Q4 2023 Daktronics Inc Earnings Call
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I would now like to introduce your host for today's call.
Anderson Chief Financial Officer. Please go ahead.
Thank you operator, good afternoon, everyone. Thank you for participating in our fourth quarter and year end earnings conference call I would like to review our disclosure 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.
Our financial performance and future business opportunities.
These forward looking statements reflect the company's expectations or beliefs concerning future events.
Forward looking statements involve risks and uncertainties, which could cause actual results to differ materially from our expectations.
Such risks include but are not limited to changes in economic and market conditions management.
Of growth timing and magnitude of future contracts and orders fluctuations on margins the introduction of new products and technologies.
Availability of raw material.
<unk> and shipping services and other important factors.
These identified factors could cause actual results to differ materially from those disclosed in this call and the company's fourth quarter 2023 earnings release and its most recent annual report on Form 10-K.
Our fourth quarter 2023 earnings release contains certain non-GAAP financial measures and was furnished to the securities and Exchange Commission on form 8-K. This morning.
These documents are available on the investors section at <unk> website at Www <unk> com.
I'll now turn the call over to our CEO Reece Kurtenbach.
[laughter].
Yeah.
One moment for some technical difficulties.
Thank you Sheila.
Alright.
Yeah.
Good afternoon, Thank you for joining us today.
<unk> has emerged from the challenges of the last three years strategically renewed operationally focused and financially sound.
We faced unprecedented business and dynamic operating conditions through the pandemic times.
Pull back in the business a rapid rebound in the business.
Supply chain capacity constraints.
Our teams came together to take decisive and deliberate actions to improve our customers' experience, while increasing our profitability and working capital levels. We ended the year with a record sales of $754 million.
$26 million and adjusted operating income and a strong balance sheet.
Fiscal 2023 was an incredibly positive transition year and our successful navigation on multiple fronts positions us for long term success.
Like to thank you for the thank you out to our teams who demonstrated resiliency pragmatic to some and creativity and through their effort, we were able to make long lasting improvements throughout our organization.
Our performance is also a testimony to the resiliency and strength of our diversified markets and innovation.
Thank you to all of our shareholders for your support through this dynamic time.
I'll now turn it over to Sheila for some more details on our financial results.
Thank you Reed as mentioned fiscal 2023 was an incredibly positive transition year. As you may recall, we started the year with a record backlog and a marketplace with high demand. However, we were also facing part shortages shortages intermittent work stoppages inflationary pressures.
Put costs in a tight labor market, all limiting our ability to operate effectively we adapted and utilize this opportunity to be selective in addressing demand and prior tourists prioritize our focus on winning only the most profitable opportunities and strategically adapting our pricing.
Our teams also manage through these dynamic supply chain conditions by redesigning in planning manufacturing for new designs using available parts, securing and obtaining parts of support manufacturing and adding capacity in people and in machines.
These actions made throughout the year, coupled with a more stable operating environments, which started late in our second quarter led to a positive financial outcome for fiscal 2023.
We had record sales of $209 9 million for the fourth quarter of fiscal 2023, and $754 $2 million for the year.
This was an increase of 29, 4% compared to $162 $2 million for the fourth quarter of fiscal 2022 and for the year. It was an increase of 23, 4%.
Up from up two from the $611 million of sales in fiscal 2022.
Sales growth was driven by the conversion of our strong backlog improved stabilization of supply chains and increased manufacturing capacity.
Gross profit as a percentage of net sales increased to 24, 8% for the fourth quarter of fiscal 2023 as compared to 18, 5% in the fourth quarter of fiscal 2022 gross profit as a percentage of net sales increased to 21% for the fiscal 2023 as compared to $19 one person.
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The increase in gross profit percentage for both comparative periods was primarily due to strategic pricing actions being realized through sales and due to fewer supply chain disruptions, creating a more stable and predictable operating environment, thus lowering the cost to deliver on projects. These improvements were partially offset by <unk>.
Sherri pressures and high material components freight and labor costs throughout fiscal 2023.
