffing and furloughed employees to achieve lower operating costs to align with the uncertainties created by the COVID-19 pandemic.
Reconciliation from non-GAAP contribution margin to operating margin GAAP measure is as follows:
Nine Months Ended | ||||||||||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||||||||||
As a Percent | Dollar | Percent | As a Percent | |||||||||||||||||||||
(in thousands) | Amount | of Net Sales | Change | Change | Amount | of Net Sales | ||||||||||||||||||
Contribution margin | $ | 56,802 | 15.6 | % | $ | (2,246 | ) | (3.8 | )% | $ | 59,048 | 12.2 | % | |||||||||||
General and administrative | 20,777 | 5.7 | (5,921 | ) | (22.2 | ) | 26,698 | 5.5 | ||||||||||||||||
Product design and development | 20,053 | 5.5 | (9,010 | ) | (31.0 | ) | 29,063 | 6.0 | ||||||||||||||||
Operating income | $ | 15,972 | 4.4 | % | $ | 12,685 | 385.9 | % | $ | 3,287 | 0.7 | % |
All areas of operating expenses were impacted as a result of the economic downturn caused by the COVID-19 pandemic. In addition, the nine months ended February 1, 2020 included 40 weeks compared to the 39 weeks in the nine months ended January 30, 2021.
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 cost of supplies.
General and administrative expensesin the nine months ended January 30, 2021 decreased as compared to the same period one year ago primarily due to decreases in personnel related expenses and professional fees offset by severance costs from the reduction in force. We have lowered overall staffing and furloughed employees to achieve lower operating costs to align with the uncertainties created by the COVID-19 pandemic.
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 our 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, material 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 included in cost of sales.
Product design and development expenses in the nine months ended January 30, 2021 as compared to the same period one year ago decreased primarily due to decreased labor costs and professional services assigned to product design and development projects offset by severance costs for the reduction in force. We have lowered overall staffing and furloughed employees to achieve lower operating costs to align with the uncertainties created by the COVID-19 pandemic.
Other Income and Expenses
Nine Months Ended | ||||||||||||||||||||||||
January 30, 2021 | February 1, 2020 | |||||||||||||||||||||||
As a Percent | Dollar | Percent | As a Percent | |||||||||||||||||||||
(in thousands) | Amount | of Net Sales | Change | Change | Amount | of Net Sales | ||||||||||||||||||
Interest (expense) income, net | $ | (46 | ) | (0.0 | )% | $ | (657 | ) | (107.5 | )% | $ | 611 | 0.1 | % | ||||||||||
Other (expense) income, net | $ | (2,377 | ) | (0.7 | )% | $ | (1,725 | ) | 264.6 | % | $ | (652 | ) | (0.1 | )% |
Interest (expense) income, 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 our line of credit and any long-term obligations.
The change in interest income and expense, net in the nine months ended January 30, 2021 compared to the same period one year ago was primarily due to the change in investment levels caused by the volatility of working capital needs and interest expense for our drawings on the line of credit.
Other (expense) income, net: The change in other income and expense, net for the nine months ended January 30, 2021 compared to the same period one year ago was primarily due to foreign currency volatility and the increases in the losses recorded for equity method affiliates. During the nine months ended January 30, 2021, we recorded equity method affiliate losses of $1.7 million as compared to $0.4 million during the nine months ended February 1, 2020.
Income Taxes
The provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate to “ordinary” income or loss for the reporting period, adjusted for discrete items. Due to various factors, including our estimate of annual income, our effective tax rate is subject to fluctuation.
We have recorded an effective tax rate of 21.3 percent for the nine months ended January 30, 2021 as compared to an effective tax rate of 12.651.6 percent for the first quarter of fiscalnine months ended February 1, 2020. The quarterly effective tax rate waschanges each period are primarily driven by the benefitmathematical calculations of estimated tax credits and other permanent difference levels proportionate to estimated pre-tax earnings similarlevels and the related changes in estimates of each of those variables through the year. The change in the effective tax rate year over year was driven primarily by a decrease in the proportionate percentage of tax credits and other permanent differences compared to the previous period.estimated pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended | ||||||||||
August 1, 2020 | August 3, 2019 | Percent Change | ||||||||
(in thousands) | ||||||||||
Net cash provided by (used in): | ||||||||||
Operating activities | $ | 8,545 | $ | (18,218 | ) | (146.9 | )% | |||
Investing activities | (3,561 | ) | 8,272 | (143.0 | ) | |||||
Financing activities | (210 | ) | (4,658 | ) | (95.5 | ) | ||||
Effect of exchange rate changes on cash | (481 | ) | (37 | ) | 1,200.0 | |||||
Net increase in cash, cash equivalents and restricted cash | $ | 4,293 | $ | (14,641 | ) | (129.3 | )% |
Nine Months Ended | ||||||||||||
January 30, | February 1, | Percent | ||||||||||
(in thousands) | 2021 | 2020 | Change | |||||||||
Net cash provided by (used in): | ||||||||||||
Operating activities | $ | 48,221 | $ | 6,190 | 679.0 | % | ||||||
Investing activities | (6,811 | ) | 10,034 | (167.9 | ) | |||||||
Financing activities | (556 | ) | (11,424 | ) | (95.1 | ) | ||||||
Effect of exchange rate changes on cash | (505 | ) | (166 | ) | 204.2 | |||||||
Net increase in cash, cash equivalents and restricted cash | $ | 40,349 | $ | 4,634 | 770.7 | % |
Cash increased by $4.3$40.3 million for the first threenine months of fiscal 2021 as compared to a decreasean increase of $14.6$4.6 million in the first threenine months of fiscal 2020, which is primarily due to cash generation of operations.
