DAKTRONICS, INC. AND SUBSIDIARIES

FORM 10-Q

For the Quarter Ended January 27, ~~2018~~

2024

Table of Contents



		Page
Part I.		Financial Information			1
Item 1.		Financial Statements (Unaudited)			1
		Condensed Consolidated Balance Sheets as of January 27, ~~2018 (unaudited)~~2024 and April 29, ~~2017~~2023			1
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 27, ~~2018~~2024 and January 28, ~~2017 (unaudited)~~2023			3
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended January 27, ~~2018~~2024 and January 28, ~~2017 (unaudited)~~2023			4
		Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended January 27, 2024 and January 28, 2023	5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 27, ~~2018~~2024 and January 28, ~~2017 (unaudited)~~2023			57
		Notes to the Condensed Consolidated Financial Statements			68
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			1823
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			3033
Item 4.		Controls and Procedures			3133

Part II.		Other Information			3134
Item 1.		Legal Proceedings			3134
Item 1A.		Risk Factors			3234
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			3234
Item 3.		Defaults Upon Senior Securities			3234
Item 4.		Mine Safety Disclosures			3334
Item 5.		Other Information			3334
Item 6.		Exhibits			3334

~~Signatures~~				34
Index to Exhibits	35
Signatures			3536

Table of ~~contents~~Contents

P~~ART~~PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data) (unaudited)


	January 27, 2024		April 29, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	76,764	$	23,982
Restricted cash	429		708
Marketable securities	—		534
Accounts receivable, net	100,601		109,979
Inventories	140,251		149,448
Contract assets	47,857		46,789
Current maturities of long-term receivables	271		1,215
Prepaid expenses and other current assets	7,853		9,676
Income tax receivables	1,504		326
Total current assets	375,530		342,657

Property and equipment, net	72,406		72,147
Long-term receivables, less current maturities	95		264
Goodwill	3,263		3,239
Intangibles, net	923		1,136
Debt issuance costs, net	2,840		3,866
Investment in affiliates and other assets	27,314		27,928
Deferred income taxes	16,835		16,867
TOTAL ASSETS	$	499,206	$	468,104

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

January 27,
2018 April 29,
2017
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 49,042
$ 32,623
Restricted cash 28
216
Marketable securities 23,937
32,713
Accounts receivable, net 76,104
78,846
Inventories, net 70,451
66,486
Costs and estimated earnings in excess of billings 32,449
36,403
Current maturities of long-term receivables 2,199
2,274
Prepaid expenses and other assets 7,333
7,553
Income tax receivables 2,726
611
Total current assets 264,269
257,725

Long-term receivables, less current maturities 1,948
2,616
Goodwill 8,469
7,812
Intangibles, net 4,174
4,705
Investment in affiliates and other assets 4,888
4,534
Deferred income taxes 7,983
11,292
27,462
30,959
PROPERTY AND EQUIPMENT:

Land 2,172
2,099
Buildings 67,340
65,935
Machinery and equipment 88,143
84,189
Office furniture and equipment 5,799
5,604
Computer software and hardware 51,980
51,523
Equipment held for rental 287
374
Demonstration equipment 7,044
7,109
Transportation equipment 7,647
7,108
Property and equipment, net 230,412
223,941
Less accumulated depreciation 166,117
157,192
64,295
66,749
TOTAL ASSETS $ 356,026
$ 355,433

See notes to consolidated financial statements.

Table of ~~contents~~Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(in thousands, except per share data) (unaudited)


	January 27, 2024		April 29, 2023
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	1,500	$	—
Accounts payable	49,489		67,522
Contract liabilities	68,936		91,549
Accrued expenses	36,824		36,005
Warranty obligations	12,884		12,228
Income taxes payable	628		2,859
Total current liabilities	170,261		210,163

Long-term warranty obligations	21,806		20,313
Long-term contract liabilities	16,347		13,096
Other long-term obligations	5,882		5,709

Long-term debt, net	48,466		17,750

Deferred income taxes	198		195
Total long-term liabilities	92,699		57,063

SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, authorized 50,000 shares; no shares issued and outstanding	—		—
Common Stock, no par value, authorized 115,000,000 shares; 46,189,311 and 45,488,595 shares issued at January 27, 2024 and April 29, 2023, respectively	65,371		63,023
Additional paid-in capital	51,554		50,259
Retained earnings	135,513		103,410
Treasury Stock, at cost, 1,907,445 shares at January 27, 2024 and April 29, 2023, respectively	(10,285)		(10,285)
Accumulated other comprehensive loss	(5,907)		(5,529)
TOTAL SHAREHOLDERS' EQUITY	236,246		200,878
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	499,206	$	468,104

See notes to condensed consolidated financial statements.

DAKTRONICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
(in thousands, except share data)

January 27,
2018 April 29,
2017
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY ��
CURRENT LIABILITIES:
Accounts payable $ 40,309
$ 51,499
Accrued expenses 27,578
25,033
Warranty obligations 13,291
13,578
Billings in excess of costs and estimated earnings 14,424
10,897
Customer deposits (billed or collected) 10,288
14,498
Deferred revenue (billed or collected) 13,906
12,137
Current portion of other long-term obligations 1,000
1,409
Income taxes payable 532
1,544
Total current liabilities 121,328
130,595

Long-term warranty obligations 15,909
14,321
Long-term deferred revenue (billed or collected) 6,916
5,434
Other long-term obligations 2,795
2,848
Long-term income tax payable 3,679
3,113
Deferred income taxes 984
836
Total long-term liabilities 30,283
26,552
TOTAL LIABILITIES 151,611
157,147

SHAREHOLDERS' EQUITY:

Common Stock, no par value, authorized 120,000,000 shares; 44,778,945 and 44,372,357 shares issued and outstanding at January 27, 2018 and April 29, 2017, respectively 54,725
52,530
Additional paid-in capital 39,671
38,004
Retained earnings 114,028
113,967
Treasury Stock, at cost, 303,957 shares at January 27, 2018 and April 29, 2017, respectively (1,834 ) (1,834 )
Accumulated other comprehensive loss (2,175 ) (4,381 )
TOTAL SHAREHOLDERS' EQUITY 204,415
198,286
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 356,026
$ 355,433

See notes to consolidated financial statements.

Table of ~~contents~~Contents

DAKTRONICS, INC. AND SUBSIDIARIES

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended Nine Months Ended
January 27,
2018 January 28,
2017 January 27,
2018 January 28,
2017
Net sales $ 130,316
$ 115,719
$ 472,353
$ 442,857
Cost of goods sold 101,749
92,403
356,536
336,166
Gross profit 28,567
23,316
115,817
106,691

Operating expenses:

Selling expense 15,271
14,678
45,560
45,828
General and administrative 8,335
8,599
26,138
26,007
Product design and development 8,299
6,973
26,294
21,142
31,905
30,250
97,992
92,977
Operating (loss) income (3,338 ) (6,934 ) 17,825
13,714

Nonoperating income (expense):

Interest income 158
183
520
559
Interest expense (40 ) (56 ) (173 ) (174 )
Other (expense) income, net (487 ) (305 ) (429 ) (250 )

(Loss) income before income taxes (3,707 ) (7,112 ) 17,743
13,849
Income tax expense (benefit) 2,482
(1,985 ) 8,371
4,416
Net (loss) income $ (6,189 ) $ (5,127 ) $ 9,372
$ 9,433

Weighted average shares outstanding:

Basic 44,518
44,102
44,403
44,071
Diluted 44,518
44,102
44,798
44,206

(Loss) earnings per share:

Basic $ (0.14 ) $ (0.12 ) $ 0.21
$ 0.21
Diluted $ (0.14 ) $ (0.12 ) $ 0.21
$ 0.21

Cash dividends declared per share $ 0.07
$ 0.07
$ 0.21
$ 0.24

See notes to consolidated financial statements.

~~Table of contents~~

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

Three Months Ended Nine Months Ended
January 27, 2018 January 28,
2017 January 27,
2018 January 28,
2017

Net (loss) income $ (6,189 ) $ (5,127 ) $ 9,372
$ 9,433

Other comprehensive income (loss):
Cumulative translation adjustments 1,228
(47 ) 2,289
(1,487 )
Unrealized loss on available-for-sale securities, net of tax (50 ) (29 ) (83 ) (33 )
Total other comprehensive income (loss), net of tax 1,178
(76 ) 2,206
(1,520 )
Comprehensive (loss) income $ (5,011 ) $ (5,203 ) $ 11,578
$ 7,913

See notes to consolidated financial statements.

~~Table of contents~~

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Nine Months Ended
January 27,
2018 January 28,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,372
$ 9,433
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 13,335
13,941
Impairment of intangible assets —
830
(Gain) loss on sale of property, equipment and other assets (1,211 ) 23
Share-based compensation 1,978
2,204
Equity in loss of affiliate 401
78
Provision for doubtful accounts (55 ) 898
Deferred income taxes, net 3,429
(286 )
Change in operating assets and liabilities (296 ) 18,266
Net cash provided by operating activities 26,953
45,387

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (10,865 ) (6,709 )
Proceeds from sale of property, equipment and other assets 2,107
166
Purchases of marketable securities (5,211 ) (18,098 )
Proceeds from sales or maturities of marketable securities 13,751
14,594
Purchases of equity investment (1,027 ) (1,374 )
Net cash used in investing activities (1,245 ) (11,421 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on notes payable —
(8 )
Proceeds from exercise of stock options 514
343
Principal payments on long-term obligations (1,036 ) (912 )
Dividends paid (9,311 ) (10,566 )
Payments for common shares repurchased —
(1,825 )
Tax payments related to RSU issuances (311 ) (261 )
Net cash used in financing activities (10,144 ) (13,229 )

EFFECT OF EXCHANGE RATE CHANGES 667
(680 )
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 16,231
20,057

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period 32,839
28,526
End of period $ 49,070
$ 48,583

Supplemental disclosures of cash flow information:
Cash payments for:

Interest $ 161
$ 171
Income taxes, net of refunds 7,449
114

Supplemental schedule of non-cash investing and financing activities:

Demonstration equipment transferred to inventory 72
218
Purchase of property and equipment included in accounts payable 1,163
397
Contributions of common stock under the ESPP 1,681
840

See notes to consolidated financial statements.

~~Table of contents~~

~~NOTES TO THE~~CONDENSED CONSOLIDATED ~~FINANCIAL~~ STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Net sales	$	170,303	$	184,975	$	602,203	$	544,334
Cost of sales	128,585		143,262		435,139		445,123
Gross profit	41,718		41,713		167,064		99,211

Operating expenses:
Selling	14,258		12,908		41,840		41,866
General and administrative	10,589		9,861		31,077		27,989
Product design and development	8,835		7,250		26,459		21,655
Goodwill impairment	—		4,576		—		4,576
	33,682		34,595		99,376		96,086
Operating income	8,036		7,118		67,688		3,125

Nonoperating (expense) income:
Interest (expense) income, net	(745)		(398)		(2,952)		(721)
Change in fair value of convertible note	6,340		—		(11,570)		—
Other expense and debt issuance costs write-off, net	(1,000)		(1,380)		(6,282)		(2,335)

Income before income taxes	12,631		5,340		46,884		69
Income tax expense	1,889		1,627		14,781		14,666
Net income (loss)	$	10,742	$	3,713	$	32,103	$	(14,597)

Weighted average shares outstanding:
Basic	46,173		45,387		45,975		45,320
Diluted	50,837		45,448		46,608		45,320

Earnings (loss) per share:
Basic	$	0.23	$	0.08	$	0.70	$	(0.32)
Diluted	$	0.09	$	0.08	$	0.69	$	(0.32)

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023

Net income (loss)	$	10,742	$	3,713	$	32,103	$	(14,597)

Other comprehensive income (loss):
Cumulative translation adjustments	1,041		1,976		(401)		(187)
Unrealized gain on available-for-sale securities, net of tax	7		6		23		6
Total other comprehensive income (loss), net of tax	1,048		1,982		(378)		(181)
Comprehensive income (loss)	$	11,790	$	5,695	$	31,725	$	(14,778)

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands)

(unaudited)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of April 29, 2023	$	63,023	$	50,259	$	103,410	$	(10,285)	$	(5,529)	$	200,878
Net income	—		—		19,196		—		—		19,196
Cumulative translation adjustments	—		—		—		—		(252)		(252)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—		—		7		7
Share-based compensation	—		557		—		—		—		557
Exercise of stock options	46		—		—		—		—		46

Employee savings plan activity	615		—		—		—		—		615



Balance as of July 29, 2023	$	63,684	$	50,816	$	122,606	$	(10,285)	$	(5,774)	$	221,047
Net income	—		—		2,165		—		—		2,165
Cumulative translation adjustments	—		—		—		—		(1,190)		(1,190)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—		—		9		9
Share-based compensation	—		534		—		—		—		534
Exercise of stock options	959		—		—		—		—		959
Tax payments related to RSU issuances	—		(303)		—		—		—		(303)




Balance as of October 28, 2023	$	64,643	$	51,047	$	124,771	$	(10,285)	$	(6,955)	$	223,221
Net income	—		—		10,742		—		—		10,742
Cumulative translation adjustments	—		—		—		—		1,041		1,041
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—		—		7		7
Share-based compensation	—		507		—		—		—		507
Exercise of stock options	142		—		—		—		—		142

Employee savings plan activity	586		—		—		—		—		586



Balance as of January 27, 2024	$	65,371	$	51,554	$	135,513	$	(10,285)	$	(5,907)	$	236,246

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(continued)

(in thousands)

(unaudited)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balance as of April 30, 2022	$	61,794	$	48,372	$	96,608	$	(10,285)	$	(4,925)	$	191,564
Net loss	—		—		(5,326)		—		—		(5,326)
Cumulative translation adjustments	—		—		—		—		(642)		(642)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—		—		1		1
Share-based compensation	—		511		—		—		—		511
Employee savings plan activity	594		—		—		—		—		594

Balance as of July 30, 2022	$	62,388	$	48,883	$	91,282	$	(10,285)	$	(5,566)	$	186,702
Net loss	—		—		(12,984)		—		—		(12,984)
Cumulative translation adjustments	—		—		—		—		(1,521)		(1,521)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—		—		(1)		(1)
Share-based compensation	—		474		—		—		—		474

Tax payments related to RSU issuances	—		(140)		—		—		—		(140)
Balance as of October 29, 2022	$	62,388	$	49,217	$	78,298	$	(10,285)	$	(7,088)	$	172,530
Net income	—		—		3,713		—		—		3,713
Cumulative translation adjustments	—		—		—		—		1,976		1,976
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—		—		6		6
Share-based compensation	—		502		—		—		—		502

Employee savings plan activity	614		—		—		—		—		614

Balance as of January 28, 2023	$	63,002	$	49,719	$	82,011	$	(10,285)	$	(5,106)	$	179,341

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended
	January 27, 2024		January 28, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	32,103	$	(14,597)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	14,370		12,543
Loss (gain) on sale of property, equipment and other assets	98		(588)
Share-based compensation	1,598		1,487
Equity in loss of affiliates	2,330		2,596
Provision for doubtful accounts, net	659		674
Deferred income taxes, net	23		13,028
Non-cash impairment charges	1,091		4,576
Change in fair value of convertible note	11,570		—
Debt issuance costs write-off	3,353		—
Change in operating assets and liabilities	(13,406)		(29,206)
Net cash provided by (used in) operating activities	53,789		(9,487)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(13,628)		(21,809)
Proceeds from sales of property, equipment and other assets	107		612

Proceeds from sales or maturities of marketable securities	550		3,490
Purchases of equity and loans to equity investees	(4,084)		(3,240)
Net cash used in investing activities	(17,055)		(20,947)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable	40,485		283,115
Payments on notes payable	(18,500)		(259,477)
Principal payments on long-term obligations	(307)		—

Debt issuance costs	(6,833)		—
Proceeds from exercise of stock options	1,147		—
Tax payments related to RSU issuances	(303)		(140)
Net cash provided by financing activities	15,689		23,498

EFFECT OF EXCHANGE RATE CHANGES ON CASH	80		(342)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	52,503		(7,278)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period	24,690		18,008
End of period	$	77,193	$	10,730

Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	1,959	$	760
Income taxes, net of refunds	18,185		4,456

Supplemental schedule of non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable	1,050		1,538
Contributions of common stock under the ESPP	1,201		1,207

See notes to condensed consolidated financial statements.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share data)

(unaudited)

Note 1. Basis of Presentation ~~and Summary of Critical Accounting Policies~~

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) ~~is the world's~~are industry ~~leader~~leaders in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted ~~accounting principles~~ in the United States of America ("GAAP") requires management to make estimates and assumptions affecting the reported amounts ~~therein.~~of assets and liabilities, revenues and expenses, and the disclosure of contingent liabilities. Estimates used in the preparation of the unaudited consolidated financial statements include, among others, revenue recognition, future warranty expenses, the fair value of long-term debt, the fair value of investments in affiliates, income tax expenses, and stock-based compensation. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Certain information and ~~footnote~~ disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at April 29, ~~2017~~2023 has been derived from the audited financial statements at that date, but it does not include all of the information and ~~footnotes~~disclosures required by GAAP for complete financial statements.These financial statements should be read in conjunction with our financial statements and notes thereto for the fiscal year ended April 29, ~~2017,~~2023, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange ~~Commission.~~Commission ("SEC"). The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

Daktronics, Inc. operates on a 52- toor 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week fiscal year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. The nine months ended January 27, ~~2018~~2024 and January 28, ~~2017~~2023 contained operating results for 39 weeks.

