Daktronics Inc. (NASDAQ:DAKT) Q3 2018 Earnings Conference Call - Final Transcript

Feb 19, 2018 • 06:30 pm ET


Daktronics Inc. (NASDAQ:DAKT) Q3 2018 Earnings Conference Call - Final Transcript


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Sheila Anderson

21.9% during the third quarter as compared to 20.1% during the third quarter of fiscal 2017 and was 24.5% compared to 24.1% on a year-to-date basis. Gross margin percentages for the quarter were positively impacted by the higher sales volumes, improved productivity, and favorable sales mix.

Total warranty as a percent of sales remained relatively flat quarter-over-quarter and increased to 3.3% during the nine months ended of fiscal 2018 as compared to 2.8% last year, which was due to the additional warranty cost we booked during the second quarter of fiscal 2018.

Operating expenses increased $1.6 million or 5.5% during the third quarter of fiscal 2018 compared to the same period last year, due to a large degree from our increase in product development expenses. They increased $1.3 million for additional resources focused on speeding up the development of display control solutions to the market.

Selling expenses increased quarter-over-quarter, mostly related to increased personnel expenses, travel and entertainment expenses, commission expenses, and convention and advertising expenses.

General and administrative expenses decreased quarter-over-quarter, mostly related to decreases in personnel expenses. Our overall effective tax rate expense was 67% as compared to a benefit of 27.9% last year. The primary factor impacting our effective tax rate was due to the U.S. Tax Cuts and Jobs Act of 2017. Most notably, the tax act reduced the statutory federal income tax rate for corporations from 35% to 21%. In addition to the effect of the lower overall federal tax rate, the tax act resulted in a $4.2 million provisional one-time tax expense for the estimated remeasurement of our net deferred tax assets and estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries during the third quarter of fiscal 2018. This impact accounted for effectively $0.10 of loss per share. We expect our effective tax rate to be approximately 30% for the fourth quarter but could be impacted by any changes to our provisional assumptions for this new law.

Looking ahead to future fiscal years, we expect the effective tax rate to be less than 21%. As we have previously noted, our effective tax rate can fluctuate depending on changes in tax legislation and the geographic mix of taxable income.

Taking all this into account, we experienced a loss during the third quarter, primarily due to the reasons noted, the seasonality of the third quarter for sales and because of the tax impact for this year for that new legislation. While the loss is undesirable, we continue to monitor and manage our cost infrastructure to the opportunities we foresee and continue to focus on serving customers with industry leading solutions while generating profitable growth.

Our cash and marketable securities position was $73 million at the end of the quarter. We recorded positive free cash flow of $18.2 million as compared to positive free cash flow of $38.8 million for the same period of fiscal 2017. This fluctuation in free cash flow is the result of timing differences in our operating assets and