Net cash provided by (used in)operating activities: Cash generated by operating activities
Net cash provided by (used in) operating activities
The changes in operating assets and liabilities consisted of the following:
Three Months Ended | |||||||
August 1, 2020 | August 3, 2019 | ||||||
(Increase) decrease: | |||||||
Accounts receivable | $ | (15,514 | ) | $ | (30,973 | ) | |
Long-term receivables | 693 | (2,298 | ) | ||||
Inventories | 5,826 | (6,763 | ) | ||||
Contract assets | 2,378 | (9,180 | ) | ||||
Prepaid expenses and other current assets | 2,122 | (1,296 | ) | ||||
Income tax receivables | 308 | 52 | |||||
Investment in affiliates and other assets | 211 | (53 | ) | ||||
Increase (decrease): | |||||||
Accounts payable | 1,240 | 12,535 | |||||
Contract liabilities | (1,095 | ) | 6,341 | ||||
Accrued expenses | (2,026 | ) | 206 | ||||
Warranty obligations | 881 | 158 | |||||
Long-term warranty obligations | 550 | 823 | |||||
Income taxes payable | 398 | 461 | |||||
Long-term marketing obligations and other payables | (243 | ) | (344 | ) | |||
$ | (4,271 | ) | $ | (30,331 | ) |
Nine Months Ended | ||||||||
January 30, | February 1, | |||||||
2021 | 2020 | |||||||
(Increase) decrease: | ||||||||
Accounts receivable | $ | 9,089 | $ | (14,253 | ) | |||
Long-term receivables | 2,318 | (2,048 | ) | |||||
Inventories | 15,757 | (1,523 | ) | |||||
Contract assets | 5,558 | (1,602 | ) | |||||
Prepaid expenses and other current assets | 2,342 | 201 | ||||||
Income tax receivables | 492 | 884 | ||||||
Investment in affiliates and other assets | 594 | (578 | ) | |||||
Increase (decrease): | ||||||||
Accounts payable | (14,355 | ) | 237 | |||||
Contract liabilities | 1,480 | 3,335 | ||||||
Accrued expenses | (7,557 | ) | 3,711 | |||||
Warranty obligations | 998 | 53 | ||||||
Long-term warranty obligations | (166 | ) | 1,192 | |||||
Income taxes payable | 1,185 | 484 | ||||||
Long-term marketing obligations and other payables | 2,380 | (128 | ) | |||||
$ | 20,115 | $ | (10,035 | ) |
Net cash (used in) provided by investing activities
Net cash used in financing activities: Net cash used in financing activities was $0.2$0.6 million for the threenine months ended August 1, 2020January 30, 2021 compared to $4.7$11.4 million in the same period one year ago. Principal payments on long-term obligations for the first threenine months of fiscal 2021 were $0.2$0.4 million compared to $1.2$2.1 million during the first threenine months of fiscal 2020, which was mostly related to contingent liability payments. Dividends of $2.3$6.8 million, or $0.05$0.15 per share, paid to Daktronics shareholders during the first threenine months of fiscal 2020, while there were no dividends paid during the first threenine months of fiscal 2021. During the first threenine months of fiscal 2020, we repurchased $1.2$2.3 million of shares as part of the $40.0 million share repurchase plan authorized by our Board of Directors. There were no share repurchases in the first threenine months of fiscal 2021. As part of our COVID-19 response, our Board of Directors has suspended dividends and stock repurchases for the foreseeable future.
Other Liquidity and Capital Resources Discussion:
The timing and amounts of working capital changes, dividend payments, stock repurchase program, and capital spending impact our liquidity.Working capital was
We had $5.7$5.5 million of retainage on long-term contracts included in receivables and contract assets as of August 1, 2020,January 30, 2021, which has an impact on our liquidity. We expect to collect these amounts within one year. When working capital is needed, weWe have historically financed our cash needs through a combination of cash flow from operations and borrowings under bank credit agreements.