There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.

Cash and cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statements of cash flows. Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure certain issuances of foreign bank guarantees.


	January 27, 2024		January 28, 2023		April 29, 2023
Cash and cash equivalents	$	76,764	$	10,022	$	23,982
Restricted cash	429		708		708
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	77,193	$	10,730	$	24,690

We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Of our $76,764 in cash and cash equivalent balances as of January 27, 2024, $63,179 were denominated in United States dollars, of which $1,568 were held by our foreign subsidiaries. As of January 27, 2024, we had an additional $13,585 in cash balances denominated in foreign currencies, of which $9,761 were maintained in accounts of our foreign subsidiaries.

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Recent Accounting Pronouncements

Accounting Standards Adopted

In August 2020, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplified the accounting for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 (1) simplified the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification ("ASC") 470-20, Debt: Debt with Conversion and Other Options, that required entities to account for beneficial conversion features and cash conversion features in equity separately from the host convertible debt or preferred stock; (2) revised the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity by removing certain criteria required for equity classification; and (3) revised the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share ("EPS") for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 was effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 was effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. In the first quarter of fiscal 2024, we adopted ASU 2020-06 with no material impact to the Condensed Consolidated Financial Statements. On May 11, 2023, we borrowed $25,000 in aggregate principal amount evidenced by a secured convertible note due May 11, 2027 (the "Convertible Note"). See "Note 7. Financing Agreements" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information on the Convertible Note.

Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires enhanced disclosures about significant segment expenses. The Company is required to adopt ASU 2023-07 for its annual reporting in fiscal year 2025 and for interim period reporting beginning in the first quarter of fiscal year 2026 on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact of ASU 2023-07 on our segment disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires the disclosure of specified additional information in its income tax rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require disaggregation of income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The Company is required to adopt this guidance for its annual reporting in fiscal year 2025 on a prospective basis. Early adoption and retroactive application are permitted. We are currently evaluating the impact of ASU 2023-09 on our income tax disclosures.

Note 2. Investments in Affiliates

We evaluated the nature of our investment in affiliates ~~over~~of XdisplayTM, which is developing micro-LED mass transfer expertise and technologies, and Miortech (dba Etulipa), which is developing low power outdoor electrowetting technology. We determined that Miortech is a variable interest entity (VIE), and, based on management's analysis, we ~~have significant influence are~~determined that Daktronics is not the primary beneficiary; therefore, the investment in Miortech is accounted for under the equity method of accounting. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.

method.

The aggregate amount of our investments accounted for under the equity method was ~~$3,303~~$8,513 and ~~$2,678 at~~$11,934 as of January 27, ~~2018~~2024 and April 29, ~~2017,~~2023, respectively. The equity method requires us to report our share of losses up to our equity investment amount. Cash paid for investments in affiliates is included in the Purchases of equity investment line item in our consolidated statements of cash flows. Our proportional share of the respective ~~affiliate’s~~affiliates' earnings or losses is included in the ~~Other (expense) income, net~~"Other expense and debt issuance costs write-off, net" line item in our condensed consolidated statements of operations. For the three and nine months ended January 27, ~~2018,~~2024, our share of the losses of our affiliates was ~~$401.~~$869 and $2,330 as compared to $895 and $2,596 for the three and nine months ended January 28, 2023.

We purchased services for research and development activities from our equity method investees. The total of these related party transactions for the nine months ended January 27, 2024 and January 28, 2023 was $162 and $672, respectively, which is included in the "Product design and development" line item in our condensed consolidated statements of

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operations, and for the nine months ended January 27, 2024, $2 remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheets.

During the nine months ended January 27, 2024, we invested $3,000 in convertible notes and $1,084 in promissory notes (collectively, the "Affiliate Notes") issued by our affiliates, which is included in the "Investment in affiliates and other assets" line item in our condensed consolidated balance sheets. During the nine months ended January 27, 2024, we did not convert any Affiliate Notes to stock ownership. Our ownership in Miortech was 55.9 percent and in XdisplayTM was 16.4 percent as of January 27, 2024. The ~~aggregate~~total amount of ~~investments accounted for under the cost method was $42 at~~Affiliate Notes as of January 27, ~~2018~~2024 was $13,134 and ~~April 29, 2017, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value, and it~~ is ~~not practical to estimate their fair value.~~

~~Recent Accounting Pronouncements~~

~~Accounting Standards Adopted~~

~~In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15,~~ ~~Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments,~~ ~~which reduces the diversity in practice in how certain cash receipts and cash payments are presented and classified~~included in the ~~statement~~"Investments in affiliates and other assets" line item in our condensed consolidated balance sheets. The Affiliate Notes balance combined with the investment in affiliates balance totaled $21,647 and $24,836 as of ~~cash flows. We early adopted ASU 2016-15 during the second quarter of fiscal 2018. Adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.~~January 27, 2024 and January 28, 2023, respectively.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash,~~ which requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Accordingly, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statements of cash flows. We early adopted ASU 2016-18 during the second quarter of fiscal 2018 and applied its provisions retrospectively. Other than the change in presentation within the statements of cash flows, the adoption of ASU 2016-18 did not have an impact on our consolidated financial statements.

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~~Accounting Standards Not Yet Adopted~~

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the U.S. Tax Cuts and Jobs Act. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2018-02 will have on our consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350),~~ which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019, and will require adoption on a prospective basis. We are currently evaluating the effect that adopting ASU 2017-04 will have on our consolidated financial statements and related disclosures.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other than Inventory~~, which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. This update eliminates the exception by requiring entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for us on April 29, 2018. We are currently evaluating the effect that adopting ASU 2016-16 will have on our consolidated financial statements and related disclosures.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments,~~ which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2016-13 will have on our consolidated financial statements and related disclosures.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (that is, lessees and lessors). ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2016-02 will have on our consolidated financial statements and related disclosures.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The FASB has also issued ASUs 2016-08, 2016-10, 2016-12, and 2016-20 to clarify guidance with respect to principal versus agent considerations and the identification of performance obligations and licensing, to issue guidance on certain narrow areas, and to add practical expedients. We will adopt ASU 2014-09 and related guidance under the modified retrospective method during the first quarter of fiscal 2019. The implementation team has completed its evaluation of the revenue arrangements, analyzed contracts to identify key provisions impacted by Accounting Standards Codification ("ASC") 606, assessed the applicable accounting, and reviewed existing accounting policies and internal controls. We are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under ASC 606. As a result of the evaluation performed to date, we do not anticipate that the adoption will significantly change the timing or amount of revenue recognized, based upon our current assessment of "point in time" and "over time" revenue recognition. Therefore, we do not anticipate that the adoption of ASU 2014-09 will materially impact our consolidated results of operations and financial statements, other than the additional disclosure requirements.

Note 2.3. Earnings Per Share ("EPS")

~~Basic EPS~~Under the if-converted method, the Convertible Note is ~~computed by dividing income attributable~~assumed to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised orbe converted into common stock at the beginning of the reporting period or ~~resulted~~at time of issuance, if later, and the resulting shares are included in the ~~issuance~~denominator of ~~common stock which share~~the calculation. In addition, interest charges, net of any income tax effects, and the change in fair value of Convertible Note are added back to the numerator of the calculation. See "Note 7. Financing Agreements" of the Notes to our ~~earnings.~~

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Condensed Consolidated Financial Statements included in this Form 10-Q for further information on the Convertible Note.

The following is a reconciliation of the net income (loss) and common share amounts used in the calculation of basic and diluted EPS for the three and nine months ended January 27, ~~2018~~2024 and January 28, ~~2017:~~ 2023:


	Three Months Ended				Nine Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Earnings per share - basic
Net income (loss)	$	10,742	$	3,713	$	32,103	$	(14,597)
Weighted average shares outstanding	46,173		45,387		45,975		45,320
Basic earnings (loss) per share	$	0.23	$	0.08	$	0.70	$	(0.32)

Earnings per share - diluted
Net income (loss)	$	10,742	$	3,713	$	32,103	$	(14,597)
Change in fair value of convertible note	(6,340)		—		—		—
Interest expense on convertible note, net of tax	404		—		—		—
Diluted net income (loss)	$	4,806	$	3,713	$	32,103	$	(14,597)

Weighted average common shares outstanding	46,173		45,387		45,975		45,320
Dilution associated with stock compensation plans	627		61		633		—
Dilution associated with convertible note	4,037		—		—		—
Weighted average common shares outstanding, assuming dilution	50,837		45,448		46,608		45,320

Diluted earnings (loss) per share	$	0.09	$	0.08	$	0.69	$	(0.32)

Net (loss) income Shares Per share (loss) income
For the three months ended January 27, 2018
Basic (loss) earnings per share $ (6,189 ) 44,518
$ (0.14 )
    Dilution associated with stock compensation plans —
—
—
Diluted (loss) earnings per share $ (6,189 ) 44,518
$ (0.14 )
For the three months ended January 28, 2017
Basic (loss) earnings per share $ (5,127 ) 44,102
$ (0.12 )
    Dilution associated with stock compensation plans —
—
—
Diluted (loss) earnings per share $ (5,127 ) 44,102
$ (0.12 )
For the nine months ended January 27, 2018
Basic earnings per share $ 9,372
44,403
$ 0.21
    Dilution associated with stock compensation plans —
395
—
Diluted earnings per share $ 9,372
44,798
$ 0.21
For the nine months ended January 28, 2017
Basic earnings per share $ 9,433
44,071
$ 0.21
    Dilution associated with stock compensation plans —
135
—
Diluted earnings per share $ 9,433
44,206
$ 0.21

Options outstanding to purchase ~~1,203~~484 shares of common stock with a weighted average exercise price of ~~$11.45~~$10.73 for the three months ended January 27, ~~2018~~2024 and ~~1,354~~2,102 shares of common stock with a weighted average exercise price of ~~$13.86~~$7.13 for the three months ended January 28, ~~2017 were not included in the computation of diluted (loss) earnings per share because the effects would be anti-dilutive.~~

Options outstanding to purchase 1,281 shares of common stock with a weighted average exercise price of $12.55 for the nine months ended January 27, 2018 and 2,380 shares of common stock with a weighted average exercise price of $13.27 for the nine months ended January 28, 20172023 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

~~Note 3. Share Repurchase Program~~

~~On June 17, 2016, our Board of Directors approved a stock repurchase program under which Daktronics, Inc. may~~Options outstanding to purchase up to $40,000 of its outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time. During the first, second and third quarter of fiscal 2018, we had no repurchases of shares of our outstanding common stock. During the first quarter of fiscal 2017, we repurchased 284695 shares of common stock atwith a ~~total cost~~weighted average exercise price of ~~$1,825,~~$10.30 for the nine months ended January 27, 2024 and ~~there~~2,089 shares of common stock with a weighted average exercise price of $7.59 for the nine months ended January 28, 2023 were ~~no other purchases~~not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

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During the nine months ended January 27, 2024, shares of common stock issuable upon conversion of the Convertible Note were not included in the computation of diluted earnings per share, as the effect would be anti-dilutive. For the nine months ended January 27, 2024, 3,875 potential common shares related to the Convertible Note were excluded from the calculation of diluted earnings per share. The debt evidenced by the Convertible Note was not outstanding during fiscal ~~2017.~~ year 2023.

Note 4. Revenue Recognition

Disaggregation of revenue

In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.

The following table presents our disaggregation of revenue by segments:


	Three Months Ended January 27, 2024
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	5,802	$	57,229	$	5,021	$	12,116	$	6,508	$	86,676
Limited configuration	22,157		8,395		20,900		5,646		6,702		63,800
Service and other	5,333		7,769		2,843		1,843		2,039		19,827
	$	33,292	$	73,393	$	28,764	$	19,605	$	15,249	$	170,303
Timing of revenue recognition
Goods/services transferred at a point in time	$	24,361	$	11,006	$	20,819	$	6,874	$	7,473	$	70,533
Goods/services transferred over time	8,931		62,387		7,945		12,731		7,776		99,770
	$	33,292	$	73,393	$	28,764	$	19,605	$	15,249	$	170,303

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	Nine Months Ended January 27, 2024
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	28,231	$	181,272	$	31,679	$	35,747	$	25,291	$	302,220
Limited configuration	80,822		32,127		97,514		22,182		19,243		251,888
Service and other	13,575		20,203		4,747		3,288		6,282		48,095
	$	122,628	$	233,602	$	133,940	$	61,217	$	50,816	$	602,203
Timing of revenue recognition
Goods/services transferred at a point in time	$	84,758	$	37,173	$	94,622	$	23,733	$	21,235	$	261,521
Goods/services transferred over time	37,870		196,429		39,318		37,484		29,581		340,682
	$	122,628	$	233,602	$	133,940	$	61,217	$	50,816	$	602,203


	Three Months Ended January 28, 2023
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	9,929	$	53,437	$	3,380	$	11,446	$	8,138	$	86,330
Limited configuration	35,864		7,858		23,865		5,328		11,040		83,955
Service and other	4,174		6,453		1,067		804		2,192		14,690
	$	49,967	$	67,748	$	28,312	$	17,578	$	21,370	$	184,975
Timing of revenue recognition
Goods/services transferred at a point in time	$	36,746	$	10,125	$	22,716	$	5,571	$	11,861	$	87,019
Goods/services transferred over time	13,221		57,623		5,596		12,007		9,509		97,956
	$	49,967	$	67,748	$	28,312	$	17,578	$	21,370	$	184,975

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	Nine Months Ended January 28, 2023
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	20,198	$	148,467	$	17,828	$	35,330	$	20,762	$	242,585
Limited configuration	94,408		26,013		85,123		15,969		36,826		258,339
Service and other	12,526		18,890		3,176		2,498		6,320		43,410
	$	127,132	$	193,370	$	106,127	$	53,797	$	63,908	$	544,334
Timing of revenue recognition
Goods/services transferred at a point in time	$	97,381	$	31,029	$	80,935	$	16,702	$	38,756	$	264,803
Goods/services transferred over time	29,751		162,341		25,192		37,095		25,152		279,531
	$	127,132	$	193,370	$	106,127	$	53,797	$	63,908	$	544,334

See "Note 5. Segment Reporting" for a disaggregation of revenue by geography.

Contract balances

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the customers in excess of revenue recognized to date.

The following table reflects the changes in our contract assets and liabilities:


	January 27, 2024		April 29, 2023		Dollar Change		Percent Change
Contract assets	$	47,857	$	46,789	$	1,068	2.3	%
Contract liabilities - current	68,936		91,549		(22,613)		(24.7)
Contract liabilities - noncurrent	16,347		13,096		3,251		24.8

The changes in our contract assets and contract liabilities from April 29, 2023 to January 27, 2024 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had immaterial impairments of contract assets for the nine months ended January 27, 2024.

For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for these contracts are included in the "Contract assets" and "Contract liabilities" line items of our Condensed Consolidated Balance Sheets. Changes in unearned service-type warranty contracts, net were as follows:


	January 27, 2024
Balance as of April 29, 2023	$	28,338
New contracts sold	38,943
Less: reductions for revenue recognized	(31,748)
Foreign currency translation and other	(2,651)
Balance as of January 27, 2024	$	32,882

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Contracts in progress identified as loss contracts as of January 27, 2024 and as of April 29, 2023 were immaterial. Loss provisions are recorded in the "Accrued expenses" line item in our Condensed Consolidated Balance Sheets.

During the nine months ended January 27, 2024, we recognized revenue of $82,938 related to our contract liabilities as of April 29, 2023.

Remaining performance obligations

As of January 27, ~~2018, we had $38,175~~2024, the aggregate amount of ~~remaining capacity under our current share repurchase program.~~

~~Note 4. Segment Disclosure~~

~~We have organized our business into~~ ~~five~~ ~~segments which meet~~ the ~~definition of reportable segments under ASC 280-10,~~ ~~Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the type of customer or geography and are the same as our business units.~~

~~Our Commercial business unit primarily consists of sales of our video display systems, digital billboards, Galaxy~~^® ~~and Fuelight~~^™ product lines to resellers (primarily sign companies), Out-of-Home ("OOH") companies, national retailers, quick-serve restaurants, casinos and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales of our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy^® ~~displays and video display systems to primary and secondary education facilities. Our Transportation business unit primarily consists of sales of our Vanguard~~^® ~~and Galaxy~~^® product lines to governmental transportation departments, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, and European transportation related products.

