March 9, 2023

Daktronics set a sales record in its most recent quarter while making what its CEO called “significant progress” in addressing its liquidity needs.

The Brookings-based manufacturer reported $185 million in net sales for its third quarter, which ended Jan. 28, a 32.5 percent increase from the same time a year ago.

Product order backlog was $429.1 million, compared with a backlog of $353.3 million a year ago. Gross profit as a percentage of net sales improved from 16 percent to 22.6 percent.

Net income was $3.7 million, or 8 cents per share, compared with a net loss of $4.3 million, or 10 cents per share, a year ago.

“The pandemic recovery period was unprecedented. The last 24 months were marked by historically high demand while experiencing persistent instability of supply chains, a tight labor market and inflationary conditions,” chairman, president and CEO Reece Kurtenbach said in a Wednesday analyst call.

“We are seeing supply chain conditions easing, which supports a more stable production schedule. We have also increased production capacity to match market demand, which was achieved despite labor shortages and long cycle times for the technology and fixed assets necessary to increase output on an ROI positive basis.”

In its earnings release, Daktronics pointed to three factors for its overall margin improvements:

• Strategic pricing increases.
• Improved supply chain, production and inventory management.
• Programs to improve companywide expense management.

“Our deliberate actions to carefully align our production planning, inventory and labor force to our strong customer demand are proving successful as evidenced by our record sales and improved gross profit margins, operating income and cash flow during the third quarter,” Kurtenbach said in a statement. “As we disclosed at the end of the last reported quarter, we have a robust order pipeline and backlog and improving revenue conversion.”

In the past three months, the company has made “significant progress across all initiatives of our liquidity enhancement program,” he said.

That includes extending a $10 million maturity on its credit facility and adjustments to generate more cash and increase profits.

“Our ability to reduce order cycle times was aided by the easing of pandemic-related supply chain disruptions, enabling us to work through our built-up inventory, which we expect will return to more normalized levels over the next year,” Kurtenbach said.

Over the course of the quarter, Daktronics said improvements included:

• Adjustments to pricing and product mix to improve gross margins.
• Working capital improvements through accelerated accounts receivables collections.
• Increases to production capacity and improvements to operational efficiency.
• Careful management of expenses while prioritizing high-return investments into the business, including hiring production and customer service staff to support our growth.
• Taking decisive measures to ensure the company has the financial flexibility needed to meet continued strong customer demand.

The board’s independent strategy and financing review committee retained financial advisers to help examine the company’s long-term capital requirements and is working with management to evaluate financing alternatives, according to the statement, which added: “Resolving any concern about the company’s capital position remains a priority.”

Long term, the company expects markets for its advanced technology and systems to grow with technology and consumers’ demands, it said.

“In the near term, we believe our increased production capacity and stability of operations will enable us to efficiently convert our backlog to sales while shrinking our production lead times, giving us a better opportunity to capture additional market share,” it said.

“We continue to intensely monitor our production capabilities, inflation’s impact on material prices and labor, and supply conditions in the ever-evolving geopolitical and global economic environment to ensure we quickly adjust our resources and product pricing to expand our margins and increase our profitability.”

Heading into its fourth quarter, Daktronics said it expects to benefit from increased production capacity, factory automation investments, expanded labor availability and reduced supply chain disruptions.

“Combined, these will support our initiatives to reduce inventory levels and improve our profitability, cash generation and working capital utilization.”

The company’s capacity to fulfill manufacturing and services work is dependent on plant automation and people, Kurtenbach said in the analyst call.

“We have invested heavily in both areas over the past 24 months,” he said, adding many automation projects are complete and the company is close to desired staffing levels in most areas. The plan is to finish factory automation projects by the end of fiscal 2024’s first quarter.

“These were delayed due to equipment lead times and are focused on increasing staffing levels at certain factories and in our technical services areas,” Kurtenbach said. “We believe these investments will carry us through expected demand growth through FY24 and possibly into FY25. The world has seen a lot of change over the past two years, and Daktronics has navigated this as a recognized industry leader in quality, technology and reliability.”

Shares of Daktronics are trading at nearly their highest level in a year. They opened Thursday at $4.32 per share. The 52-week high is $4.56. The low came in December 2022 when they traded at less than $2 per share. That came after the company filed a report with the Securities and Exchange Commission noting a “substantial doubt about the company’s ability to continue as a going concern.”