On November 15, 2019, we entered into an amendment to extend the maturity date of our 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. On August 28, 2020, we entered into the third amendment to our credit agreement and a security agreement over certain assets. The third amendment adds a liquidity covenant and revises other financial covenants. The revolving amount of the agreement and note remains at $35.0 million, including up to $15.0$20.0 million for commercial and standby letters of credit. The credit agreement and amendments require us to be in compliance with certain financial ratios, including the most sensitive covenant of interest bearing debt to earnings before income taxes, depreciation, and amortization of less than 2.5; and other covenants and contain customary events of default, including failure to comply with covenants, failure by us to pay or discharge material judgments and taxes, bankruptcy, failure to pay loans and fees, and change of control. The occurrence of an event of default by us would permit the lenders to terminate their commitments and accelerate loans repayment, obtain securitized assets, and require collateralization of outstanding letters of credit. As of August 1, 2020,January 30, 2021, $15.0 million had been advanced to us under the loan portion of the line of credit, and the balance of letters of credit outstanding was approximately $6.8$6.7 million. As of August 1, 2020,January 30, 2021, $13.3 million of the credit facility remains in place and available. As of January 30, 2021, we were in compliance with all applicable bank loan covenants.
We are sometimes required to obtain bank guarantees or other financial instruments for display installations and utilize a global bank to provide such instruments. If we are unable to complete the installation work, our customer would draw on the banking arrangement, and the bank would subrogate its loss to Daktronics.Daktronics restricted cash accounts. As of August 1, 2020,January 30, 2021, we had $8.0$3.6 million of 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 installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. At August 1, 2020,As of January 30, 2021, we had
Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting capital expenditures to be approximately $15$10 million for fiscal 2021. Projected capital expenditures include 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, or if we make significant 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 this availability cannot be guaranteed.
We believe the audio-visualaudiovisual industry fundamentals will drive long-term growth for our business, but the near-term outlook shows contraction and greater volatility overall. We expect our customers will continue to have disruptions in revenue caused by COVID-19 throughout the current fiscal year.COVID-19. While it is difficult to estimate the longevity and severity of the COVID-19 pandemic impact to the economy and to our financial position, operating results, and cash flows, we have or are takingcontinue to take proactive steps to solidify our financial position and mitigate any adverse consequences. These steps include:
• | preserving liquidity by drawing down $15 million from our existing line of credit and pursuing other sources of financing; |
• | reducing investments in capital assets; we estimate approximately $10 million in capital expenses in fiscal year 2021; |
• | reducing executive pay and Board member compensation; |
• | utilizing tax and other government opportunities to improve liquidity; |
• | temporarily furloughing and permanently reducing our staffing and associated salaries, where necessary, to maintain a right-sized skilled workforce; |
• | instituting other cost reductions across the business; |
• | suspending stock repurchases under our share repurchase program; and |
• | suspending dividend declarations for the foreseeable future. |
We believe these measures are necessary to help preserve our ability to borrow for liquidity needs and provide adequate working capital to weather the economic downturn caused by the COVID-19 pandemic. However, no assurance can be made that we will be able to secure such financing, if needed, on favorable terms or at all, or that these strategies will be successful. We continue to carefully monitor this crisis, its impact on market demand, and our expense structure and will take additional actions as needed.
Off-Balance Sheet Arrangements and Contractual Obligations
There has been no material change in our off-balance sheet arrangements and contractual obligations since the end of our 2020 fiscal year on May 2, 2020. For additional information, see our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.
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 May 2, 2020. 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 May 2, 2020. In the first quarter of fiscal 2021, we adopted Accounting Standards Update ("ASU") 2017-04,
Intangibles-Goodwill and Other (Topic 350) andASU 2016-13, Measurement of Credit Losses on Financial Instruments, as described in "Note 1. Basis ofNew 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.
We 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 May 2, 2020. There have been no material changes in our exposure to these risks during the first threenine months of fiscal 2021.
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 August 1, 2020,January 30, 2021, 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 August 1, 2020,January 30, 2021, 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 August 1, 2020,January 30, 2021, 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.
Not applicable.
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 May 2, 2020. 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.
Share Repurchases
During the threenine months ended August 1, 2020,January 30, 2021, we did not repurchase any shares of our common stock.
Not applicable.
Not applicable.
Not applicable.
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.
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.
/s/ Sheila M. Anderson | |||
Daktronics, Inc. | |||
Sheila M. Anderson | |||
Chief Financial Officer | |||
(Principal Financial Officer and | |||
Principal Accounting Officer) | |||
Date: | March 3, 2021 |
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.
101 | The following financial information from our Quarterly Report on Form 10-Q for the period ended | |
104 | Cover Page Interactive Data File (formatted as iXBRL and | |
(1) | Filed herewith electronically. |