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Our segment reporting presents results through gross profit less selling costs. Gross profit is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos, and supplies. Segment profit excludes general and administration expense, product development expense, interest income and expense, non-operating income and income tax expense. Assets are nottransaction price allocated to the ~~segments. Depreciation~~remaining performance obligations was $393,203. Remaining performance obligations related to product and ~~amortization are allocated to each segment based on various financial measures; however, some depreciation~~service agreements as of January 27, 2024 were $328,279 and ~~amortization are corporate in nature and remain unallocated. Our segments follow the same accounting policies as those described in Note 1~~$64,924, respectively. We expect approximately $328,491 of our ~~Annual Report on Form 10-K for~~remaining performance obligations to be recognized over the ~~fiscal year~~next 12 months, with the remainder recognized thereafter. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations, and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate. The amount of revenue recognized associated with performance obligations satisfied in prior years during the nine months ended April 29, 2017. Unabsorbed manufacturing costs are allocated to the business unit benefiting most from that manufacturing location's production capabilities. Unabsorbed costs of domestic field salesJanuary 27, 2024 and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures.January 28, 2023 was immaterial.

~~We do not maintain information on sales by products; therefore, disclosure of such information is not practical.~~

Table of ~~contents~~Contents

Note 5. Segment Reporting

The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:


	Three Months Ended						Nine Months Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017
	Three Months Ended													Three Months Ended		Nine Months Ended
													January 27, 2024	January 28, 2023	January 27, 2024		January 28, 2023
Net sales:
Commercial
Commercial
Commercial	$	35,483		$	36,165		$	102,723		$	112,342
Live Events	45,167			41,036			191,432			157,032
High School Park and Recreation	11,463			12,653			69,602			68,977
Transportation	11,189			9,130			46,577			39,517
International	27,014			16,735			62,019			64,989
	130,316			115,719			472,353			442,857
	170,303

Gross profit:
Gross profit:
Gross profit:
Commercial
Commercial
Commercial	7,546			7,711			21,085			27,418
Live Events	9,747			6,629			43,056			30,430
High School Park and Recreation	2,768			3,198			23,672			21,900
Transportation	3,570			2,325			16,696			12,966
International	4,936			3,453			11,308			13,977
	41,718
	28,567			23,316			115,817			106,691
Operating expenses:
Operating expenses:
Operating expenses:
Selling
Selling
Selling
General and administrative
Product design and development
Goodwill impairment
	33,682
Operating income

Selling expense:
Nonoperating (expense) income:
Nonoperating (expense) income:
Nonoperating (expense) income:
Interest (expense) income, net
Interest (expense) income, net
Interest (expense) income, net
Change in fair value of convertible note
Other expense and debt issuance costs write-off, net
Income before income taxes

Depreciation and amortization:
Depreciation and amortization:
Depreciation and amortization:
Commercial
Commercial
Commercial	4,415			4,575			13,778			13,949
Live Events	3,843			3,417			10,562			9,686
High School Park and Recreation	2,726			2,581			8,073			7,532
Transportation	945			952			3,084			3,461
International	3,342			3,153			10,063			11,200
	15,271			14,678			45,560			45,828

Non-allocated operating expenses:
General and administrative	8,335			8,599			26,138			26,007
Product design and development	8,299			6,973			26,294			21,142
Operating (loss) income	(3,338		)	(6,934		)	17,825			13,714

Nonoperating income (expense):
Interest income	158			183			520			559
Interest expense	(40		)	(56		)	(173		)	(174		)
Other (expense) income, net	(487		)	(305		)	(429		)	(250		)

(Loss) income before income taxes	(3,707		)	(7,112		)	17,743			13,849
Income tax expense (benefit)	2,482			(1,985		)	8,371			4,416
Net (loss) income	$	(6,189	)	$	(5,127	)	$	9,372		$	9,433

Depreciation, amortization and impairment:
Commercial	$	1,550		$	1,616		$	4,628		$	4,777
Live Events	1,192			1,245			3,626			3,798
High School Park and Recreation	401			421			1,245			1,310
Transportation	281			311			860			957
International	284			423			835			1,914
Unallocated corporate depreciation	725			683			2,141			2,015
	$	4,433		$	4,699		$	13,335		$	14,771
Unallocated corporate depreciation and amortization
	$

Table of ~~contents~~Contents

No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:


	Three Months Ended				Nine Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Net sales:
United States	$	152,962	$	161,467	$	545,699	$	474,048
Outside United States	17,341		23,508		56,504		70,286
	$	170,303	$	184,975	$	602,203	$	544,334


	Three Months Ended				Nine Months Ended
	January��27, 2018		January 28, 2017		January 27, 2018		January 28, 2017
Net sales:
United States	$	98,297	$	94,174	$	396,155	$	363,766
Outside United States	32,019		21,545		76,198		79,091
	$	130,316	$	115,719	$	472,353	$	442,857


	January 27, 2018		April 29, 2017
	January 27, 2024									January 27, 2024	April 29, 2023
Property and equipment, net of accumulated depreciation:									Property and equipment, net of accumulated depreciation:
United States	$	58,333	$	62,425
Outside United States	5,962		4,324
	$	64,295	$	66,749
	$

We have numerous customers worldwide for sales of our products and ~~services;~~services, and no customer accounted for 10 percent or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and ~~services except with respect to our dependence on two major digital billboard customers in our Commercial business unit.~~ services.

~~Note 5. Marketable Securities~~

We have ~~a cash management program which provides~~numerous raw material and component suppliers, and no supplier accounts for ~~the investment~~10 percent or more of ~~cash balances not used in current operations. We classify~~ our ~~investments in marketable securities as available-for-sale in accordance with the provisions~~cost of ~~ASC 320,~~ ~~Investments – Debt and Equity Securities.~~ Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of January 27, 2018, we anticipate we will recover the entire amortized cost basis of such fixed income securities, andsales; however, we have ~~determined no other-than-temporary impairments associated with credit losses were required~~a complex global supply chain subject to ~~be recognized. The cost~~geopolitical and transportation risks and a number of ~~securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded~~single-source suppliers that could limit our supply or cause delays in ~~the market to estimate fair value.~~ obtaining raw materials and components needed in manufacturing.

~~As of January 27, 2018 and April 29, 2017, our available-for-sale securities consisted of the following:~~

Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Balance as of January 27, 2018
Certificates of deposit $ 8,918
$ —
$ —
$ 8,918
U.S. Government sponsored entities 9,104
—
(73 ) 9,031
Municipal bonds 6,001
—
(13 ) 5,988
$ 24,023
$ —
$ (86 ) $ 23,937
Balance as of April 29, 2017

Certificates of deposit $ 12,487
$ —
$ —
$ 12,487
U.S. Government securities 400
—
—
400
U.S. Government sponsored entities 12,260
—
(22 ) 12,238
Municipal bonds 7,574
14
—
7,588
$ 32,721
$ 14
$ (22 ) $ 32,713

Realized gains or losses on investments are recorded in our consolidated statements of operations as other income (expense), net. Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the nine months ended January 27, 2018 and January 28, 2017, the reclassifications from accumulated other comprehensive loss to earnings were immaterial.

~~Table of contents~~

All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of January 27, 2018 were as follows:

Less than 12 months 1-5 Years Total
Certificates of deposit $ 5,207
$ 3,711
$ 8,918
U.S. Government sponsored entities 999
8,032
9,031
Municipal bonds 2,598
3,390
5,988
$ 8,804
$ 15,133
$ 23,937

Note 6. ~~Business Combinations~~

~~ADFLOW Acquisition~~

We have a contingent liability related to a prior year acquisition of ADFLOW Networks, Inc. ("ADFLOW"), on March 15, 2016. For more information related to the ADFLOW acquisition, see "Note 4. Business Combinations" of our Annual Report on Form 10-K for the fiscal year ended April 29, 2017. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires us to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable. See "Note 13. Fair Value Measurement" for more information.

~~Note 7. Sale of Non-Digital Division~~

In September 2017, we sold our non-digital division assets, primarily consisting of inventory, non-digital manufacturing equipment, patented and unpatented technology and know-how, customer lists, and backlog, net of warranty obligations and accounts payable with a net book value of $517. We recorded a gain of $1,267 on the disposal, which is included in cost of goods sold in the International business unit.

~~Note 8.~~ Goodwill

The changes in the carrying amount of goodwill related to each ~~reportable~~ segment with a goodwill balance for the nine months ended January 27, ~~2018~~2024 were as follows:

Live Events Commercial Transportation International Total
Balance as of April 29, 2017 $ 2,274
$ 3,199
$ 45
$ 2,294
$ 7,812
Foreign currency translation 38
258
38
323
657
Balance as of January 27, 2018 $ 2,312
$ 3,457
$ 83
$ 2,617
$ 8,469


	Commercial		Transportation		Total
Balance as of April 29, 2023	$	3,198	$	41	$	3,239
Foreign currency translation	19		5		24

Balance as of January 27, 2024	$	3,217	$	46	$	3,263

We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. WeOur annual analysis is performed during our ~~annual analysis~~third quarter of each fiscal year based on the goodwill amount as of the first business day of our third ~~quarter in~~ fiscal ~~2018, which was~~quarter. We performed our annual impairment test as of October 29, ~~2017. The result of the analysis indicated~~2023 and concluded no goodwill impairment ~~existed as of that date.~~existed.

~~Note 9. Inventories~~

~~Inventories consisted of the following:~~

January 27,
2018 April 29,
2017
Raw materials $ 26,833
$ 24,801
Work-in-process 11,813
7,366
Finished goods 31,805
34,319
$ 70,451
$ 66,486

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~~Note 10. Receivables~~

~~Accounts receivable are reported net of an allowance for doubtful accounts of~~ ~~$2,311~~ ~~and~~ ~~$2,610~~ ~~at January 27, 2018 and April 29, 2017, respectively. Included in accounts receivable~~Accumulated impairments to goodwill as of January 27, ~~2018~~2024 and April 29, ~~2017~~2023 was ~~$2,044 and $1,857, respectively,~~$4,576.

Note 7. Financing Agreements

Long-term debt consists of ~~retainage~~the following:

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	January 27, 2024		April 29, 2023

ABL credit facility/prior line of credit	$	—	$	17,750
Mortgage	14,250		—
Convertible note	25,000		—
Long-term debt, gross	39,250		17,750
Debt issuance costs, net	(854)		—
Change in fair value of convertible note	11,570		—
Current portion	(1,500)		—
Long-term debt, net	$	48,466	$	17,750

Credit Agreements

On May 11, 2023, we closed on ~~construction-type contracts, all~~a $75,000 senior credit facility (the "Credit Facility"). The Credit Facility consists of a $60,000 asset-based revolving credit facility (the "ABL") maturing on May 11. 2026, which is ~~expected~~secured by first priority lien on the Company's assets and is subject to ~~be collected within one year.~~

Incertain factors that can impact our borrowing capacity, and a $15,000 delayed draw loan (the "Delayed Draw Loan") secured by a first priority mortgage on our Brookings, South Dakota real estate (the "Mortgage"). The ABL and Delayed Draw Loan are evidenced by a Credit Agreement dated as of May 11, 2023 (the "Credit Agreement") between the Company and JPMorgan Chase Bank, N.A., as the lender. On May 11, 2023, the Company paid all amounts outstanding on the prior credit agreement, and this prior credit agreement was terminated as of this date. No gain or loss was recognized upon termination, and the Company incurred no early termination penalties in connection with such termination.

Under the ABL, certain ~~sales transactions, we have entered into sales contracts with installment~~factors can impact our borrowing capacity. As of January 27, 2024, our borrowing capacity was $32,907, there were no borrowings outstanding, and there was $5,426 used to secure letters of credit outstanding.

The interest rate on the ABL is set on a sliding scale based on the trailing 12-month fixed charge coverage and ranges from 2.5 to 3.5 percent over the standard overnight financing rate (SOFR). The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the Pledge and Security Agreement dated as of May 11, 2023 by and among the Company, Daktronics Installation, Inc. and JPMorgan Chase Bank, N.A.

The $15,000 Delayed Draw Loan was funded on July 7, 2023 and is secured by the Mortgage on the Company's Brookings, South Dakota real estate. It amortizes over 10 years and has monthly payments ~~exceeding twelve months and sales-type leases.~~of $125. The ~~present value of these contracts and leases are recorded as a receivable as the revenue~~Delayed Draw Loan is ~~recognized in accordance with GAAP, and profit is recognized~~subject to the ~~extent~~terms of the ~~present value~~Credit Agreement and matures on May 11, 2026. The interest rate on the Delayed Draw Loan is ~~in excess of cost. We generally retain~~set on a ~~security~~sliding scale based on the trailing 12-month fixed charge coverage ratio and ranges between 1.0 and 2.0 percent over the Commercial Bank Floating Rate (CBFR). The interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts and lease receivables, including accrued interest and current maturities, was ~~$4,147~~ ~~and~~ ~~$4,890~~rate as of January 27, ~~2018~~2024 for Delayed Draw Loan was 9.5 percent.

Convertible Note

On May 11, 2023, we borrowed $25,000 in aggregate principal amount evidenced by the secured Convertible Note due May 11, 2027. The Convertible Note holder (the "Holder") has a second priority lien on assets securing the ABL facility and ~~April 29, 2017, respectively. Contract~~a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and ~~lease receivables bearing~~among the Company, JPMorgan Chase Bank N.A., and the Holder of the Convertible Note.

Conversion Features

•The Convertible Note allows the Holder and any of the Holder’s permitted transferees, donees, pledgees, assignees or successors-in-interest (collectively, the “Selling Shareholders”) to convert all or any portion of the principal amount of the Convertible Note, together with any accrued and unpaid interest and any other unpaid amounts, including late charges, if any (together, the “Conversion Amount”), into shares of the Company’s common stock at an initial conversion price of $6.31 per share, subject to adjustment in accordance with the terms of the Convertible Note (the “Conversion Price”).

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•The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions set forth in the Convertible Note, pursuant to which it can cause all or any portion of the outstanding and unpaid Conversion Amount to be converted into shares of common stock at the Conversion Price.

Additionally, if the Company fails other than by reason of a failure by the Holder to comply with its obligations, the Holder is permitted to cash payments from the Company until such conversion failure is cured.

Redemption Features

•If the Company were to have an "Event of Default", as defined by the Convertible Note, then the Holder may require the Company to redeem all or any portion of the Convertible Note.

•If the Company has a "Change of Control", as defined by the Convertible Note, then the Holder is entitled to payment of the outstanding amount of the Convertible Note at the "Change in Control Redemption Price," as defined in the Convertible Note.

Interest

Interest accruing under the Convertible Note is payable, at the option of the Company, in either (i) cash or (ii) a combination of cash interest and capitalized interest; provided, however, that at least fifty percent (50%) of the interest paid on each interest date must be paid as cash interest. The Convertible Note accrues interest quarterly at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is paid in kind. Upon an event of default under the Convertible Note, the annual interest ~~rates~~rate will increase to 12.0 percent. The annual rate of ~~4.8~~9.0 percent was used to ~~10.0~~ ~~percent are due in varying annual installments through August 2024. The face amount of long-term receivables was~~ ~~$4,547~~ ~~and~~ ~~$5,201~~calculate the interest accrued as of January 27, ~~2018~~2024, as interest will be paid in cash.

We elected the fair value option to account for the Convertible Note as described in "Note 10. Fair Value Measurement" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q. The financial liability was initially measured at its issue-date fair value and ~~April 29, 2017, respectively.~~is subsequently remeasured at fair value on a recurring basis at each reporting period date. We have elected to present the fair value and the accrued interest component separately in the Condensed Consolidated Statements of Operations. Therefore, interest will be recognized and accrued separately in interest expense, with changes in fair value of the Convertible Note presented in the "Change in fair value of convertible note" line item in our Condensed Consolidated Statements of Operations.

The changes in fair value of the Convertible Note during the nine months ended January 27, 2024 are as follows:


	Liability Component
	(in thousands)
Balance as of May 11, 2023	$	25,000
Redemption of convertible promissory note	—
Fair value change recognized	11,570
Balance as of January 27, 2024	$	36,570

The estimated fair value of the Convertible Note upon its issuance date of May 11, 2023 and as of January 27, 2024 was computed using a binomial lattice model which incorporates significant inputs that are not observable in the market and thus represents a Level 3 measurement.

We determined the fair value by using the following key assumptions in the binomial lattice model:


Risk-Free Rate (Annual)	4.09	%
Implied Yield	17.24	%
Volatility (Annual)	60.00	%
Dividend Yield (Annual)	—	%

The Credit Agreement and the Convertible Note require a fixed charge coverage ratio of greater than 1.1 and include other customary non-financial covenants. As of January 27, 2024, we were in compliance with our financial covenants under the Credit Agreement and the Convertible Note.

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Debt Issuance Costs

Debt issuance costs incurred and capitalized are amortized on a straight-line basis over the term of the associated debt agreement. If early principal payments or conversions occur, a proportional amount of unamortized debt issuance costs is expensed. As part of these financings, we capitalized $8,195 in debt issuance costs. During the nine months ended January 27, 2024, due to the Convertible Note being accounted for at fair value, we expensed $3,353 of the related debt issuance costs which is included in the "Other expense and debt issuance costs write-off, net" line item in our Condensed Consolidated Statements of Operations. During the nine months ended January 27, 2024, we amortized $1,148 of debt issuance costs. The remaining debt issuance costs of $3,694 are being amortized over the three-year term of the Credit Facility.

