Daktronics Inc. (DAKT) filed Quarterly Report for the period ended 2009-10-31.
Daktronics Inc. has strong leadership positions in, and is one of the world's largest suppliers of, electronic scoreboards, computer-programmable displays, and large screen video displays and control systems. The company excels in the control of large display systems, including those that require integration of multiple complex displays showing real-time information, graphics, animation and video. Daktronics designs, manufactures, markets and services display systems for customers around the world in sport, business and transportation applications. Daktronics Inc. has a market cap of $341.3 million; its shares were traded at around $8.37 with a P/E ratio of 19.1 and P/S ratio of 0.6. The dividend yield of Daktronics Inc. stocks is 1.1%. Daktronics Inc. had an annual average earning growth of 20.5% over the past 10 years. GuruFocus rated Daktronics Inc. the business predictability rank of 4-star.
Highlight of Business Operations:
Allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. To identify impairment in customers ability to pay, we review aging reports, contact customers in connection with collection efforts and review other available information. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine the allowance for doubtful accounts. As of October 31, 2009 and May 2, 2009, we had an allowance for doubtful accounts balance of approximately $1.9 million and $2.2 million, respectively.
Extended warranty and product maintenance. We recognize deferred revenue related to separately priced extended warranty and product maintenance agreements. The deferred revenue is recognized ratably over the contractual term. If we would become aware of an increase in our estimated costs under these agreements in excess of our deferred revenue, additional reserves may be necessary, resulting in an increase in costs of goods sold. In determining if additional reserves are necessary, we examine cost trends on the contracts and other information and compare that to the deferred revenue. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine estimated costs under these agreements. As of October 31, 2009 and May 2, 2009, we had $10.0 million and $9.5 million of deferred revenue related to separately priced extended warranty and product maintenance agreements, respectively.
Net sales decreased 30.9% to $228.8 million for the six months ended October 31, 2009 as compared to $330.9 million for the same period of fiscal 2009. Net sales decreased 32.0% to $115.4 million for the three months ended October 31, 2009 as compared to $169.7 million for the same period of fiscal 2009. The first quarter and six months of fiscal 2009 had one more week than the first quarter and six months of fiscal 2010, which impacts the comparison between the periods.
Commercial Market. Net sales in the Commercial market declined during the second quarter and first six months of fiscal year 2010 as compared to the same periods of fiscal year 2009. For the second quarter of fiscal year 2010, net sales decreased 48.0%, and for the first six months of fiscal year 2010, net sales decreased 50.0% as compared to the same periods of last fiscal year. For the second quarter of fiscal 2010, net sales to outdoor advertising (digital billboard) customers decreased by approximately $21.9 million or approximately 82.3% as compared to the second quarter of fiscal 2009, and for the first six months of fiscal year 2010, net sales declined $43.7 million or approximately 81.7% as compared to the first six months of fiscal 2009. Net sales in our reseller niche, which includes primarily sales of our Galaxy® products and sales for large custom contracts, declined by approximately $1.7 million or approximately 11.5% for the second quarter of fiscal year 2010 and $3.4 million or approximately 11.6% for the first six months of fiscal 2010.
In the early part of the third quarter of fiscal 2009, we were notified that our largest customer in our outdoor advertising niche was decreasing its spending on digital billboards from approximately $100 million annually to approximately $15 million annually, effective for calendar year 2009. We were one of two primary vendors of digital billboards for this customer. This corresponded to a decline in our orders overall from outdoor advertising customers, which started to become evident late in the second quarter of fiscal 2009. It is our belief that the current economic conditions and limited credit availability caused this overall decline. Although we believe that this niche still represents a long-term growth opportunity, we do not expect to see it rebound until sometime in calendar year 2011, based on industry reports. It is also important to note that the outdoor advertising business has a number of constraints in addition to the current economic conditions, primarily the challenges of achieving adequate returns on investments on digital displays, which limit locations suitable for digital displays, and regulatory constraints, which we expect to be a long-term factor that limits deployment of digital displays.
Live Events Market. Net sales in the Live Events market decreased by approximately 37.6% in the second quarter of fiscal 2010 as compared to the same quarter of fiscal 2009 and on a year-to-date basis are down approximately 27.3%. The decrease in net sales for the second quarter and year to date for fiscal 2010 as compared to the same periods in fiscal 2009 was the result of a decline in revenues from large new construction contracts exceeding $5 million as explained in prior filings, which led to the significant growth during fiscal year 2009. These large contracts, each of which exceeded $5 million, contributed more than $11.2 million and $28.2 million in net sales during the second quarter and first six months of fiscal year 2010 compared to approximately $20.7 million and $49.2 million for the same periods in fiscal 2009.
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