This excerpt taken from the DAKT 8-K filed Aug 26, 2009.
Improved earnings on lower net sales compared to the fourth quarter of fiscal 2009
Brookings, S.D. – August 25, 2009 - Daktronics, Inc. (Nasdaq - DAKT) today reported fiscal 2010 first quarter net sales of $113.5 million and net income of $1.4 million, or $0.03 per diluted share, compared to net sales of $161.2 million and net income of $9.7 million, or $0.24 per diluted share, for the first quarter of fiscal 2009. Backlog at the end of the 2010 first quarter was approximately $113 million, compared with a backlog of approximately $173 million a year earlier and $120 million at the end of the fourth quarter of fiscal 2009.
As previously announced, the first quarter of fiscal year 2010 contained the customary 13 weeks as compared to the first quarter of fiscal 2009 which contained 14 weeks. As a result fiscal year 2009 contained 53 weeks as compared to 52 weeks for fiscal year 2010.
“Orders declined for the first quarter of fiscal 2010 compared to both the first and fourth quarters of fiscal 2009,” said Jim Morgan, president and chief executive officer. “Considering the current economic situation, we were pleased to see that orders in our Commercial business unit were level compared to the fourth quarter of fiscal 2009 and orders in our International business unit were up over each of the third and fourth quarters of fiscal 2009. Interest in our national accounts business has driven the Commercial business unit, and we have some nice pipeline opportunities in that niche. On the international front, we are seeing an increase in interest; however, the competitive environment remains challenging. Also, orders from high schools, which include both sports and marquee products, and which historically peak in the summer months, are down, but holding up well in light of economic conditions.”
Morgan continued, “The seasonality of our business typically includes a decline in orders in our sports market in the second quarter, which causes a tough third quarter for net sales and earnings. We expect typical seasonal trends for this fiscal year. Given our backlog at the end of the first quarter of fiscal 2010, and considering this seasonality and the current environment, we are expecting sequential declines in our revenues in the second and third quarters of fiscal 2010. There are opportunities in our pipeline for large sports venues that could create a pickup for the fourth quarter and also some opportunities internationally that could impact each of the next three quarters.”
“We maintained our emphasis on streamlining operations and cost reduction. We continued to make progress in reducing personnel costs, discretionary expenses, and capital expenditures. Because cost reductions are occurring over time, typically the impact is not fully reflected until the quarter following the reduction. Cost reduction is an ongoing process. We are balancing the need for cost reduction with the need to maintain the core strengths of the company over the long-term,” said Morgan.
Morgan added, “We have continued to invest in product development during this economic downturn as part of our long-term strategy. During the quarter, we increased the dollars invested in product development compared to the fourth quarter of fiscal 2009. The sequential increase in product development costs is partially driven by the reduced demand for contract engineering, which allows us to reassign engineering resources to product development initiatives. One of our top development initiatives is the strategic redesign of our outdoor display systems, beginning with a complete redesign of our display modules. This is a comprehensive project that takes into account not only an improved product with reduced factory and warranty costs, but also streamlining the entire process from shipping through installation and commissioning. It incorporates a significantly higher degree of standardization and commonality at the subsystem level, while allowing us to continue to customize for the customer. We expect to start shipping the first units of this new design in the fourth quarter of fiscal 2010. Another key area of investment is the enhancement of control systems for our displays. We continue to invest in our VisiconnSM software, a web-based application for controlling networked displays. We also will be introducing our Show Control software for event productions in the fourth quarter of fiscal 2010.”
“Our gross margin percentage for the first quarter of fiscal 2010, although down from the first quarter of fiscal 2009, was better than expected due to improvements in warranty costs, large contract performance, and cost reductions.” said Bill Retterath, chief financial officer. “Our warranty costs decreased sequentially for the quarter but are still higher than we would like, and we remain cautious forecasting lower warranty costs until we have a few quarters of better performance in this area. We were pleased with the better than expected contract margins given the pricing pressure we are seeing in the marketplace. The cost reductions are a reflection of decreased payroll costs and other cost reduction measures.”
Retterath added, “During the first quarter of fiscal 2010, we continued to generate free cash flow and add to our cash position despite the lower level of sales and earnings. The debt we incurred during the quarter was related to a vendor purchase that came with pricing concessions and a low interest rate that we elected to take advantage of.”
Morgan concluded, “In general we are pleased with the adjustments we have made to date to react to the economic downturn. We continue to aggressively pursue orders along with cost reductions in all areas. We look forward to the benefits of our new product platform. Generating free cash flow remains a priority, and we are limiting capital expenditures to maintenance and items essential to support new product introductions.”