Future Maturities

Aggregate contractual maturities of debt in future fiscal years are as follows:


Fiscal years ending	Amount
Remainder of 2024	$	375
2025	1,500
2026	1,500
2027	10,875
2028	25,000
2029 and beyond	—
Total debt	$	39,250

Note ~~11.~~8. Commitments and Contingencies

Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for our financial statements to not be misleading. We do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies. Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.

~~As of January 27, 2018 and April 29, 2017,~~For other unresolved legal proceedings or claims, we ~~did~~do not believe there ~~was~~is a reasonable probability that any material loss ~~for these various claims or legal actions, including reviews, inspections or other legal proceedings, if any,~~ would be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. ~~In the opinion of management,~~We do not expect the ultimate liability of ~~all~~these unresolved legal proceedings ~~is not expected~~or claims to have a material effect on our financial position, liquidity, or capital resources.

Warranties: ~~We offer a standard parts coverage warranty for periods varying from~~ ~~one~~ to ~~five~~ years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of warranties on some installations can vary from ~~one~~ to 10 years. The specific terms and conditions of these warranties vary primarily depending on the type of product sold. We estimate the costs which may be incurred under the contractual warranty obligations and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly.

During fiscal 2016, we discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH applications built prior to fiscal 2013. The device failure causes a visual defect in the display. Over the past three years, we have deployed preventative maintenance to sites impacted and repaired the defective devices in our repair center. When certain site locations have exceeded an acceptable failure rate, we have refurbished the display to meet customers’ expectations under contractual obligations. During fiscal 2017, 2016, and 2015 we recognized warranty expense for probable and reasonably estimated costs to remediate this issue of $1,766, $9,174, and $1,168, respectively. We recognized warranty expense related to this issue of $4,034 during the nine months ended January 27, 2018. This increased expense level is not the result of a new issue, but is primarily based on our decision to preserve our market leadership. We elected to expand the refurbishments for customer relationship purposes. As of January 27, 2018, we had $3,066 remaining in accrued warranty obligations for the estimate of probable future claims related to this issue. Although many of our contractual warranty arrangements are nearing expiration for products with this issue, we may incur additional discretionary costs to maintain customer relationships or for higher than expected failure rates. Accordingly, it is possible that the ultimate cost to resolve this matter may increase and be materially different from the amount of the current estimate and accrual.

~~Table of contents~~

Changes in our warranty obligation for the nine months ended January 27, ~~2018~~2024 consisted of the following:


	January 27, 2024
Balance as of April 29, 2023	$	32,541
Warranties issued during the period	10,518
Settlements made during the period	(9,323)
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations	954
Balance as of January 27, 2024	$	34,690

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Amount
Beginning accrued warranty obligations $ 27,899
      Warranties issued during the period 9,652
      Settlements made during the period (13,581 )
      Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations 5,230
Ending accrued warranty obligations $ 29,200

Performance guarantees: We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily ~~construction type~~construction-type contracts. As of January 27, ~~2018,~~2024, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of ~~$13,396~~$5,426, $163 and ~~$8,330~~,$45,746, respectively. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms ~~which are~~but generally have a term of one year. We enter into written agreements with our customers, and those agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss. We make efforts to negotiate reasonable caps and limitations on the recovery of such damages. As of January 27, 2024, we were not aware of any material indemnification claims.

~~Leases:~~ ~~We lease vehicles, office space~~Note 9. Income Taxes

Our effective tax rate for the three and ~~equipment for various global sales~~nine months ended January 27, 2024 was a tax rate of 15.0 and ~~service locations, including manufacturing space~~31.5 percent, respectively. Income before tax includes the impacts of the change in the ~~United States and China. Some of~~Convertible Note fair value; however, these ~~leases, including~~changes are not deductible or taxable, which impacts the ~~lease for manufacturing facilities in Sioux Falls, South Dakota, include provisions for extensions or purchase. The lease~~effective tax rate. Our effective tax rate for the facilities in Sioux Falls, South Dakota, can be extended for an additional five years past its current term, which ends March 31, 2022, and it contains an option to purchase the property subject to the lease from March 31, 2017 to March 31, 2022 for ~~$9,000, which approximates fair value. If the lease is extended, the purchase option increases to~~ ~~$9,090~~ ~~for the year ending March 31,~~three months ended January 28, 2023 ~~and~~ ~~$9,180~~ ~~for the year ending March 31, 2024. Rental expense for operating leases~~ was ~~$2,568~~ ~~and~~ ~~$2,358~~a tax rate of 30.5 percent. The rate for the nine months ended January ~~27, 2018~~28, 2023 was skewed by the valuation allowance placed on deferred taxes during the second quarter of fiscal 2023.

We operate both domestically and ~~January 28, 2017, respectively.~~

~~Future minimum payments under noncancelable operating leases, excluding executory costs such~~internationally and, as ~~management and maintenance fees, with initial or remaining terms of one year or more consisted of the following at January 27, 2018:~~

Fiscal years ending Amount
2018 $ 775
2019 2,624
2020 2,101
2021 1,771
2022 1,437
Thereafter 544
$ 9,252

~~Purchase commitments:~~ From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year. As of January 27, ~~2018, we~~2024, the undistributed earnings of our foreign subsidiaries were ~~obligated under the following conditional and unconditional purchase commitments, which included~~ ~~$350~~ ~~in conditional purchase commitments:~~

Fiscal years ending Amount
2018 $ 665
2019 2,675
2020 1,898
2021 313
2022 143
Thereafter 380
$ 6,074

~~Note 12. Income Taxes~~

~~We are subject~~considered to ~~U.S. Federal income tax~~be reinvested indefinitely. Additionally, as well as income taxes of multiple state and foreign jurisdictions. Due to various factors and operating in multiple state and foreign jurisdictions, our effective tax is subject to fluctuation. As a result of the expiration of statutes of limitations, our fiscal years 2015, 2016, and 2017 are the remaining years open under statutes of limitations for federal and state income tax examinations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2008.

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As of January 27, ~~2018,~~2024, we had ~~$3,179~~$352 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

On December 22, 2017, President Trump signed the U.S. Tax Cuts and Jobs Act (the “Tax Act”) into law. The Tax Act makes broad and complex changes to the U.S. tax code. Some of the most significant provisions of the Tax Act impacting us include a reduction of the U.S. federal corporate income tax rate from 35% to 21%, a one-time "deemed repatriation" tax on previously untaxed accumulated earnings and profits of certain subsidiaries in non-U.S. jurisdictions, and a transition of U.S. international taxation from a worldwide tax system to a territorial tax system.

GAAP accounting for income taxes requires us to record the impact of any tax law change in the quarter the law change is enacted. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 which provides additional guidance allowing companies to record provisional amounts during a measurement period, not to exceed one year from the enactment date of the Tax Act, to account for the impacts of the Tax Act in their financial statements when companies do not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for the effects of the changes in the Tax Act. We have accounted for the impacts of the Tax Act to the extent a reasonable estimate could be made during the quarter ended January 27, 2018. We will continue to refine our estimates throughout the measurement period or until the accounting is complete, and the impact of the Tax Act may differ from these estimates, possibly materially, due to, among other things, changes in estimates and assumptions that we have made.

As a result, we have recorded a provisional reduction to our net deferred tax asset (which represents future tax benefits) of $3,679 which resulted in a corresponding increase to income tax expense for the quarter ended January 27, 2018. The revaluation of our net deferred tax asset is subject to further adjustments during the measurement period due to the complexity of determining our net deferred tax asset as of the enactment date of the Tax Act. Some of the information necessary to determine the accounting impacts of the tax rate change includes finalization of our fiscal 2018 tax return as well as refining the analysis of which existing deferred balances at the enactment date will reverse in fiscal 2018 and which deferred balances will reverse after fiscal 2018.

Additionally, we have recorded a provisional increase to income tax expense of $601 for the one-time deemed repatriation tax. The estimate of the deemed repatriation tax is based, in part, on the amount of cash and other specified assets anticipated to be held by Daktronics’ foreign subsidiaries as of April 28, 2018. As a result, the final amount may change as the amounts are finalized. We plan to pay the tax payable in installments in accordance with the Tax Act.

Note ~~13.~~10. Fair Value Measurement

~~ASC 820,~~ ~~Fair Value Measurement,~~ defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three levels of inputs which may be utilized when measuring fair value.

~~Level 1~~ ~~- Quoted prices in active markets for identical assets or liabilities.~~

~~Level 2~~ - Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).

~~Level 3~~ ~~- Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.~~

~~Table of contents~~

The following table sets forth by ~~Level~~level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis atas of January 27, ~~2018~~2024 and April 29, ~~2017~~2023 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Balance as of January 27, 2024
Cash and cash equivalents	$	76,764	$	—	$	—	$	76,764
Restricted cash	429		—		—		429
Convertible note	—		—		(36,570)		(36,570)






	$	77,193	$	—	$	(36,570)	$	40,623
Balance as of April 29, 2023
Cash and cash equivalents	$	23,982	$	—	$	—	$	23,982
Restricted cash	708		—		—		708
Available-for-sale securities:

US Government sponsored entities	—		534		—		534


Derivatives - liability position	—		(579)		—		(579)

	$	24,690	$	(45)	$	—	$	24,645

Fair Value Measurements
Level 1 Level 2 Level 3 Total
Balance as of January 27, 2018
Cash and cash equivalents $ 49,042
$ —
$ —
$ 49,042
Restricted cash 28
—
—
28
Available-for-sale securities:

Certificates of deposit —
8,918
—
8,918
U.S. Government sponsored entities —
9,031
—
9,031
Municipal bonds —
5,988
—
5,988
Derivatives - asset position —
64
—
64
Derivatives - liability position —
(720 ) —
(720 )
Contingent liability —
—
(1,034 ) (1,034 )
$ 49,070
$ 23,281
$ (1,034 ) $ 71,317
Balance as of April 29, 2017

Cash and cash equivalents $ 32,623
$ —
$ —
$ 32,623
Restricted cash 216
—
—
216
Available-for-sale securities:

Certificates of deposit —
12,487
—
12,487
U.S. Government securities 400
—
—
400
U.S. Government sponsored entities —
12,238
—
12,238
Municipal bonds —
7,588
—
7,588
Derivatives - asset position —
64
—
64
Derivatives - liability position —
(277 ) —
(277 )
Contingent liability —
—
(1,891 ) (1,891 )
$ 33,239
$ 32,100
$ (1,891 ) $ 63,448

~~A roll forward~~We elected to value the Convertible Note at fair value in accordance with ASC 825-10-15-4(a) because of the embedded derivatives contained in the Convertible Note. The fair value of the Convertible Note was estimated using a binomial lattice model. Binomial lattice allows for the examination of the value to a holder and understanding the investment decision that would occur at each node.

The fair value of the Convertible Note entered into during the first quarter of fiscal 2024 was classified as Level 3 ~~contingent liability, both short- and long-term,~~because it does not have readily determinable or observable inputs for the ~~nine months~~valuation. There have been no other changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2023. For additional information, see our Annual Report on Form 10-K for the fiscal year ended ~~January 27, 2018 is as follows:~~

Contingent liability as of April 29, 2017 $ 1,891
Settlements (1,009 )
Interest 30
Foreign currency translation 122
Contingent liability as of January 27, 2018 $ 1,034

~~The following~~April 29, 2023 for the methods and assumptions ~~were~~ used to estimate the fair value of each class of financial instrument. ~~There have been no changes in the valuation techniques used by us to value our financial instruments.~~

~~Cash and cash equivalents~~: Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value.

~~Restricted cash~~: Consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value.

~~Certificates of deposit~~: Consists of time deposit accounts with original maturities of less than three years and various yields. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments from a third-party financial institution. The carrying amount approximates fair value.

~~U.S. Government securities~~:Consists of U.S. Government treasury bills, notes, and bonds with original maturities of less than three years and various yields. The fair value of these securities was measured using quoted market prices in active markets.

~~U.S. Government sponsored entities~~: Consists of Fannie Mae and Federal Home Loan Bank investment grade debt securities trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments. The contractual maturities of these investments vary from one month to three years.

Table of ~~contents~~Contents

~~Municipal bonds~~: Consist of investment grade municipal bonds trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The contractual maturities of these investments vary from two to three years. The fair value of these bonds was measured based on valuations observed in less active markets than Level 1 investments.

~~Derivatives – currency forward contracts~~: Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 14. Derivative Financial Instruments" for more information regarding our derivatives.

~~Contingent liability~~: Consists of the fair value of a liability measured on expected future payments relating to a business acquisition if future financial performance measures are achieved. The contingent liability was calculated by estimating the discounted present value of expected future payments for estimated performance measure attainment. To estimate future performance measure attainment, we utilized significant unobservable inputs as of January 27, 2018 and April 29, 2017. The unobservable inputs included management expectations and forecasts for business performance and an estimated discount rate based on current borrowing interest rates. To the extent that these assumptions changed or actual results differed from these estimates, the fair value of the contingent consideration liability could change. The contingent liability is presented in other long-term obligations in our consolidated balance sheets.

~~Non-recurring measurements:~~ The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Certain long-lived assets such as goodwill, intangible assets and property and equipment are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

~~Other measurements using fair value~~: Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, costs and earnings in excess of billings and billings in excess of costs, accounts payable, warranty obligations, customer deposits, deferred revenue, and other long-term obligations, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

Note ~~14. Derivative Financial Instruments~~

We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives on the balance sheet within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of January 27, 2018 and April 29, 2017, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in other income (expense), net.

11. Related Party Transactions

The ~~foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at January 27, 2018 and April 29, 2017 were as follows:~~

January 27, 2018 April 29, 2017
U.S. Dollars Foreign
Currency U.S.
Dollars Foreign
Currency
Foreign Currency Exchange Forward Contracts:
U.S. Dollars/Australian Dollars 2,615
3,408
7,984
10,669
U.S. Dollars/Canadian Dollars 1,424
1,864
256
345
U.S. Dollars/British Pounds 6,402
4,778
4,936
3,959
U.S. Dollars/Singapore Dollars 237
312
605
844
U.S. Dollars/Euros (1,277 ) (1,061 ) 528
491
U.S. Dollars/Swiss Franc 998
989
—
—

~~As of January 27, 2018, there was an asset and liability of $64 and~~ ~~$720, respectively, and as of April 29, 2017, there was an asset and liability of $64 and~~ ~~$277, respectively, representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank.~~

~~Note 15. Subsequent Events~~

~~On March 1, 2018, our~~Company's Board of Directors ~~declared~~has adopted a ~~regular quarterly dividend~~written policy and procedures with respect to related party transactions, which the Audit Committee oversees. Under the policy, a "related party transaction" is generally defined as a transaction, arrangement, or relationship in which the Company was, is or will be a participant; the amount involved exceeds $120; and in which any "related person" had, has or will have a direct or indirect material interest. The policy generally defines a "related person" as a Director, executive officer or beneficial owner of ~~$0.07 per share~~more than five percent of any class of our voting securities and any immediate family member of any of the foregoing persons.

The Audit Committee reviews and, if appropriate, approves related party transactions, including certain transactions which are deemed to be pre-approved under the policy. On an annual basis, the Audit Committee reviews any previously approved related party transaction that is ongoing.

As reported in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” of our Annual Report on ~~our~~Form 10-K for the fiscal year ended April 29, 2023, effective on May 11, 2023, the Company entered into the Securities Purchase Agreement with Alta Fox Opportunities Fund, LP, as the holder (the "Holder") of the Convertible Note. Under the Securities Purchase Agreement, the Company sold and issued to the Holder the Convertible Note in exchange for the payment by the Holder to the Company of $25,000. As of May 11, 2023, and based on Amendment No. 2 to the Schedule 13D filed by the Holder and its affiliates named therein on May 15, 2023 with the SEC, the Holder and its affiliates beneficially owned 4,768 shares of common stock ~~payable~~of the Company, representing 9.99 percent of the Company’s common stock, causing the Holder to be a “related party” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933. The Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Holder and the Company, and the Registration Rights Agreement were approved in advance of their execution by the Company’s Strategy and Financing Review Committee, the members of which include all members of the Company’s Audit Committee.

Since May 11, 2023, the largest aggregate amount outstanding under the Convertible Note was $25,563, consisting of $25,000 of principal and $563 of interest. In the first nine months of fiscal 2024, we have made interest payments of $1,125 under the Convertible Note.

The description of the Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement, and the Registration Rights Agreement dated as of May 11, 2023 by and between the Holder and the Company and their respective terms set forth in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” of the Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2023 is hereby incorporated by reference into this Report. In addition, the Company is a party to the Standstill and Voting Agreement dated as of March ~~22, 2018~~19, 2023 with Alta Fox Management, LLC and Connor Haley (the “Standstill Agreement”), who are affiliates of the Holder. The Standstill Agreement is filed as Exhibit 10.13 to ~~holders~~Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2023.

As described in Amendment No. 3 (“Amendment No. 3”) to the Schedule 13D filed by the Holder and its affiliates named therein on June 9, 2023 with the SEC, and based on other information provided by the Holder, the following persons may be deemed to be beneficial owners of ~~record~~the shares of ~~our~~the Company’s common stock beneficially owned by the Holder: Alta Fox GenPar, LP, as the general partner of Alta Fox Opportunities Fund, LP; Alta Fox Equity, LLC, as the general partner of Alta Fox GenPar, LP; Alta Fox Capital Management, LLC, as the investment manager of Alta Fox Opportunities Fund, LP; and P. Connor Haley, as the sole owner, member and manager of each of Alta Fox Capital Management, LLC and Alta Fox Equity LLC.

