Q4 2021 Daktronics Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Doctor Onyx fiscal year 2021 fourth quarter earnings results Conference call. As a reminder, this conference is being recorded today Wednesday June 9.2021 and is available on the company's website at Www Dot Tektronix dotcom.
This time.
Participants are in listen only mode. After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone I would now like to turn the conference call over to MS. Sheila Anderson, Chief Financial Officer for <unk> for some introductory remarks. Please go ahead Sheila.
Thank you operator.
<unk> good morning, everyone. Thank you for participating in our fiscal year and fourth quarter earnings Conference call I would like to review our disclosures cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward looking statements, reflecting our expectations and plans about our future financial performance and future business opportunity.
<unk>.
All forward looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially such risks include changes in economic condition changes in the competitive and market landscape changes, including impacts of global trade discussions and policies the impacts of government.
So laws regulations and orders, including those resulting from pandemic disruptions to our business caused by geopolitical events military action work stoppages.
Disasters or international health emergencies, such as the COVID-19, pandemic management of growth timing and magnitude of future contracts contracts.
Fluctuations in margins availability of raw materials and components and shipping services, the introduction of new products and technology and other important risk factors as noted and detailed in our 10-K and 10-Q SEC filings.
With that let me highlight some of the financials.
As a reminder, fiscal 2020 was a 53.
Year and fiscal 2021 is and was a 52 week year. The extra week of fiscal 2020 fell within the first quarter, resulting in a 53 week fiscal year versus fiscal 'twenty, 1 being at 52 week fiscal year.
Sales orders and all areas of operating expenses were impacted with the additional week in the year to date comparisons.
For orders during the fiscal year 2021, we achieved $9.9 million per week average run rates as compared to $11.7 million per week run rates during fiscal 2020 for an approximate 15.4% decrease.
For net sales during fiscal 'twenty 'twenty, 1 we achieved $9.3 million per week.
The weighted average run rate as compared to $11.5 million dollar per week run rates during fiscal 2020 or an approximately $19.1 per cent decrease in sales.
The change in both orders and sales was caused by the economic impacts of the global COVID-19 pandemic the.
The pandemic caused various changes and our customers.
Essences impacting the timing and levels of investments in audio visual systems in the near term for example venues hosting sports entertainment and other events.
Limitations on the number of people allowed to gather causing reduced attendance or cancellations. This adversely.
Impacted many sources of in venue revenue.
Corpus and subsequently delayed expected spending on display projects this trend impacted our live events and international segments most significantly.
Some customers in the mass transit and airport segments of our transportation business delayed spending as a result of the limited use of the infrastructure and the impact on their financial stability.
<unk> during the pandemic.
Businesses, which rely on revenues from out of home advertising or who are reliance on customer foot traffic to drive sales.
Were adversely impacted by stay at home orders or quarantine orders, causing a pullback in advertising spending.
This delayed out of home advertising discretionary spending until late.
The ability of school year.
Many businesses using our displays for self promotion or on premise advertising slightly reduced budgets during their pandemic, but we also saw some businesses choose to utilize displays as part of the recovery to drive increased.
Foot traffic to their location.
Educational campuses using displays for communicate.
And our actions with students parents and other visitors had varied impacts on their investments in EV system.
In the transportation markets progress on rotary projects slowed as the efficiency of project management and decision making declined during the pandemic.
During the fourth quarter market activity began increasing in varying degrees across our markets.
As effective vaccines became available and were utilized allowing people to move freely and safely.
COVID-19 restrictions started to reduce which improved economic outlooks.
The improved outlook provided our customers more confidence with and our over all orders increased 16, 3% compared to last year's fourth.
Okay and for the year orders were down 16, 9%.
While the contraction due to the pandemic caused the decline in orders for the year, we have had customers place multimillion dollar orders for live event venues transportation side and signage.
And out of home advertising in both our domestic and international business units.
Quarter, I must display business and high School Park, and recreation, where down the lease for the year at 5% and 5.8% respectively.
Defense and transportation had the most significant order declined for the reasons noted above.