Operating expenses for the fourth quarter of fiscal 2023 were $33 $9 million compared to $33 million for the fourth quarter of fiscal 2022.
Operating expenses for the year were $130 million compared to $112 $7 million last year.
As a percentage of sales operating expenses for the year declined to 17, 2% from 18, 4% of sales.
Operating income was $18 $3 million or eight 7% of sales during the fourth quarter of fiscal 2023, and $21 3 million for the year end up from $4 million from your earlier.
The $8 $2 million tax benefit in the fourth quarter was primarily the result of the reversal of a $13 million of evaluate valuation allowance reversed with the removal of or the going concern assessment.
Fiscal 2023 effective income tax rate was 48, 7%. This rate was higher due primarily to valuation allowances for impairments and foreign losses provision to return adjustments and the mix of tax rates and the location of income.
Our balance sheet reflects the change in business levels and strategies, we pursued and managing our supply chain and growing our capacity to meet customer commitments, while managing our liquidity.
We continue to move from a period of cash investments to cash generation, improving our liquidity and better positioning us for profitable growth. Our teams are focused on lowering inventory through increased production and a reduction in purchases, we're collecting more deposits and progress payments, ensuring timely billings and collecting accounts receivable and invoice.
Firms, we've completed many capacity adjust additions in our factories and expect reduced capacity spend for fiscal 'twenty four.
We are now working to add efficiencies to these new capacity additions.
And we're carefully analyzing our strategic pricing initiatives to improve profitability and fill capacity effectively.
During the fourth quarter of the year, we generated $24 $5 million and $15 million from operations respectively.
Inventory dropped from the peak levels at the end of the third quarter of fiscal 2023 and are expected to.
To approach more normalized levels as supply chain disruptions continue to ease in order backlog is fulfilled.
Cash restricted cash and marketable securities totaled $25 $2 million as of April 29, 2023, and $17 $8 million was borrowed to fund working capital and capital asset additions.
At the end of the fiscal year, our working capital ratio was one six to one.
We used $3 6 million and $25 $4 million for purchases of property and equipment in the fourth quarter and fiscal year, respectively. And these investments were primarily focused on expanding capacity automation and productivity in our manufacturing area.
As a result of the comprehensive review of financing alternatives.
But by the Board's strategy in financing review Committee, we closed on a new line of credit mortgage and convertible note subsequent to year end. This new structure provides us the financial resources to serve our customers and build long term value for our shareholders.
This financing paired with our financial.
Performance resolve their growing concern disclosures.
Over the long term, we expect to grow revenues and grow profitably.
We are starting FY 'twenty four with a strong backlog of $101 million and expect sales growth next year, we plan to invest less than $19 million in capital assets, primarily in our manufacturing and technology areas and those investments include digitization to improve customer and employee experiences.
With that I'll turn it back over to Reece.
Thank you Sheila.
As we look ahead, we expect growth in the global use of audio visual communications systems in both traditional and new applications.
To capitalize on and to capture this growth by continuing to do the things we do well.
These things clued include how we engage in a full range of activities to serve our customers by providing high quality standard display products as well as housekeepers on integrated systems. Both of these with ongoing services and support.
We manufactured a complete line from small scoreboards.
Chronic displays to large multi million dollar video display systems and the related control and Sanchez.
We develop capabilities to design manufacture and install and service complete integrated systems and we are recognized.
The leader in these areas.
We generate new leads and sort of repeat customers based on our performance reputation and marketing efforts.
We will prioritize our focus in the growing and profitable segments in the industry, which align with these capabilities. We will focus on development of new technologies like narrow pixel pitch to harness the market's potential.
Also our existing markets are going to highlight we expect our high school in person recreation business units to grow through the adoption of video displays for sporting and education on Hughes.
These customers are deploying more tektronix professional grade technology and sophisticated content, increasing the total addressable market.
In the commercial area, we are focused on increasing sales channels with audio visual integrators for end use in government military health care and corporate applications, which will create growth in this business.
In addition customers depending on out of home advertising or so promotion use of our products and services.
It's an effective medium for both indoor and outdoor applications.