On June 7, 2023, the Company received from the Holder a written notice of a decrease in the “Percentage Cap” (as such term is defined in the Convertible Note) from 9.99 percent to 4.99 percent, which decrease became effective immediately upon the Company’s receipt of such written notice. The Percentage Cap generally represents the maximum percentage of shares of the Company’s common stock the Holder may own. In Amendment No. 3, the Holder and its affiliates identified in Amendment No. 3 owned 2,293 shares of common stock on ~~March 12, 2018.~~June 9, 2023, representing 4.99 percent of the common stock of the Company, meaning the Holder and its affiliates are no longer “related parties” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933.

Table of ~~contents~~Contents

During the first nine months of fiscal 2024, the Company and the South Dakota Board of Regents entered into contracts for video display systems for Dakota State University. The amount of the contracts was $1,178. A member of the Company's Board of Directors is the President of Dakota State University.

See "Note 2. Investments in Affiliates" for further details of related party transactions with our investments in the Affiliate Notes issued by our affiliates.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, April 29, 2023, to and including January 27, 2024 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

This Quarterly Report on Form 10-Q, ~~(including exhibits~~including the MD&A, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and ~~any information incorporated by reference herein) contains both historical~~financial performance. The words "may," "would," "could," "should," "will," "expect," "estimate," "anticipate," "believe," "intend," "plan," "forecast," "project" and ~~forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this Report that~~similar expressions are ~~not purely historical are~~intended to identify forward-looking statements within the meaning of ~~Section 27A of~~ the Private Securities Litigation Reform Act of ~~1933, as amended,~~1995. Any and ~~Section 21B of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions~~all forecasts and ~~strategies for the future. These statements appear in a number of places~~projections in this ~~Report~~document are “forward-looking statements” and ~~include all statements that~~ are ~~not historical statements of fact regarding the intent, belief or~~based on management’s current expectations ~~with respect~~or beliefs. From time to ~~among~~time, we may also provide oral and written forward-looking statements in other ~~things: (i.) our competition; (ii.) our financing plans; (iii.) trends affecting our financial condition~~materials we release to the public, such as press releases, presentations to securities analysts or ~~results of operations; (iv.) our growth strategy~~investors, or other communications by us. Any or all forward-looking statements in this report and ~~operating strategy; (v.) the declaration and payment of dividends; (vi.) the timing and magnitude of future contracts; (vii.) raw material shortages and lead times; (viii.) fluctuations~~ in ~~margins; (ix.) the seasonality of our business; (x.) the introduction of new products and technology; (xi.) the amount and frequency of warranty claims; and (xii.) the timing and magnitude of~~ any acquisitions or dispositions. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plans” and similar expressions and variations thereof are intendedpublic statements we make could be materially different from actual results. Accordingly, we wish to ~~identify forward-looking statements. Investors are cautioned~~caution investors that any ~~such~~ forward-looking statements made by or on behalf of us are ~~not guarantees of future performance~~subject to uncertainties and ~~involve risks and uncertainties, many of which are beyond our ability to control, and~~other factors that could cause actual results to differ materially from such statements. Important factors that may cause actual results to differ materially from those ~~projected~~ in the forward-looking statements include, but are not limited to, the uncertainties related to market conditions and entry into a financing transaction; the Company’s potential need to seek additional strategic alternatives, including seeking additional debt or equity capital or other strategic transactions and/or measures; the Company’s ability to finalize or fully execute actions and steps that would be probable of mitigating the existence of any “substantial doubt” regarding the Company’s ability to continue as a ~~result of various~~going concern; the Company’s ability to increase cash flow to support the Company’s operating activities and fund its obligations and working capital needs; our ability to obtain additional financing on terms favorable to us, or at all; any future goodwill impairment charges; and the other risk factors ~~discussed herein, including those discussed~~described more fully in ~~our filings~~the Company’s Annual Report on Form 10-K for the fiscal year ended April 29, 2023 filed with the Securities and Exchange Commission, ~~including~~as well as other publicly available information about the Company.

We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time; it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended April 29, ~~2017~~2023 (including the information presented therein under Risk Factors), as well as other publicly available information about our Company.

OVERVIEW

We are engaged principally in the ~~section entitled “Item 1A. Risk Factors”~~design, marketing, and ~~"Item 7. Management's Discussion and Analysis~~manufacture of ~~Financial Condition and Results of Operations," and those factors discussed in detail in our other filings with the Securities and Exchange Commission.~~

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). This discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Report. The preparation of these financial statements requires us to make estimates and judgments affecting the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate our estimates, including those related to total costs on long-term construction-type contracts, costs to be incurred for product warranties and extended maintenance contracts, bad debts, excess and obsolete inventory, income taxes, share-based compensation, goodwill impairment and contingencies. Our estimates are based on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.

~~OVERVIEW~~

~~We design, manufacture and sell~~ a wide range of integrated electronic display systems ~~to customers~~and related products which are sold in a variety of markets throughout the ~~world.~~world and the rendering of related maintenance and professional services. We focus our sales and marketing efforts on markets, geographical regions and products. Our five business segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and Canada. ~~Disclosures related~~

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The following selected financial data should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended April 29, 2023 and the consolidated financial statements set forth in that Annual Report on Form 10-K, including the notes to ~~our business segments are provided in "Note 4. Segment Disclosure" of the Notes to the Consolidated Financial Statements~~consolidated financial statements included ~~elsewhere in this Report.~~therein.

CURRENT CONDITIONS

Our past investments in people and plant capacity and the continued stable supply chain environment have allowed for efficient production and fulfillment of orders. Although the post-pandemic geopolitical situation and global trade patterns continue to evolve, we believe that the levels of uncertainty and volatility in supply chain and demand will not be as great as it was through the pandemic and will continue to stabilize during this fiscal year.

We believe the audiovisual industry fundamentals of increased use of LED display systems across industries and our development of new technologies, services, and sales channels will drive long-term growth for our Company. Orders and revenue levels are expected to be impacted by the timing of multi-million dollar projects and the impacts of global economic conditions, war and geopolitical situations, or other factors outside of our control.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED JANUARY 27, 2024 AND JANUARY 28, 2023

Product Order Backlog

Backlog represents the dollar value of orders for integrated electronic display systems and related products and services which are expected to be recognized in net sales and profitability historically have fluctuated due to the impact of large project orders, such as display systems for professional sports facilities, colleges and universities, and spectacular projects in the commercial area, as well as the seasonality of the sports market. Large project orders can include several displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules per the customer's needs. Net sales and gross profit percentages also have fluctuated due to other seasonal factors, including the impact of holidays, which primarily affects our third fiscal quarter.

Our gross margins on large custom and large standard orders tend to fluctuate more than on small standard orders. Large product orders involving competitive bidding and substantial subcontract work for product installation generally have lower gross margins. Although we follow the percentage of completion method of recognizing revenues for large custom orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.

~~Our backlog consists of~~future. Orders are contractually binding ~~sales agreements or~~ purchase ~~orders~~commitments from customers. Orders are included in backlog when we ~~expect to fill within the next 24 months. Orders, which we define as a~~are in receipt of an executed contract and any required deposits ~~are booked~~or security and ~~included in backlog. As a result, certain~~have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be ~~booked~~included in backlog until all required contractual documents and deposits are received. ~~In addition, order bookings can vary significantly on a quarterly basis as a result of the timing of large orders. Because order~~Orders and backlog ~~may be subject to extended delivery schedules, orders may be canceled, and orders have varied estimated~~

~~Table of contents~~

~~profitability, our backlog is~~are not ~~necessarily indicative of future net sales or net income. Backlog can fluctuate due to large order booking timing and seasonality. Backlog is not a measure~~measures defined by ~~GAAP,~~accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts.

Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multi-million dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. Order fulfillment timing is dependent on customer schedules, supply chain conditions, and our capacity availability. We believe order information is useful to investors because it provides an indication of our market share and future revenues.

Our product order backlog as of January 27, 2024 was $328.3 million as compared to $429.1 million as of January 28, 2023 and $400.7 million at April 29, 2023. The decrease in backlog is trending down to more historical levels as a result of fulfilling orders at a greater pace as supply chain conditions stabilized and production lead times improved, utilizing our increased capacity, and order pace returning to more normalized rates.

We expect to fulfill the backlog as of January 27, 2024 within the next 24 months. The timing of backlog fulfillment may be impacted by project delays resulting from parts availability and other constraints stemming from the supply chain disruptions or by customer site conditions, which are outside our control.

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Net Sales

The following table shows information regarding net sales for the three months ended January 27, 2024 and January 28, 2023:


	Three Months Ended
(in thousands)	January 27, 2024		January 28, 2023		Dollar Change		Percent Change
Net Sales:
Commercial	$	33,292	$	49,967	$	(16,675)	(33.4)	%
Live Events	73,393		67,748		5,645		8.3
High School Park and Recreation	28,764		28,312		452		1.6
Transportation	19,605		17,578		2,027		11.5
International	15,249		21,370		(6,121)		(28.6)
	$	170,303	$	184,975	$	(14,672)	(7.9)	%
Orders: (1)
Commercial	$	34,524	$	28,737	$	5,787	20.1	%
Live Events	95,217		61,011		34,206		56.1
High School Park and Recreation	35,385		28,097		7,288		25.9
Transportation	18,924		13,525		5,399		39.9
International	8,013		17,005		(8,992)		(52.9)
	$	192,063	$	148,375	$	43,688	29.4	%

(1) Orders are not measures defined by GAAP, and our methodology for determining orders may vary from the methodology used by other companies in determining their orders and amounts.

For the fiscal 2024 third quarter, net sales were $170.3 million, a decrease of $14.7 million from net sales in the prior year's third quarter. The third quarter of every year is characterized by seasonally lower volume, and the decrease is attributable to the year-ago period’s unseasonably record revenue driven by high backorder fulfillment resulting from recovery of pandemic-related supply chain challenges and labor availability. The sales decrease was driven by comparatively lower volumes in the Commercial and International business units, partially offset by order fulfillments in the Live Events, High School Park and Recreation, and Transportation business units.

Orders for the third quarter of fiscal 2024 increased by 29.4 percent from the third quarter of fiscal 2023 driven by strong demand in the Live Events business unit, rebounding demand in the Spectacular and Out-of-Home markets in our Commercial business unit, and solid growth in the High School Parks and Recreation and Transportation business units. These higher orders offset an order decrease in the International business unit.

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Gross Profit and Contribution Margin


	Three Months Ended
	January 27, 2024				January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
Gross Profit:
Commercial	$	5,546	16.7	%	$	10,547	21.1	%
Live Events	21,102		28.8		14,405		21.3
High School Park and Recreation	8,029		27.9		7,555		26.7
Transportation	6,180		31.5		5,534		31.5
International	861		5.6		3,672		17.2
	$	41,718	24.5	%	$	41,713	22.6	%

The gross profit improvement for the third quarter of fiscal 2024 as compared to the same period in fiscal 2023 is due to strategic pricing, greater efficiency of sales volume generation over the cost structure, and a more stable operating environment.

Total warranty costs as a percent of sales for the three months ended January 27, 2024 compared to the same period one year ago increased to 1.9 percent from 1.7 percent.


	Three Months Ended
	January 27, 2024								January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Contribution Margin:
Commercial	$	1,474	4.4	%	$	(5,210)	(77.9)	%	$	6,684	13.4	%
Live Events	17,987		24.5		5,878		48.5		12,109		17.9
High School Park and Recreation	4,515		15.7		142		3.2		4,373		15.4
Transportation	5,202		26.5		759		17.1		4,443		25.3
International	(1,718)		(11.3)		(2,914)		(243.6)		1,196		5.6
	$	27,460	16.1	%	$	(1,345)	(4.7)	%	$	28,805	15.6	%

Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel-related costs, travel and entertainment expenses, marketing related expenses (show rooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses.

Contribution margin as a percent of net sales for the fiscal quarter ended January 27, 2024 was positively impacted by the previously discussed impacts on gross profit.

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Reconciliation from non-GAAP contribution margin to the operating income GAAP measure is as follows:


	Three Months Ended
	January 27, 2024								January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Contribution margin	$	27,460	16.1	%	$	(1,345)	(4.7)	%	$	28,805	15.6	%
General and administrative	10,589		6.2		728		7.4		9,861		5.3
Product design and development	8,835		5.2		1,585		21.9		7,250		3.9
Goodwill impairment	—		—		(4,576)		(100.0)		4,576		2.5
Operating income	$	8,036	4.7	%	$	918	12.9	%	$	7,118	3.8	%

General and administrative expenses in the third quarter of fiscal 2024 increased as compared to the third quarter of fiscal 2023 primarily due to an increase in personnel-related expenses.

Product design and development expensesin the third quarter of fiscal 2024 increased as compared to the third quarter of fiscal 2023 primarily due to an increase in personnel-related expenses.

We recorded a $4.6 million non-cash goodwill impairment charge during the third quarter of fiscal 2023 that was not repeated in the third quarter of fiscal 2024.

Other Income and Expenses


	Three Months Ended
	January 27, 2024								January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Interest (expense) income, net	$	(745)	(0.4)	%	$	(347)	87.2	%	$	(398)	(0.2)	%
Change in fair value of convertible note	$	6,340	3.7	%	$	6,340	—	%	$	—	—	%
Other expense and debt issuance costs write-off, net	$	(1,000)	(0.6)	%	$	380	(27.5)	%	$	(1,380)	(0.7)	%

Interest (expense) income, net: The increase in interest income and expense, net for the third quarter of fiscal 2024 compared to the same period one year ago was primarily due to closing in May 2023 on the convertible note (the "Convertible Note") and asset-based and mortgage financings at higher values and interest rates than were in effect under our previous line of credit during the 2023 third quarter.

Change in fair value of Convertible Note: For the three months ended January 27, 2024, we recorded income of $6.3 million related to the change in fair value of the Convertible Note payable, which is accounted for under the fair value option. The fair value change was primarily caused by the decrease in our stock price during the third quarter of fiscal year 2024 compared to the second quarter of fiscal year 2024.

Other expense, net: The change in other expense, net for the third quarter of fiscal 2024 as compared to the same period one year ago was primarily due to losses recorded for equity method affiliates and foreign currency volatility.

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Income Taxes

Our effective tax rate for the third quarter of fiscal 2024 was 15.0 percent as compared to an effective tax rate of 30.5 percent for the third quarter of fiscal 2023. The lower tax rate for the third quarter of fiscal 2024 is caused by the reduction in fair value adjustment to income that is not taxable.

RESULTS OF OPERATIONS

COMPARISON OF THE NINE MONTHS ENDED JANUARY 27, 2024 AND JANUARY 28, 2023

Net Sales

The following table shows information regarding net sales for the nine months ended January 27, 2024 and January 28, 2023:


	Nine Months Ended
(in thousands)	January 27, 2024		January 28, 2023		Dollar Change		Percent Change
Net Sales:
Commercial	$	122,628	$	127,132	$	(4,504)	(3.5)	%
Live Events	233,602		193,370		40,232		20.8
High School Park and Recreation	133,940		106,127		27,813		26.2
Transportation	61,217		53,797		7,420		13.8
International	50,816		63,908		(13,092)		(20.5)
	$	602,203	$	544,334	$	57,869	10.6	%
Orders: (1)
Commercial	$	101,167	$	119,126	$	(17,959)	(15.1)	%
Live Events	226,436		193,763		32,673		16.9
High School Park and Recreation	103,924		97,574		6,350		6.5
Transportation	59,409		45,812		13,597		29.7
International	43,450		45,130		(1,680)		(3.7)
	$	534,386	$	501,405	$	32,981	6.6	%

(1) Orders are not measures defined by GAAP, and our methodology for determining orders may vary from the methodology used by other companies in determining their orders and amounts.

For the first nine months of fiscal 2024, net sales were $602.2 million, an increase of $57.9 million from the prior year's first nine-month period. This increase was primarily due to higher throughput from our past investments in capacity and the more stable operating environment. During the nine-month period ended January 28, 2023, we faced material supply and labor shortages which extended lead times and delayed the conversion of orders into sales.

Order volume increased in the first nine months of fiscal 2024 from the prior year's nine-month period. Higher orders from customers in the Live Events, High School Park and Recreation, and Transportation business units offset decreases in the Spectacular and Out-of-Home markets in our Commercial business unit. The change in the Commercial business unit was caused by volatility in bookings of larger sized Spectacular LED video displays projects and a contraction in advertising spend. Orders in the International business unit in the first nine months of fiscal 2024 were lower due to a weakening economic outlook relating to inflationary pressures, geopolitical events, and currency headwinds.