Sales for the fourth quarter of fiscal 2021 decreased 7.3% as compared to the fourth quarter of fiscal 2020.
Our on Prem decreased 28% as compared to fiscal 2020 net.
Net sales decreased for all business units for the same reasons, causing order booking declines and due to the very timing in relation to the conversion of sales based on customer needs and the ability to install solutions.
The conversion of some order sales.
And weighted because of the pandemic impact on the ability to work on site.
Other delays.
Gross profit for the quarter as a percentage of net sales was 23.6 percentage compared to last year's 22, 7% and gross profit for the year was 25% as compared to 22.8 per cent for fiscal 'twenty.
The increase in gross profit.
What's it.
Were the result of the change in mix between service agreements and the types of product sales, we had a $2.1 million litigation claim reversal and a reduction in capacity and operations to lower our expenses.
During fiscal 'twenty, 1 all the areas of our businesses, including those aligned with the fulfillment of orders, which.
Impact gross profit.
We lowered staffing and benefit levels and temporarily furloughed employees furloughed employees to achieve lower operating costs to align with the uncertainties created by COVID-19 in.
In addition, during fiscal 2020, we experienced additional project liberty costs and higher tariff related expenses decrease.
<unk> gross profit rates for that period. These factors contributed to the variation of gross profit year over year.
Our warranty as a percentage of sales decreased to 1.2 per cent per quarter as compared to 1.6 in.
In the fiscal <unk> in the fourth quarter of 2020 and decreased to 1.4% as compared to 1.9% for <unk>.
Fiscal 2020.
Our company goal is to have warranty at less than 2 per cent of sales improvements in warranty are attributed to our continued robust design and reliability system programs and processes.
Operating expenses for the fourth quarter of fiscal 2021 were $26.4 million compared to $32.1 million for the fourth.
The group of fiscal 2020, or a decrease of 17, 8%.
On a year to date basis operating expenses were $103.5 million compared to $138.9 million or a decrease of 25, 5%. These declines are attributed to our focus on managing our expenses to expected order volumes.
Fourth quarter out of the economic downturn caused by the pandemic.
Operating expense declines were attributed to lower personnel costs reduce capacity lower travel and entertainment activities and lowered marketing and convention events and our focus on reducing spending in all areas.
We also reduced our planned investments in our it and product development areas.
Our teams have come together to do a great job at serving customers, while reducing capacity and costs.
Cost reductions across the company do vary and permanently and some will not be sustainable through fiscal 2022, as our order and sales volumes began to recover towards pre pandemic levels. In addition.
We expect inflation in raw materials labor.
As a REIT and shipping throughout the year with bearing ability to adjust pricing.
The provision for income taxes during the interim reporting period is calculated by applying the estimated annual effective tax rate to ordinary income or loss for that period adjusted for discrete items and due to various factors, including our estimate of annual income operating.
And multiple state and foreign jurisdictions and tax law changes our effective rate is subject to fluctuation.
The effective tax rate for the fourth quarter was 49, 7% as compared to an effective benefit of 66, 8% a year earlier on a year to date basis, we recorded an effective tax rate of 22, 3% as compared.
To our fiscal 2020, where the calculation yielded a meaningless right because we generated a tax income benefit which was created by permanent tax credits plus valuation allowances over and minor pretax book loss.
Our expected tax rate looking forward is approximately 21%.
Our cash position at the.
End of the year was $84 million.
During the year, we generated $66.2 million of cash from operations.
Correlating with the focus on customer collections decreasing inventory levels.
Lowering personnel and operating expenses outflows as we manage operations through the uncertain Covid times.
We limited capital spending to just under $8 million per selected production and demonstration equipment and building improvements and sold various property and equipment to bring in proceeds of $3 million.
We invested $7 million for additional ownership and our strategic investments and affiliates and expended just under $27 million.
<unk> development.
To conserve cash during the uncertainties of the pandemic and resulting economic channel changes, we suspended dividends and our share repurchase program.
With the cash generation, we paid back or $15 million advance on the line of credits.
