Here are the results from Daktronics earnings release and earnings call for the second quarter of fiscal year 2023 (3 months ended October 29, 2022).
- Revenue increased by 14% to $187 million for the second quarter of fiscal 2023.
- The company had a net loss of $12 million for the second quarter of 2023 versus net income of $2.4 million for the second quarter of fiscal 2022 due primarily to a one time $14 million non-cash deferred tax asset valuation adjustment.
- Cash, restricted cash and marketable securities dropped to $6 million at end of the second quarter of fiscal 2023 from $62 million at the end of second quarter of 2022.
- Inventories have more than doubled over the last 18 months as Daktronics increased stock on hand to manage supply shocks.
- Total liabilities increased from $250 million at April 30, 2022 to $286 million at July 30, 2022 due primarily to a $25 million draw on the company’s $45 million bank line to support inventory growth. Debt/Worth is a moderate 1.5:1.0.
Independent Director Kevin McDermott on why Daktronics has a going concern qualification in financials.
Daktronics had to manage through significant pandemic induced supply chain issues. These supply line constraints led to the decision to increase inventory levels in order to improve the predictability in the production cycle, which has absorbed much of the company’s customary levels of liquidity. In addition, global economic and geopolitical conditions have introduced increased risk to our cash flow forecasts and our ability to predict the radar backlog will convert to cash over the next 12 months. While Daktronics bank previously increased the company’s borrower capacity from $35 million to $45 million, the incremental $10 million is subject to renewal every 90 days. Further, as plans for additional financing have not been finalized and are subject to market conditions that are not within Daktronics control, U.S. GAAP does not allow the company to consider such plans in its going concern evaluation. As a result, we unfortunately had to conclude the substantial doubt as defined under U.S. GAAP accounting framework did exist.
CEO Reece Kurtenbach on liquidity issues:
In our 54 year history, we have not been faced with the perfect storm that the last two years represent beginning with the immediate implications of the economy shutting down in the spring of 2020, followed by the sudden rebound in activity while supply chains were delayed, snarled and often closed. These times have stressed our liquidity beyond levels that we have ever seen, and our financial resources have not been sufficiently flexible. Our immediate priority is to restore our balance sheet to historical levels of liquidity. We are pursuing avenues to strengthen our financing flexibility by adding liquidity and diversifying our funding sources. Additionally, since last year at this time, we have successfully increased prices and have focused our selling and fulfillment resources on the most profitable opportunities and turning away price-driven business.
Insider’s Take:
Kevin McDermott, the Lead Independent Director on the Daktronics Board and the Audit Committee Chair, began the earnings call. This is unusual but signals that Daktronics issues have board attention. Growth can cause headaches. Daktronics has a record backlog of $463 million but a liquidity problem with only $6 million in cash and $20 million in availability on a short term line of credit. Priorities for the company are to (1) use cash wisely to complete orders so that receivables can turn into cash (2) stay in compliance with the bank line which steps down from $45 million to $35 million in January 2023, and (3) maintain a workforce to fill orders. We noticed the company has 100 jobs posted on LinkedIn.
These are manageable challenges so long as the economy stays out of a 2009 type downturn. Keep in mind that Daktronics had positive cashflow (EBIDTA) of $10 million for the quarter. This is a liquidity problem, not a bad business. The investment community liked the news. Daktronics finished the day up 19% on a day when the S&P 500 was up 1%.
[wpforms id=”9787″]
Paid Advertisement