We expect existing and new customers to purchase displays to install the new locations as well as replacement displays for existing locations and capitalize on the effectiveness of digital technologies.
Transportation demand as strong as project planning and approval activities resumed to more pre pandemic levels and our customers move forward purchasing displays used for intelligent transformation transportation systems and for mass transit.
Okay.
Infrastructure spending should continue to benefit this segment as digital signage is often used in these projects and we are qualified to do business and all of the upstream in the interim.
National business unit, we continued to experience a softer market due to macroeconomic and geopolitical factors. We expect to see these factors to continue to impact sales in the coming here.
We're watching developments closely and have and can adjust resources and commitments accordingly.
Over the longer term, we expect similar growth trends in the commercial and transportation areas outside the U S.
I also expect sports venue projects to be a focus in our marketing efforts.
So a lot of events segment outlook remains strong due to large stadium renovations continued replacement cycles and expansion of sales efforts beyond traditional sport areas. We are the acknowledged market leader in this segment, which allows us to be strategic in our pricing and contract terms, while being very mindful about the profitability.
Do you have an effect.
We continue to closely monitor their ever evolving geopolitical and global economic environment to ensure we are able to quickly adjust our resources and market approaches to maintain profitability through various cycles.
In FY 'twenty four we will make investments in high return projects and technologies to support long term profitability our experience in engineering process design service design and product development capabilities and investments made in affiliated companies are very important factors continue.
We need to develop produce and offer the most up to date digital displays and control system solutions desired by the market.
We will continue to invest in our development efforts in our affiliated companies to release differentiated product platforms software offerings and support offices. We will also advance critical architecture and design, new competitive technologies, such as narrow pixel pitch in micro OLED sustainable.
<unk> software architecture and other related areas.
We also plan to grow our operational efficiency by focusing on retention of our highest performing team members and capitalizing on automation capabilities added over the last year.
We will invest in digital transformation projects and other automation that will support improved customer and employee experiences and lower our cost offering.
I again want to thank our electronics team for results to work with during FY 'twenty to 'twenty three we appreciate our suppliers and vendors for also helping support us in the past and on into the future.
And thank you to our investors for your patience and support as we work through and emerge through and emerge from these unprecedented times stronger and better positioned to meet the future.
We believe the stage is set for a strong fiscal 2024.
Look forward to continued growth of sales and expansion of operating income.
With that I would ask the operator to please open the line for any questions.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
And one moment for our first question.
And our first question comes from Vijay Cook from singular Research. Your line is now open.
Hey, Thanks, guys great quarter, just a couple of questions for you.
You guys have been working pretty diligently over the last year or so to adjust prices.
Was it a good spot now and.
Pricing in the backlog.
Or is there some work left to be done there.
No I believe we're in a good place there Vijay I believe that the backlog consists mainly of.
Projects are using our new pricing methodologies.
Okay great.
Dan is an inflationary element to your price increases, but part of it also demand for your product.
I guess going through this whole process.
How do you feel about pricing power or is there maybe a little bit more than you had thought.
Maybe to answer that I think that as we are at now.
More stable operating environment as we've seen the supply chain more.
Victor Bowls, and it was a year ago, but.
We have a better understanding of what the cost elements would be and can be very strategic in how we price Oh Oh.
New projects or products.
Okay that makes sense I appreciate it.
Last one you mentioned some new opportunities.
Infrastructure Bill has been in place for a while now do you expect to or have you seen any benefit to the transportation segment.
With regard to the bill.
Yes, we believe that the since the bill is in place and is continuing to.
Invest in projects that.
But that's not our immediate one quarter sort of events for tektronix those projects go on for months and years.
In the end will continue to provide benefit to tektronix in that market.
Okay, great. Thanks, guys appreciate it.
I appreciate the questions Peter Thank you.
And thank you.
And one moment please.
And I am showing no further questions I would now like to turn the call back over to Reece Kurtenbach.
For closing remarks.
I would just like to thank everybody for attending today's conference. We appreciate your attendance and your questions and we'll look forward to speaking again after our next conference call at our next conference call, which will be after our first quarter results are released.
Thank you everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.