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Gross Profit and Contribution Margin


	Nine Months Ended
	January 27, 2024				January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
Gross Profit:
Commercial	$	25,546	20.8	%	$	21,565	17.0	%
Live Events	68,276		29.2		26,174		13.5
High School Park and Recreation	45,274		33.8		29,343		27.6
Transportation	20,049		32.8		15,456		28.7
International	7,919		15.6		6,673		10.4
	$	167,064	27.7	%	$	99,211	18.2	%

The increase in gross profit percentage in the nine months ended January 27, 2024 as compared to the same nine-month period in fiscal 2023 is attributable to the record sales volume over our fixed manufacturing cost structure, past strategic pricing actions, stabilization of input costs, and fewer supply chain and operational disruptions during the first nine months of fiscal 2024 as compared to a year earlier. The effect of employee benefit programs activation in fiscal year 2024 reduced gross profit by $2.8 million in the nine months ended January 27, 2024.

Total warranty costs as a percent of sales for the nine months ended January 27, 2024 compared to the same period one year ago increased to 2.1 percent from 2.0 percent.


	Nine Months Ended
	January 27, 2024								January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Contribution Margin:
Commercial	$	12,598	10.3	%	$	3,795	43.1	%	$	8,803	6.9	%
Live Events	59,974		25.7		41,677		227.8		18,297		9.5
High School Park and Recreation	34,724		25.9		15,332		79.1		19,392		18.3
Transportation	17,144		28.0		4,732		38.1		12,412		23.1
International	784		1.5		2,343		150.3		(1,559)		(2.4)
	$	125,224	20.8	%	$	67,879	118.4	%	$	57,345	10.5	%

Contribution margin for the first nine months of fiscal 2024 was positively impacted by the previously discussed sales levels and impacts on gross profit. Employee benefit programs activation reduced contribution margin by $1.0 million in the nine months ended January 27, 2024.

Reconciliation from non-GAAP contribution margin to the operating income GAAP measure is as follows:

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	Nine Months Ended
	January 27, 2024								January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Contribution margin	$	125,224	20.8	%	$	67,879	118.4	%	$	57,345	10.5	%
General and administrative	31,077		5.2		3,088		11.0		27,989		5.1
Product design and development	26,459		4.4		4,804		22.2		21,655		4.0
Goodwill impairment	—		—		(4,576)		(100.0)		4,576		0.8
Operating income (loss)	$	67,688	11.2	%	$	64,563	2066.0	%	$	3,125	0.6	%

General and administrative expenses in the first nine months of fiscal 2024 increased primarily due to an increase in personnel-related expenses.

Product design and development expensesin the first nine months of fiscal 2024 increased as compared to the first nine months of fiscal 2023 primarily due to an increase in personnel-related expenses.

We recorded a $4.6 million non-cash goodwill impairment charge during the third quarter of fiscal 2023 that was not repeated in the third quarter of fiscal 2024.

Other Income and Expenses


	Nine Months Ended
	January 27, 2024								January 28, 2023
(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Interest (expense) income, net	$	(2,952)	(0.5)	%	$	(2,231)	309.4	%	$	(721)	(0.1)	%
Change in fair value of convertible note	$	(11,570)	(1.9)	%	$	(11,570)	—	%	$	—	—	%
Other expense and debt issuance costs write-off, net	$	(6,282)	(1.0)	%	$	(3,947)	169.0	%	$	(2,335)	(0.4)	%

Interest (expense) income, net: The increase in interest income and expense, net in the first nine months of fiscal 2024 compared to the same period one year ago was primarily due to closing in May 2023 on the Convertible Note and asset-based and mortgage financings at higher values and interest rates than the utilization of our previous line of credit during the first nine months of fiscal 2023.

Change in fair value of Convertible Note: For the nine months ended January 27, 2024, we recorded an expense of $11.6 million related to the change in fair value of the Convertible Note payable which is accounted for under the fair value option. The fair value change was primarily caused by the increase in our stock price over the conversion price and the decline in market interest rates making the value of potentially converted shares higher than at the debt issuance.

Other expense, net: The change in other expense, net for the first nine months of fiscal 2024 as compared to the same period one year ago was primarily due to losses recorded for equity method affiliates and foreign currency volatility and expensing of $3.4 million of debt issuance costs related to the Convertible Note carried at fair value.

Income Tax

We have recorded an effective tax rate of 31.5 percent for the nine months ended January 27, 2024. The tax rate for the first nine months of fiscal 2024 is caused by the fair value adjustment to expense that is not deductible for tax purposes. The effective tax rate for the first nine months of fiscal 2023 was skewed due a full valuation allowance placed on deferred

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taxes. Absent any major tax changes, we expect our full year effective tax rate to be in the mid-twenties, before the impacts of fair value accounting for the Convertible Note.

LIQUIDITY AND CAPITAL RESOURCES


	Nine Months Ended
(in thousands)	January 27, 2024		January 28, 2023		Dollar Change
Net cash provided by (used in):
Operating activities	$	53,789	$	(9,487)	$	63,276
Investing activities	(17,055)		(20,947)		3,892
Financing activities	15,689		23,498		(7,809)
Effect of exchange rate changes on cash	80		(342)		422
Net increase (decrease) in cash, cash equivalents and restricted cash	$	52,503	$	(7,278)	$	59,781

Net cash provided by (used in) operating activities: Net cash provided by operating activities was $53.8 million for the first nine months of fiscal 2024 compared to net cash used in operating activities of $9.5 million in the first nine months of fiscal 2023. The $63.3 million change in cash provided by (used in) operating activities was primarily the result of an increase in net income of $46.7 million in the first nine months of fiscal 2024 compared to the same period in fiscal 2023 as strategic pricing actions and operating conditions improved, the $11.6 million of non-cash fair value change of our Convertible Note impacting net income, and improved working capital positions. We also had strategically invested in inventory through the first nine months of fiscal 2023 as a reaction to supply chain constraints and historic backlog, which consumed cash. Since January 28, 2023, we have reduced inventory and related payables for inventory as we reduced backlog and generated cash from inventory reduction. Increases in contract asset levels have used some cash for working capital because of business increases.

The changes in net operating assets and liabilities consisted of the following:


	Nine Months Ended
	January 27, 2024		January 28, 2023
(Increase) decrease:
Accounts receivable	$	8,725	$	(15,753)
Long-term receivables	1,123		1,265
Inventories	8,880		(30,346)
Contract assets	(1,213)		5,653
Prepaid expenses and other current assets	1,788		6,176
Income tax receivables	(1,175)		(2,653)
Investment in affiliates and other assets	201		(581)
Increase (decrease):
Accounts payable	(18,325)		(2,921)
Contract liabilities	(19,351)		9,196
Accrued expenses	4,484		(1,220)
Warranty obligations	656		(623)
Long-term warranty obligations	1,493		1,958
Income taxes payable	(2,260)		(150)
Long-term marketing obligations and other payables	1,568		793
	$	(13,406)	$	(29,206)

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Net cash used in investing activities: Net cash used in investing activities totaled $17.1 million in the first nine months of fiscal 2024 compared to net cash used in investing activities of $20.9 million in the first nine months of fiscal 2023. Purchases of property and equipment totaled $13.6 million in the first nine months of fiscal 2024 compared to $21.8 million in the first nine months of fiscal 2023. Fiscal 2023 purchases were higher because of initiatives to upgrade existing or purchase new manufacturing equipment for capacity and automation.

Net cash provided by financing activities: Net cash provided by financing activities was $15.7 million for the nine months ended January 27, 2024 due to cash provided by the closing of a $25.0 million Convertible Note financing and the $15.0 million mortgage financing offset by the payoff of our previous credit line of $17.8 million, expending $6.8 million of debt issuance costs, and principal payments on the mortgage, as compared to $23.5 million of cash provided by financing due to draws on our line of credit in the first nine months of fiscal 2023.

Debt and cash

We maintain a $60.0 million asset-based revolving credit facility ("ABL") with a maturity date of May 11, 2027 subject to customary covenants and conditions. As of January 27, 2024, we had no borrowings against the ABL and $5.4 million used to secure letters of credit outstanding. We also have a mortgage of $14.3 million secured by a first priority lien on our Brookings, South Dakota real estate and $25.0 million evidenced by the Convertible Note secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all the other assets of the Company, excluding all real property.

As of January 27, 2024, we had $76.8 million in cash and cash equivalents and $32.9 million in borrowing capacity under our ABL. We believe cash flow from operations, existing lines of credit, and access to debt and capital markets will be sufficient to meet our current liquidity needs, and we have committed liquidity and cash reserves in excess of our anticipated funding requirements.

Our cash and cash equivalent balances consist of high-quality, short-term money market instruments.

Working Capital

Working capital was $205.3 million and $132.5 million as of January 27, 2024 and April 29, 2023, respectively. We had $10.4 million of retainage on long-term contracts included in receivables and contract assets as of January 27, 2024 which we expect to collect within one year and which are included in the short-term asset portion of working capital.

Other Liquidity and Capital Uses

We are sometimes required to obtain performance bonds for display installations; we have a bonding line available through surety companies for an aggregate of $190.0 million in bonded work outstanding. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. As of January 27, 2024, we had $45.7 million of bonded work outstanding.

Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting total fiscal 2024 capital expenditures to be approximately $19 million, of which we have incurred $13.6 million for the first nine months of the fiscal 2024. Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product production and expanded capacity and increased automation of processes; investments in quality and reliability equipment and demonstration and showroom assets; and continued information infrastructure investments. 

We also evaluate and may make strategic investments in new technologies or in our affiliates or acquire companies aligned with our business strategy. We are committed to invest an additional $0.8 million for the remainder of fiscal 2024 in our current affiliates. We may make additional investments beyond our commitments.

Contractual Obligations and Commercial Commitments

During the first nine months of fiscal 2024, we entered into a new credit facility and mortgage and the Convertible Note as disclosed herein. There have been no other material changes in our contractual obligations since the end of fiscal 2023. See our Annual Report on Form 10-K for the fiscal year ended April 29, 2023 for additional information regarding our contractual obligations and commercial commitments.

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Significant Accounting Policies and Estimates

We describe our significant accounting policies in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023. We discuss our critical accounting estimates in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.

New Accounting Pronouncements

For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of ~~Presentation and Summary of Critical Accounting Policies"~~Presentation" of the Notes to the Condensed Consolidated Financial ~~Statements included elsewhere in this Report.~~Statements.

~~GENERAL~~

Our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We measure our success through estimated market share based on estimated market demand for digital displays and generating profits over the long-term. Our success is contingent on the depth and quality of our products, including related control systems, the depth of our service offerings and our technology serving these market demands. These qualities are important for our long-term success because our products have finite lifetimes, and we strive to win replacement business from existing customers.

Increases in user adoption, the acceptance of a variety of digital solutions, and the decline of digital solution pricing over the years has increased the size of the global market. With this positive demand, strong competition exists across all of our business units, which causes margin constraints. Projects with multimillion-dollar revenue potential also attract competition, which generally reduces profitability.

We organize around customer segments and geographic regions as further described in "Note 4. Segment Disclosure" of the Notes to the Consolidated Financial Statements included elsewhere in this Report. Each business segment also has unique key growth drivers and challenges.

~~Commercial Business Unit:~~ ~~Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including:~~

Standard display product market growth due to market adoption and lower product costs, which drive marketplace expansion. Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit. We utilize a reseller network to distribute our standard products.

National accounts standard display market opportunities due to customers' desire to communicate their message, advertising and content consistently across the country. Increased demand is possible from retailers, quick serve restaurants, petroleum businesses, and other nationwide organizations.

Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and Times Square type locations.

~~Dynamic messaging systems demand growth due to market adoption and marketplace expansion.~~

The use of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building.

The continued deployment of digital billboards as Out-of-Home ("OOH") companies continue developing new sites and replacing digital billboards which are reaching end of life. This is dependent on there being no adverse changes in the digital billboard regulatory environment restricting future deployments of billboards, as well as maintaining our current market share of the business concentrated in a few large OOH companies.

~~Replacement cycles within each of these areas.~~

~~Live Events Business Unit:~~ ~~Over the long-term, we believe growth in the Live Events business unit will result from a number of factors, including:~~

~~Facilities spending more on larger display systems to enhance the game-day and event experience for attendees.~~

~~Lower product costs, driving an expansion of the marketplace.~~

~~Our product and service offerings, which remain the most integrated and comprehensive offerings in the industry.~~

~~The competitive nature of sports teams, which strive to out-perform their competitors with display systems.~~

~~The desire for high-definition video displays, which typically drives larger displays or higher resolution displays, both of which increase the average transaction size.~~

~~Dynamic messaging systems needs throughout a sports facility.~~

~~Replacement cycles within each of these areas.~~

~~High School Park and Recreation Business Unit:~~ ~~Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including:~~

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~~Increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays versus traditional scoreboards.~~

~~Increased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community.~~

~~The use of more sophisticated displays in school athletic facilities, such as large integrated video systems.~~

~~Transportation Business Unit:~~ Over the long-term, we believe growth in the Transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications. Effective use of the United States transportation infrastructure requires intelligent transportation systems. This growth is highly dependent on government spending, primarily by state and federal governments, along with the continuing acceptance of private/public partnerships as an alternative funding source.

~~International Business Unit:~~ Over the long-term, we believe growth in the International business unit will result from achieving greater penetration in various geographies and building products more suited to individual markets. We continue to broaden our product offerings into the transportation segment in Europe and the Middle East. We also focus on sports facility, spectacular-type, and third-party advertising market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada.

Each of our business units is impacted by adverse economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business also can be seriously impacted. Our Commercial and International business units are highly dependent on economic conditions in general.

~~RESULTS OF OPERATIONS~~

~~COMPARISON OF THE THREE MONTHS ENDED JANUARY 27, 2018 AND JANUARY 28, 2017~~

~~Net Sales~~

Three Months Ended
(in thousands) January 27,
2018 January 28,
2017 Dollar Change Percent Change
Net sales:
    Commercial $ 35,483
$ 36,165
$ (682 ) (1.9 )%
    Live Events 45,167
41,036
4,131
10.1
    High School Park and Recreation 11,463
12,653
(1,190 ) (9.4 )
    Transportation 11,189
9,130
2,059
22.6
    International 27,014
16,735
10,279
61.4
$ 130,316
$ 115,719
$ 14,597
12.6 %
Orders:

    Commercial $ 28,745
$ 32,595
$ (3,850 ) (11.8 )%
    Live Events 39,911
51,590
(11,679 ) (22.6 )
    High School Park and Recreation 13,451
14,178
(727 ) (5.1 )
    Transportation 14,641
19,621
(4,980 ) (25.4 )
    International 29,405
25,329
4,076
16.1
$ 126,153
$ 143,313
$ (17,160 ) (12.0 )%

~~Commercial:~~ The decrease in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to lower order volumes in the on-premise niche and the timing of delivery of large projects in the spectacular niche, which were partially offset by an increase in the billboard niche shipment activity due to changes of timing of customer demand as compared to last year.

The decrease in orders for the three months ended January 27, 2018 compared to the same period one year ago was the net result of decreases in the billboard niche and decreases in the on-premise niche due to a number of factors, including competitive market pricing, a delay of national account-based opportunities, and the natural volatility of large project timing.

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~~Live Events:~~ The increase in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to continued demand and the timing of customer needs. This year, net sales were impacted by projects for professional baseball facilities renovation and construction project timeliness.

~~Orders decreased for the three months ended January 27, 2018 compared to the same period one year ago due to variability in order timing.~~

~~High School Park and Recreation:~~ ~~The decrease in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to the timing of customer demand.~~

Orders decreased for the three months ended January 27, 2018 compared to the same period one year ago due to fewer video project orders which have larger average selling prices in this segment during the period.

~~Transportation:~~ The increase in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to higher delivery needs from state transportation authorities during the quarter this year as compared to last year.

~~Orders for the three months ended January 27, 2018 compared to the same period one year ago decreased primarily due to variability caused by large order timing.~~

~~International:~~ ~~Net sales for the three months ended January 27, 2018 compared to the same period one year ago increased primarily due to increased market demand in OOH.~~

~~Orders increased for the three months ended January 27, 2018 compared to the same period one year ago primarily due to the volatility of large order timing.~~

~~Backlog~~

The product order backlog as of January 27, 2018 was $151 million as compared to $170 million as of January 28, 2017 and $155 million at the end of the second quarter of fiscal 2018. Historically, our backlog varies due to the seasonality of our business, the timing of large projects, and customer delivery schedules for these orders. The backlog as of January 27, 2018 decreased from January 28, 2017 in our Commercial, Live Events and Transportation business units, increased in our International business unit, and remained relatively flat in our High School Park and Recreation business unit.

~~Gross Profit~~

Three Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Amount As a Percent of Net Sales
(in thousands)
Commercial $ 7,546
21.3 %
$ 7,711
21.3 %
Live Events 9,747
21.6

6,629
16.2
High School Park and Recreation
2,768
24.1

3,198
25.3
Transportation 3,570
31.9

2,325
25.5
International 4,936
18.3

3,453
20.6
$ 28,567
21.9 %
$ 23,316
20.1 %

~~Gross profit~~ is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.

The increase in our gross profit percentage for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to higher sales volumes over relatively fixed infrastructure costs. The following describes the overall impact by business unit:

~~Commercial:~~ ~~The gross profit percent for the three months ended January 27, 2018 compared to the same period one year ago remained relatively flat.~~

~~Live Events:~~ The gross profit percent increase for the three months ended January 27, 2018 compared to the same period one year ago was due to an increased volume of sales over relatively fixed infrastructure costs and lower warranty expenses.

