Daktronics Inc. (NASDAQ:DAKT) Q2 2017 Earnings Conference Call - Final Transcript

Nov 22, 2016 • 11:00 am ET

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Daktronics Inc. (NASDAQ:DAKT) Q2 2017 Earnings Conference Call - Final Transcript

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Presentation
Executive
Reece Kurtenbach

year-over-year differences.

We were successful in winning two additional state procurement projects this past quarter. Procurement projects provide for specific sizes of orders of similar displays over a time period that is often more than 12 months. This is nice work for the operational side of our business, as we are able to plan for production to align with our customers' delivery needs over a longer time span than in many of our other markets. To illustrate the impact of timing, subsequent to the quarter we were also awarded a multimillion-dollar project in Nevada for an active traffic management system.Sales improved over last year, as we had a higher percentage of buildable backlog going into the quarter.

Last year at this time we had a large project for a new stadium that was in our backlog that was not yet ready for their display system. Also last year we delayed production of some orders to take advantage of a new product design, which was ultimately good for our customers but lowered sales in last year's second quarter.Last year profitability was also impacted by a warranty issue, which has had limited impact this year. We continue to serve our customers on this issue with preventative maintenance and ongoing repair work. For more details on the financial results, I will turn it back to Sheila.

Executive
Sheila Anderson

Thank you, Reece. Sales for the second quarter increased approximately 7.8% from $158 million to $170 million. The increase was due to timing of production of orders in our buildable backlog and customer schedules.Also, as Reece mentioned, last year we delayed building certain longer lead time projects in order to take advantage of a new product enhancement in our module design, with no such need this year. Last year's schedule change primarily impacted the timing of sales in the live events between quarters. Demand in the high school park and recreation business unit has been very strong this year and contributed $4 million of the sales increase this quarter.

Transportation [buildable] backlog and deliveries were also strong and increased revenue for this unit in the quarter. Commercial business unit sales were relatively flat, with the decrease in billboard niche sales offset by sales related to our ADFLOW business, which we acquired late last fiscal year, and for other on-premise sales. Gross profit improved to 26.1% for the quarter as compared to 22.5% in the second quarter of fiscal 2016. Gross margin levels were favorably impacted by lower warranty costs as a percentage of sales, lower underlying production costs, and a sales mix and volume of business. During the quarter, we incurred a discrete charge of $0.6 million for an impairment of technological intellectual property.

This had an impact on margins by [0.4 points]. Total warranty as a percentage of sales was 2.7% for this quarter as compared to 4.2% last year, same quarter. We've continued to evaluate our reserves for a specific issue we discussed last year and increased estimated costs by $0.5 million this quarter as