As we look into fiscal 2020, 1 we expect some usages.
And from inventory accounts receivable and contract assets of their business activities begin to grow we estimate capital expenditures to be approximately 25 million for fiscal 'twenty, 'twenty, 2 which will be.
Primarily used for product production equipment demonstration equipment.
The factoring facility enhancements along with.
Cash burn center information technology infrastructure system.
We may choose to invest in additional funds and our strategic investments in affiliates or conduct other acquisitions to advanced technologies to market requirements and trends or to add other capabilities.
We will continue to invest in product development initiatives at an increased level from fiscal 2021.
Invest to continue to create value for our customers.
Focus areas include narrow pixel pitch applications in investments and control systems.
Our product backlog is at an all time high of $251 million, resulting from the increased order activity and our last fourth quarter and some variations and.
The work we booked early.
<unk> here and the related conversion to sales.
Some are delayed because of COVID-19.
We expect sales for the first quarter of fiscal 2022 to increase over last year's first quarter due to an anticipated gradual return to pre pandemic levels, but of course sales can change pending project bookings customer schedule changes.
The availability of plant capacity and raw materials.
We are prudently controlling costs through this time of growth and the reductions created in fiscal 'twenty, 1 varian permanent permanent fee and some are not solicit sustainable as volumes increase in the fiscal 2022.
I'll now turn the call over to Reece Kurtenbach, our chairman.
President and CEO for a few comments.
Sheila good morning, everyone.
Packed with the pandemic created uncertainty disruption and volatility in our business during our fiscal 'twenty 1 to weather the storm, we adjusted our capacity in anticipation of the lower order volumes we expected.
Lisa.
The band's allowed us to generate cash payback or a line of credit and generate a profit.
Put a priority on keeping our employees safe.
Following people to work from home when they could.
Implementing and following safety protocols, where this was not possible such as in our manufacturing operations.
<unk> and for our employees, who needed to be on a customer site.
For <unk> and our investors I want to thank our employees our customers our suppliers and our different communities for your help in managing through this unique and unprecedented time.
Even through these challenging.
At <unk>, we focus to strengthen our operations to come out stronger at the end of the pandemic.
We continued our investment in development and micro Leds and other technologies to bring world leading solutions to our customers. We improved our use of digital technologies to enhance our interactions.
<unk> with our customers.
And we enhanced our marketing focus to build new sales channels and relationships to grow our global market share and grow into new markets.
As we look into our fiscal year 'twenty, 2 and beyond it is encouraging to see the continued global distribution and the effectiveness.
Jean <unk> vaccines.
This creates a safe environment for the reopening of economies and the gathering of people for activities around the world.
We began to see order and quoting activities increased during the last part of our fiscal year 'twenty, 1 and are optimistic about fiscal 'twenty 2 to return.
Turn to a more normal time.
As activities in our markets increase we're planning our capacity to maximize production, while prudently controlling costs through this time of growth, we will be strategically making investments in capital assets for capacity and product development to meet the needs of our.
<unk> Merz and in technology development to be a market leader on into the future.
We will also continue to invest in improving the strength and expertise of our internal operations to enhance our customers and employee experiences.
As we look out to the longer term, we believe the audio visual.
Industry fundamentals remain strong and are poised for growth.
Our strategy is to provide long term profitable value propositions for all of our stakeholders include.
Offering comprehensive product and services to match, our customers' needs and expectations expand into new markets.
That's often unlock unlocked by the development of advanced technologies, such as narrow pixel pitch micro OLED and control systems.
Growing in fostering our direct and indirect sales channels globally.
Providing more leading solutions provide world leading solutions.
Service to our customers today as well as into the future to make us the obvious choice for replacements and upgrades for their audio visual systems and improving the experiences of both our customers and our employees continually developing our internal processes and systems.
Specific.
Pacific strategies, and our business units include continuing to develop.
And release of innovative solutions and services tailored for different applications for existing and new markets growing international by using our established localized sales and service channels to focus on growing our market.
<unk> insurer in sport out of home spectacular and transportation areas.