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~~High School Park and Recreation:~~ The gross profit percent decrease for the three months ended January 27, 2018 as compared to the same period one year ago was primarily due to lower sales volumes over relatively fixed infrastructure costs and a change in sales mix.

~~Transportation:~~ The gross profit percent increase for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to higher sales volumes over relatively fixed infrastructure costs.

~~International:~~ The gross profit percent decrease for the three months ended January 27, 2018 compared to the same period one year ago was primarily the result of higher warranty expenses and an unfavorable sales mix, which were offset by increased volume of sales over relatively fixed infrastructure costs.

~~Selling Expense~~

Three Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Commercial $ 4,415
12.4 % (3.5 )% $ 4,575
12.7 %
Live Events 3,843
8.5
12.5
3,417
8.3
High School Park and Recreation 2,726
23.8
5.6
2,581
20.4
Transportation 945
8.4
(0.7 ) 952
10.4
International 3,342
12.4
6.0
3,153
18.8
$ 15,271
11.7 % 4.0 % $ 14,678
12.7 %

~~Selling expenses~~ consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos, and supplies.

Selling expense in our Commercial business unit for the third quarter of fiscal 2018 decreased compared to the same quarter a year ago due to decreases in personnel expenses. Selling expense in our Live Events business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to increases in conventions/advertising expenses and higher bad debt expenses. Selling expense in our High School Park and Recreation business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to travel and entertainment expenses and conventions/advertising expenses. Selling expense remained relatively flat in our Transportation business unit in the third quarter of fiscal 2018 compared to the same quarter a year ago. Selling expense in our International business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to increases in personnel expenses and third-party commissions expenses.

~~Other Operating Expenses~~

Three Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
General and administrative $ 8,335
6.4 % (3.1 )% $ 8,599
7.4 %
Product design and development $ 8,299
6.4 % 19.0 % $ 6,973
6.0 %

~~General and administrative expenses~~ consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the costs of supplies.

~~General and administrative expensesin the third quarter of fiscal 2018 decreased as compared to the same period one year ago primarily due to decreases in personnel expenses.~~

~~Product design and development expenses~~ consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through all design efforts, we focus on standardizing display components and control systems for both single site and network displays.

~~Table of contents~~

Our costs for product development represent an allocated amount of costs based on time charges, professional services, materials costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product development, while the rest is allocated to large contract work and is included in cost of goods sold.

Product development expenses in the third quarter of fiscal 2018 increased as compared to the same period one year ago primarily due to increased labor costs and professional services assigned to product development projects relating to our strategy to accelerate the deployment of products and solutions to our markets. To deliver value to our customers and serve the markets' expectations, we plan to increase the level of expenditures for new or enhanced customer solutions for the remainder of fiscal 2018 as compared to prior years.

~~Other Income and Expenses~~

Three Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Interest income, net $ 118
0.1 % (7.1 )% $ 127
0.1 %
Other (expense) income, net $ (487 ) (0.4 )% 59.7 % $ (305 ) (0.3 )%

~~Interest income (expense), net:~~ We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term marketing obligations.

Interest income, net in the third quarter of fiscal 2018 compared to the same period one year ago remained relatively flat. As a result of the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.

~~Other (expense) income, net:~~ The change in other income and expense, net for the third quarter of fiscal 2018 as compared to the same period one year ago was primarily due to foreign currency volatility and the losses recorded from an equity method affiliate.

~~Income Taxes~~

The current-year rate was significantly impacted by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%. Because we file our tax return based on our fiscal year, the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense for the estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"). Excluding the impact of this one-time expense, our effective tax rate was 46.9% for the three months ended January 27, 2018. We expect our effective tax rate to be approximately 30% for the remainder of our fiscal year. In fiscal 2019, we expect an effective tax rate of approximately 21%, exclusive of any SAB 118 changes in estimate.

~~COMPARISON OF THE NINE MONTHS ENDED JANUARY 27, 2018 AND JANUARY 28, 2017~~

~~Net Sales~~

~~Table of contents~~

Nine Months Ended
(in thousands) January 27,
2018 January 28,
2017 Dollar Change Percent Change
Net sales:
    Commercial $ 102,723
$ 112,342
$ (9,619 ) (8.6 )%
    Live Events 191,432
157,032
34,400
21.9
    High School Park and Recreation 69,602
68,977
625
0.9
    Transportation 46,577
39,517
7,060
17.9
    International 62,019
64,989
(2,970 ) (4.6 )
$ 472,353
$ 442,857
$ 29,496
6.7 %
Orders:
    Commercial $ 97,816
$ 114,326
$ (16,510 ) (14.4 )%
    Live Events 145,246
135,520
9,726
7.2
    High School Park and Recreation 60,368
61,055
(687 ) (1.1 )
    Transportation 38,155
46,290
(8,135 ) (17.6 )
    International 79,909
78,164
1,745
2.2
$ 421,494
$ 435,355
$ (13,861 ) (3.2 )%

~~Commercial:~~ Net sales for the nine months ended January 27, 2018 compared to the same period one year ago decreased as a result of lower order volumes in the on-premise niche and the timing of delivery of large projects in the spectacular niche, partially offset by an increase in the billboard niche.

The decrease in orders for the nine months ended January 27, 2018 compared to the same period one year ago was the net result of decreases in the on-premise and spectacular niches due to a number of factors including competitive market pricing, a delay of national account-based opportunities during the nine months ended January 27, 2018 as compared to the same period last year, and the natural volatility of large project timing.

~~Live Events:~~ The increase in net sales for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to continued demand and the timing of the demand for upgraded or new solutions for arenas, professional sports, and colleges and universities.

~~Orders increased for the nine months ended January 27, 2018 compared to the same period one year ago due to an increased number of projects in professional sport arenas.~~

~~High School Park and Recreation:~~ ~~Net sales for the nine months ended January 27, 2018 compared to the same period one year ago remained relatively flat.~~

Orders decreased for the nine months ended January 27, 2018 compared to the same period one year ago due to fewer large sports video projects awarded during the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017.

~~Transportation:~~ ~~The increase in net sales for the nine months ended January 27, 2018 compared to the same period one year ago was related to the variability caused by large order production timing.~~

~~Orders decreased for the nine months ended January 27, 2018 compared to the same period one year ago primarily due to variability caused by large order timing.~~

~~International:~~ ~~Net sales decreased in our International business unit for the nine months ended January 27, 2018 compared to the same period one year ago mainly due to timing of revenue recognition.~~

~~Orders increased for the nine months ended January 27, 2018 compared to the same period one year ago primarily due to the volatility of large order timing.~~

~~Table of contents~~

~~Gross Profit~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Amount As a Percent of Net Sales
(in thousands)
Commercial $ 21,085
20.5 % $ 27,418
24.4 %
Live Events 43,056
22.5
30,430
19.4
High School Park and Recreation
23,672
34.0
21,900
31.7
Transportation 16,696
35.8
12,966
32.8
International 11,308
18.2
13,977
21.5
$ 115,817
24.5 % $ 106,691
24.1 %

~~The increase in our gross profitpercentage for the nine months ended January 27, 2018 compared to the same period one year ago was the net result of the changes described below:~~

~~Commercial:~~ The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of higher warranty expenses and lower sales volumes over relatively fixed infrastructure costs.

~~Live Events:~~ The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was the result of an increased volume of sales over relatively fixed infrastructure costs, improved performance on large projects as compared to original estimates.

~~High School Park and Recreation:~~ ~~The gross profit percent increase for the nine months ended January 27, 2018 as compared to the same period one year ago primarily was due to a favorable sales mix and improved productivity.~~

~~Transportation:~~ The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to an increased volume of sales over relatively fixed infrastructure costs.

~~International:~~ The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of lower sales volumes over a relatively fixed cost structure and higher warranty expenses, which were offset by the $1.2 million gain from the sale of our non-digital assets.

~~Selling Expense~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Commercial $ 13,778
13.4 % (1.2 )% $ 13,949
12.4 %
Live Events 10,562
5.5
9.0
9,686
6.2
High School Park and Recreation 8,073
11.6
7.2
7,532
10.9
Transportation 3,084
6.6
(10.9 ) 3,461
8.8
International 10,063
16.2
(10.2 ) 11,200
17.2
$ 45,560
9.6 % (0.6 )% $ 45,828
10.3 %

~~Table of contents~~

Selling expense in our Commercial business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to third-party commission expenses. Selling expense in our Live Events business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to increased conventions/advertising expenses, bad debt expenses, and travel and entertainment expenses. Selling expense in our High School Park and Recreation business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago due to increases in personnel expenses. Selling expense in our Transportation business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to lower bad debt expense. Selling expense in our International business unit declined in the nine months ended January 27, 2018 compared to the same period one year ago due to lower bad debt expenses, lower third-party commissions expenses and a $0.2 million intangible asset impairment that had been incurred in the first nine months of fiscal 2017 that was not incurred in the first nine months of fiscal 2018.

~~Other Operating Expenses~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
General and administrative $ 26,138
5.5 % 0.5 % $ 26,007
5.9 %
Product design and development $ 26,294
5.6 % 24.4 % $ 21,142
4.8 %

~~General and administrative expenses~~in the nine months ended January 27, 2018 increased as compared to the same period one year ago primarily due to increases in personnel expenses and information technology software and hardware expenses.

Product development expenses in the nine months ended January 27, 2018 as compared to the same period one year ago increased primarily due to increased labor costs and professional services assigned to product development projects relating to our strategy to accelerate the deployment of products and solutions to our markets. To deliver value to our customers and serve the markets' expectations, we plan to increase the level of expenditures for new or enhanced customer solutions for the remainder of fiscal 2018 as compared to prior years.

~~Other Income and Expenses~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Interest income, net $ 347
0.1 % (9.9 )% $ 385
0.1 %
Other (expense) income, net $ (429 ) (0.1 )% 71.6 % $ (250 ) (0.1 )%

~~Table of contents~~

Interest income, net in the nine months ended January 27, 2018 compared to the same period one year ago decreased as a result of lower long-term receivables which bear imputed interest rates. As a result of the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.

~~Other (expense) income, net:~~ The change in other income and expense, net for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to foreign currency volatility, the losses recorded from an equity method affiliate, and an income tax penalty incurred on a late filing.

~~Income Taxes~~

~~Our effective tax rate was 47.2 percent for the nine months ended January 27, 2018 as compared to an effective tax rate of 31.9 percent for the nine months ended January 28, 2017.~~

The current-year rate was significantly impacted by the Tax Act, which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%. Because we file our tax return based on our fiscal year, the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense for the estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB 118. Excluding the impact of this one-time expense, our effective tax rate was 23% for the nine months ended January 27, 2018, and we expect our effective tax rate to be approximately 48% for the remainder of our fiscal year. In fiscal 2019, we expect an effective tax rate of approximately 21%, exclusive of any SAB 118 changes in estimate.

~~Table of contents~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

Nine Months Ended
January 27,
2018 January 28,
2017 Percent Change
(in thousands)
Net cash (used in) provided by:
Operating activities $ 26,953
$ 45,387
(40.6 )%
Investing activities (1,245 ) (11,421 ) (89.1 )
Financing activities (10,144 ) (13,229 ) (23.3 )
Effect of exchange rate changes on cash 667
(680 ) (198.1 )
Net (decrease) increase in cash, cash equivalents and restricted cash $ 16,231
$ 20,057
(19.1 )%

~~Net cash provided by operating activities~~: Operating cash flows consist primarily of net income adjusted for non-cash items, including depreciation and amortization, stock-based compensation, deferred income taxes and the effect of changes in operating assets and liabilities.

~~Net cash provided by operating activities~~ was $27.0 million for the first nine months of fiscal 2018 compared to net cash provided by operating activities of $45.4 million in the first nine months of fiscal 2017. The $18.4 million decrease in cash from operating activities from the first nine months of fiscal 2017 to the first nine months of fiscal 2018 was the net result of changes in net operating assets and liabilities of $18.6 million, a $1.4 million decrease in depreciation, amortization and impairment, a $1.2 million gain on the sale of our non-digital division, a $0.9 million decrease in the provision for doubtful accounts, and a $0.1 million decrease in net income, adjusted by an increase of $3.7 million in deferred income taxes and a $0.1 million increase in other non-cash items, net.

~~The changes in operating assets and liabilities consisted of the following:~~

Nine Months Ended
January 27,
2018 January 28,
2017
(Increase) decrease:
Accounts receivable $ 2,797
$ 5,020
Long-term receivables 752
1,991
Inventories (4,462 ) 7,790
Costs and estimated earnings in excess of billings 3,954
(3,004 )
Prepaid expenses and other current assets 221
500
Income tax receivables (2,115 ) 4,556
Investment in affiliates and other assets 272
139
Increase (decrease):
Current marketing obligations and other payables (385 ) (106 )
Accounts payable (9,829 ) (4,744 )
Customer deposits (billed or collected) (4,210 ) (1,529 )
Accrued expenses 4,220
2,859
Warranty obligations (242 ) (1,717 )
Billings in excess of costs and estimated earnings 3,532
1,719
Long-term warranty obligations 1,588
707
Income taxes payable (447 ) 1,525
Deferred revenue (billed or collected) 3,251
1,391
Long-term marketing obligations and other payables 807
1,169
$ (296 ) $ 18,266

Overall, changes in operating assets and liabilities can be impacted by the timing of cash flows on large orders, which can cause significant short-term fluctuations in inventory, accounts receivables, accounts payable, customer deposits, costs and earnings in excess of billings, and various other operating assets and liabilities. Variability in costs and earnings in excess of billings and billings in excess of costs relates to the timing of billings on construction-type contracts and revenue recognition, which can vary significantly depending on contractual payment terms and build and installation schedules. Balances are also impacted by the seasonality of the sports markets.

~~Table of contents~~

~~Net cash used in investing activities~~:~~Net cash used in investing activities~~ totaled $1.2 million in the first nine months of fiscal 2018 compared to $11.4 million in the first nine months of fiscal 2017. The change in the amount of cash used in investing activities was the result of a net increase in marketable securities of $12.0 million in the first nine months of fiscal 2018 as compared to the first nine months of fiscal 2017. Purchases of property and equipment totaled $10.9 million in the first nine months of fiscal 2018 compared to $6.7 million in the first nine months of fiscal 2017. Proceeds from the sale of property, equipment and other assets totaled $2.1 million in the first nine months of fiscal 2018 compared to $0.2 million in the first nine months of fiscal 2017; this was mostly related to the sale of our non-digital division.

~~Net cash used in financing activities:~~ Net cash used in financing activities was $10.1 million for the nine months ended January 27, 2018 compared to $13.2 million in the same period one year ago. Dividends of $9.3 million, or $0.21 per share, were paid to Daktronics shareholders during the first nine months of fiscal 2018, as compared to dividends of $10.6 million, or $0.24 per share, paid to Daktronics shareholders during the first nine months of fiscal 2017. In the first nine months of fiscal 2017, we used $1.8 million to purchase our common shares as part of the $40.0 million share repurchase plan authorized by our Board of Directors, and there have been no purchases in the nine months ended January 27, 2018.

~~Other Liquidity and Capital Resources Discussion:~~ ~~We have $6.6 million of retainage on long-term contracts included in receivables and costs in excess of billings as of January 27, 2018, which we expect to collect within one year.~~

~~Working capital was~~ ~~$142.9 million~~ and $127.1 million at January 27, 2018 and April 29, 2017, respectively. The changes in working capital, particularly changes in accounts receivable, accounts payable, inventory, and costs in excess of billings and billings in excess of costs, and the seasonality of the sports market can have a significant impact on the amount of net cash provided by operating activities largely due to the timing of payments and receipts. We have historically financed working capital needs through a combination of cash flow from operations and borrowings under bank credit agreements.

We have used and expect to continue to use cash balances to meet our short-term working capital requirements. On large product orders, the time between order acceptance and project completion may extend up to and exceed 24 months depending on the amount of custom work and a customer’s delivery needs. We often receive down payments or progress payments on these product orders. To the extent these payments are not sufficient to fund the costs and other expenses associated with these orders, we use working capital and bank borrowings to finance these cash requirements.

On November 15, 2016, we entered into a credit agreement and a related revolving note with a U.S. bank. The agreement and note have a maturity date of November 15, 2019. The revolving amount of the agreement and note is $35.0 million, including up to $15.0 million for commercial and standby letters of credits. The interest rate ranges from LIBOR plus 145 basis points to LIBOR plus 195 basis points depending on the ratio of our interest-bearing debt to EBITDA. EBITDA is defined as net income before deductions for interest expense, income taxes, depreciation and amortization, all as determined in accordance with GAAP. The effective interest rate was 3.0 percent at January 27, 2018. We are assessed a loan fee equal to 0.125 percent per annum on any unused portion of the loan. As of January 27, 2018, there were no advances to us under the loan portion of the line of credit, and the balance of letters of credit outstanding was approximately $10.7 million.