Serving our live events businesses with solutions for traditional applications and marketing new technologies for these venues.
We expect some growth in this area, but know this business is lumpy.
MPS, primarily consisting of larger contracts, which can be highly competitive creating some variation from year to year.
We will continue to serve our high school parks and recreation market, we see opportunity for larger sized orders due to the adoption of video in sporting applications.
And the.
Growth in new applications across these campuses.
In our commercial business unit, we are focused on different strategies to support the expansion of solutions for indoor applications continued replacement and new investment activity and the out of home and retail segments and increasing success.
In the spectacular segment there.
This segment in particular includes multimillion dollar product projects that are discretionary choices by customers, which can cause ups and downs and timing and trends.
Demand in the transportation business for U S and Canada, we believe will be strong.
<unk> continued investment in the transportation systems, the stability and potential for increases in federal infrastructure funding and increasing advertising and on premise promotional application needs in mass transit facilities. Our strategies are to continue to build relationships within industry Influencers.
Due to cash as we tailor products for the different applications in this segment.
While optimistic on recovery and growth, we expect headwinds in the availability of material labor and transport for the foreseeable future. We believe these will create inflationary pressure.
Late.
Answers a fiscal 'twenty, 1 supply chain disruptions began to emerge as a result of the pandemic winter weather and the changes in global demand.
Specifically, we were impacted by the global shortage of semiconductors and related electronic components other materials needed for.
And our action.
Shipping container shortages and freight availability, we expect these factors will cause volatility in our revenue cycles and production costs on into FY 'twenty 2.
Even with these challenges we are entering.
Fiscal 'twenty 2 with a strong.
Productive log in a portfolio of products and services that support the market needs and are matched with our customers' willingness to purchase <unk> systems.
We are optimistic about the pandemic zoned and continued growth in our business our focus for fiscal 'twenty, 2 and beyond is to grow profitably and improve our operating.
<unk> balanced by the development of new solutions, new customers and improved operations, we look forward to serving our new and existing customers as the most experienced provider in the industry with a broad range of solutions.
With that I would ask the operator to please open the line for any questions.
March.
Certainly if you have a question at this time. Please press Star then 1 on you touched on telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our question first question comes from the line of Greg <unk>.
From Sidoti <unk> Company your question please.
Hey, guys. Thanks for taking my questions first of all I just wanted to dig.
The backlog if im not mistaken typically that's.
Thank you for the 9 months is there anything unusual that would maybe change the timeframe on that and.
And how should we be thinking about that.
Thanks, Greg that's a great question, we expect our backlog to be delivered within the.
This fiscal year augmented by the order production within the year, we do have some long term construction contracts that will stretch beyond a fiscal year.
I don't have the percentage of long term versus regular backlog, but.
And we expect the majority of this to 2 clearer in this fiscal year.
Great and then just you touched on material labor and transportation inflationary pressures well I was just curious did you see any of that in this quarter and the gross margins you put up I know you got the benefit on the warranty side.
But have you started to see those pressures or is that something that's probably going to surface in the first quarter.
We started to see those situations magnify in Q4 of FY 'twenty, 1 and we believe that they will continue on throughout this.
This fiscal year.
Okay, Great and then just 1 final 1 just on the Capex, it's a pretty big bump up to $25 million and probably above the pre COVID-19.
Kind of wondering what some of the puts and takes in that number or is some of that catch up from the leaner capex this year.
And just how to think about that maybe that as a run rate run rate long term.
Yeah, I would say that there is some catch up we really reduced our capex spending in FY 'twenty, 1 and so there would be some things that spilled into this fiscal year as well as we see.
The growth within this fiscal year as well.
What is the run rate on an ongoing basis. It seems like this might be last year was quite low this year might be high and we will see how that will even out in.
Future fiscal years.
That's helpful. Thanks, a lot.
Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to recruiting book for any further remarks.
I'd like to thank everybody for joining us on today's call. We will have our next call in 6 months and I hope everybody.
Great healthy.
Pandemic free summer.
Thank you everyone.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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