~~The credit agreement is unsecured and requires us to be in compliance with the following financial ratios:~~

A minimum fixed charge coverage ratio of at least 2 to 1 at the end of any fiscal year. The ratio is equal to (a) EBITDA less dividends or other distributions (with the exception of any U.S. bank approved special cash dividend), a capital expenditure reserve of $6 million, and income tax expenses paid in cash, but excluding cash used to repurchase any Daktronics, Inc. stock over (b) all principal and interest payments with respect to debt, excluding principal payments on the line of credit; and

~~A ratio of interest-bearing debt, excluding any marketing obligations, to EBITDA of less than 1 to 1 at the end of any fiscal quarter.~~

On November 15, 2016, we entered into an amended and restated loan agreement and a continuing and unlimited guaranty agreement with another U.S. bank which supports our credit needs outside of the United States. The loan and guaranty have a maturity date of November 15, 2019. The revolving amount of the loan is $20.0 million. We intend to use the borrowings under the agreement to support credit needs for general corporate purposes outside the United States. This credit agreement is unsecured. It contains the same covenants as the credit agreement on the line of credit and contains an inter creditor agreement whereby the debt has a cross default provision with the primary credit agreement. Total credit allowed between the two credit agreements is limited to $40.0 million. The interest rate is equal to LIBOR plus 1.5 percent. As of January 27, 2018, there were no advances outstanding under the loan agreement and approximately $2.7 million in bank guarantees under this line of credit.

~~As of January 27, 2018, we were in compliance with all applicable bank loan covenants.~~

~~We utilize cash on hand to pay dividends to our investors. The following table summarizes the quarterly dividends declared and/or paid since the prior fiscal year end of April 29, 2017:~~

~~Table of contents~~



~~Date Declared~~	~~Record Date~~	~~Payment Date~~	~~Amount per Share~~
~~June 1, 2017~~	~~June 13, 2017~~	~~June 23, 2017~~	~~$0.07~~
~~August 31, 2017~~	~~September 11, 2017~~	~~September 22, 2017~~	~~$0.07~~
~~November 30, 2017~~	~~December 11, 2017~~	~~December 21, 2017~~	~~$0.07~~
~~March 1, 2018~~	~~March 12, 2018~~	~~March 22, 2018~~	~~$0.07~~

~~Although we expect to continue to pay dividends for the foreseeable future, the nature and amounts of dividends will be reviewed regularly and declared by the Board at its discretion.~~

We are sometimes required to obtain performance bonds for display installations, and we have a bonding line available through a surety company for an aggregate of $150.0 million in bonded work outstanding. If we were unable to complete the work and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. At January 27, 2018, we had ~~$8.3 million~~ ~~of bonded work outstanding against this line.~~

Our business growth and profitability improvement strategies depend on investments in capital expenditures. We are projecting capital expenditures to be less than $20 million for fiscal 2018 for purchases of manufacturing equipment for new or enhanced product production, expanded capacity, investments in quality and reliability equipment, and continued information infrastructure investments.

We believe our working capital available from all sources will be adequate to meet the cash requirements of our operations in the foreseeable future. If our growth extends beyond current expectations, profitability does not continue, or if we make any strategic investments, we may need to increase our credit facilities or seek other means of financing. We anticipate we will be able to obtain any needed funds under commercially reasonable terms from our current lenders or other sources, although there can be no guarantee of such.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023. During the first quarter of fiscal 2024, we entered into the ABL and the $15.0 million delayed draw loan, which are subject to interest rate risks.

~~Foreign Currency Exchange Rates~~

~~Through January 27, 2018, most of our net sales were denominated~~There have been no other material changes in ~~U.S. dollars, and~~ our exposure to ~~foreign currency exchange rate changes on net sales had not been significant. For~~these risks during the first nine months ~~ended January 27, 2018, net sales originating outside the United States were~~ ~~16.1 percent~~of total net sales, of which a portion was denominated in Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, Brazilian reais or other currencies. We manufacture our products in the United States, China, Belgium, and Ireland. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. If we believed currency risk in any foreign location is significant, we would utilize foreign exchange hedging contracts to manage our exposure to the currency fluctuations. fiscal 2024.

Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. In addition, we may fund our foreign subsidiaries’ operating cash needs in the form of loans denominated in U.S. dollars. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $1.1 million. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area. We will continue to monitor and minimize our exposure to currency fluctuations and, when appropriate, use financial hedging techniques, including foreign currency forward contracts and options, to minimize the effect of these fluctuations. However, exchange rate fluctuations as well as differing economic conditions, changes in political climates, differing tax structures and other rules and regulations could adversely affect our ability to effectively hedge exchange rate fluctuations in the future.

We have foreign currency forward agreements in place to offset changes in the value of contracts with customers denominated in a foreign currency. The notional amount of these derivatives is $10.4 million, and all contracts mature within 19 months. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 14. Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements included elsewhere in this Report for further details.

~~Interest Rate Risks~~

Our exposure to market rate risk for changes in interest rates relates primarily to our marketing obligations and long-term accounts receivable. As of January 27, 2018, our outstanding marketing obligations were ~~$0.5 million, all of which were in fixed rate obligations.~~

~~Table of contents~~

In connection with the sale of certain display systems, we have entered into various types of financing with customers. The aggregate amounts due from customers include an imputed interest element. The majority of these financings carry fixed rates of interest. As of January 27, 2018, our outstanding long-term receivables were ~~$4.1 million. Each 25 basis point increase in interest rates would have an associated immaterial annual opportunity cost.~~

~~The following table provides maturities and weighted average interest rates on our financial instruments sensitive to changes in interest rates.~~

Fiscal Years (dollars in thousands)

2018 2019 2020 2021 2022 Thereafter
Assets:
Long-term receivables, including current maturities:
Fixed-rate $ 572
$ 2,030
$ 689
$ 447
$ 341
$ 68
Average interest rate 8.9 % 8.7 % 8.7 % 8.5 % 9.0 % 9.0 %
Liabilities:

Long- and short-term debt:

Fixed-rate $ 379
$ 575
$ 1,013
$ —
$ —
$ —
Average interest rate 5.5 % 4.5 % 3.3 % — % — % — %
Long-term marketing obligations, including current portion:

Fixed-rate $ 131
$ 200
$ 109
$ 10
$ —
$ —
Average interest rate 8.6 % 7.8 % 9.0 % 9.0 % — % — %

~~Of our $49.0 million in cash balances at January 27, 2018,~~ ~~$40.8 million~~ were denominated in U.S. dollars of which $3.7 million is held by our foreign subsidiaries. We have an additional $8.2 million in cash balances denominated in foreign currencies of which $7.1 million are maintained in accounts of our foreign subsidiaries. A portion of the cash held in foreign accounts is used to collateralize outstanding bank guarantees issued by our foreign subsidiaries.

~~Commodity Risk~~

We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our operations. Our financial results could be affected by the availability and changes in prices of these materials. Some of these materials are sourced from a limited number of suppliers or only a single supplier. These materials are also key source materials for our competitors. Therefore, if demand for these materials rises, we may experience increased costs and/or limited or unavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could impact our ability to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise suddenly and result in significantly higher costs of production. Our sourcing group works to implement strategies to mitigate these risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We have been impacted by longer lead times because of worldwide shortages; however, we believe that we have adequate sources of supply for our key materials.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

~~We carried out~~Management of our Company is responsible for establishing and maintaining effective disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. As of January 27, 2024, an evaluation was performed, under the supervision and with the participation of ~~our~~ management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our ~~“disclosure~~disclosure controls and ~~procedures,” as that term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as of January 27, 2018, which is the end of the period covered by this Report.~~procedures. Based upon that evaluation, ~~the~~our Chief Executive Officer and Chief Financial Officer concluded that as of January 27, ~~2018,~~2024, our disclosure controls and procedures were ~~effective.~~not effective due to the material weakness in internal control over financial reporting described below.

~~Based on the evaluation described in the foregoing paragraph,~~Notwithstanding this identified material weakness, our Chief Executive Officer and Chief Financial Officer believe the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America. We are in the process of remediating the material weakness in our internal control, as described below under the section entitled "Remediation Plan".

Material Weakness in Internal Control Over Financial Reporting

In Part 2, Item 9A of our Annual Report on Form 10-K for the fiscal year ended April 29, 2023, which was filed with the Securities and Exchange Commission on July 12, 2023, management concluded that ~~during~~our internal control over financial reporting was not effective as of April 29, 2023. Management identified a material weakness related to the ineffective operation of certain transactional level controls related to revenue contracts recognized over time. These controls operated ineffectively due to insufficient training of the control operators as to the level of precision expected when executing the revenue controls in accordance with the Company's policy.

Remediation Plan

Our remediation plan includes providing training to the revenue control operators relating to the level of precision expected when executing these controls in accordance with the Company's policy. During the first nine months of fiscal 2024, we conducted additional training of our control operators. In conjunction with the training, management made enhancements to improve and ensure operation of certain transactional level controls.

Changes in Internal Control Over Financial Reporting

Table of Contents

During the quarter ended January 27, ~~2018,~~2024, there ~~was~~have been no ~~change~~changes in our internal control over financial reporting ~~which has~~that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are involved in a variety of legal actions relating to various matters during the normal course of business. Although we are unable to predict the ultimate outcome of these legal actions, it is the opinion of management that the disposition of these matters, taken as a whole, will not have a material adverse effect on our financial condition or results of operations. See "Note 8. Commitments and Contingencies" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information on any legal proceedings and claims.

~~Not applicable.~~

~~Table of contents~~

Item 1A. RISK FACTORS

The discussion of our business and operations included in this Quarterly Report on Form 10-Q should be read together with the risk factors described in Item 1A. of Part I of our Annual Report on Form 10-K for the fiscal year ended April 29, ~~2017.~~2023. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this Report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial condition or financial results.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchases

During the ~~nine~~three months ended January 27, ~~2018,~~2024, we did not repurchase any shares of our common stock.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

~~Table of contents~~

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

A list of exhibits ~~required to be~~ filed as part of this ~~report~~Report is set forth in the following Index ~~of Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.~~to Exhibits.

Table of ~~contents~~Contents

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.~~



		~~/s/ Sheila M. Anderson~~
		~~Daktronics, Inc.~~
		~~Sheila M. Anderson~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer and~~
		~~Principal Accounting Officer)~~

~~Date:~~	~~March 2, 2018~~

~~Table of contents~~

Index to Exhibits

Certain of the following exhibits are incorporated by reference from prior filings. The form with which each exhibit was filed and the date of filing are as indicated below; the reports described below are filed as Commission File No. ~~0-23246~~001-38747 unless otherwise indicated.



3.1			Amended and Restated Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q/A (Amendment No. 1) of Daktronics, Inc. filed on December 21, 2018).
3.2			Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 filed with our ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed on ~~August~~January 30, ~~2013)~~2023).
~~3.2~~4.1			~~Amended~~Rights Agreement dated as of November 16, 2018 between Daktronics, Inc. and ~~Restated Bylaws of the~~Equiniti Trust Company, as Rights Agent (Incorporated by reference to Exhibit ~~3.4 filed with our Annual~~4.1 of the Current Report on Form ~~10-K~~8-K of Daktronics, Inc. filed on ~~June 12, 2013)~~November 16, 2018, Commission File No. 000-23246).
~~10.1~~4.2			First Amendment to Rights Agreement dated as of November 19, 2021 between Daktronics, Inc. and Equiniti Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K of Daktronics, Inc. filed on November 19, 2021).
10.1			Credit Agreement dated November 15, 2016 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on November 16, ~~2016)~~2016, Commission File No. 000-23246).
10.2			Revolving Note dated November 15, 2016 issued by the Company to U.S. Bank National Association (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K filed on November 16, ~~2016)~~2016, Commission File No. 000-23246).
10.3			~~Amended and Restated Loan~~Second Amendment to Credit Agreement dated as of November 15, ~~2016~~2019 by and between the Company and U.S. Bank ~~of America, N.A.~~National Association (Incorporated by reference to Exhibit ~~10.3~~10.1 filed with our Current Report on Form 8-K filed on November ~~16, 2016)~~15, 2019).
10.4			~~Continuing and Unconditional Guaranty~~Third Amendment to Credit Agreement dated ~~November 15, 2016~~as of August 28, 2020 by and between the Company and U.S. Bank ~~of America, N.A.~~National Association (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form ~~8-K~~10-Q of Daktronics, Inc. filed on ~~November 16, 2016)~~August 28, 2020).
10.5			~~Amended and Restated Loan~~Fourth Amendment to Credit Agreement dated ~~May 5, 2017~~as of March 11, 2021 by and between the Company and U.S. Bank ~~of America, N.A.~~National Association (Incorporated by reference to Exhibit ~~10.6~~10.5 filed with our Annual Report on Form 10-K ~~filed~~ on June ~~9, 2017)~~11, 2021).
10.6			Fifth Amendment to Credit Agreement dated as of April 29, 2022 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on April 29, 2022).
10.7			Amendment to Credit Agreement and Revolving Note dated as of August 16, 2022 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on August 18, 2022).
10.8			Amendment to Credit Agreement and Revolving Note dated as of October 31, 2022 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on November 1, 2022).
10.9			Sixth Amendment to Credit Agreement dated as of December 9, 2022 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on December 13, 2022).
10.10			Seventh Amendment to Credit Agreement dated as of January 23, 2023 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on January 25, 2023).
10.11			Security Agreement dated as of August 28, 2020 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.5 filed with our Current Report on Form 10-Q of Daktronics, Inc. filed on August 28, 2020).
10.12			Daktronics, Inc. ~~2015~~2020 Stock Incentive Plan ("~~2015~~2020 Plan"). (Incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement on Schedule 14A filed on July ~~14, 2015)~~16, 2020).*
~~10.7~~10.13			Form of Restricted Stock Award Agreement under the ~~2015~~2020 Plan (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K on September 3, ~~2015)~~2020).*
~~10.8~~10.14			Form of Non-Qualified Stock Option Agreement Terms and Conditions under the ~~2015~~2020 Plan (Incorporated by reference to Exhibit 10.3 filed with our Current Report on Form 8-K on September 3, ~~2015)~~2020).*
~~10.9~~10.15			Form of Incentive Stock Option Terms and Conditions under the ~~2015~~2020 Plan (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K on September 3, ~~2015)~~2020).*
~~10.10~~10.16			Form of Restricted Stock Unit Terms and Conditions under the ~~2015~~2020 Plan (Incorporated by reference to Exhibit 10.5 filed with our Current Report on Form 8-K on September 3, ~~2015)~~2020).*
~~31.1~~10.17			Cooperation Agreement dated July 23, 2022 by and between the Company and Prairieland Holdco, LLC (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K on July 27, 2022).
10.18			Standstill and Voting Agreement dated as of March 19, 2023 by and among Daktronics, Inc., Alta Fox Management, LLC and Connor Haley (Incorporated by reference to Exhibit 10.1 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on March 20, 2023).
10.19			Credit Agreement dated as of May 11, 2023 by and among Daktronics, Inc. and the other Borrowers; the other Loan Parties to the Credit Agreement; the Lenders party to the Credit Agreement; and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders (Incorporated by reference to Exhibit 10.1 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
10.20			Pledge and Security Agreement dated as of May 11, 2023 by and among Daktronics, Inc., Daktronics Installation, Inc., and JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.2 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
10.21			Securities Purchase Agreement dated as of May 11, 2023 by and between Daktronics, Inc. and Alta Fox Opportunities Fund, LP (Incorporated by reference to Exhibit 10.3 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
10.22			Senior Secured Convertible Note dated as of May 11, 2023 issued by Daktronics, Inc. to Alta Fox Opportunities Fund, LP (Incorporated by reference to Exhibit 10.4 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
10.23			Pledge and Security Agreement dated as of May 11, 2023 by and among Daktronics, Inc., Daktronics Installation, Inc., and Alta Fox Opportunities Fund, LP (Incorporated by reference to Exhibit 10.5 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
10.24			Registration Rights Agreement dated as of May 11, 2023 by and between Daktronics, Inc. and Alta Fox Opportunities Fund, LP (Incorporated by reference to Exhibit 10.6 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
10.25			Intercreditor Agreement dated as of May 11, 2023 by and among Daktronics, Inc., JPMorgan Chase Bank, N.A., and Alta Fox Opportunities Fund, LP (Incorporated by reference to Exhibit 10.7 filed with the Current Report on Form 8-K of Daktronics, Inc. filed on May 12, 2023).
31.1			Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)1
31.2			Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
32.2			Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
~~101~~101.INS			~~The following financial information from our Quarterly Report on Form 10-Q for~~Inline XBRL Instance Document (the instance document does not appear in the ~~period ended January 27, 2018 formatted in Extensible Business Reporting Language (XBRL): (i)~~Interactive Data File because its XBRL tags are embedded within the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements, and (vii) document and entity information. (1)Inline XBRL document)
101.SCH			~~(1)~~Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
			(1)Filed herewith electronically.
			* Indicates a management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


			/s/ Sheila M. Anderson
			Daktronics, Inc.
			Sheila M. Anderson
			Chief Financial Officer
			(Principal Financial Officer and
			Principal Accounting Officer)

Date: February 28, 2024


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	DAKT	Nasdaq Global Select Market
Preferred Stock Purchase Rights	DAKT	Nasdaq Global Select Market



	Net (loss) income			Shares	Per share (loss) income
For the three months ended January 27, 2018
Basic (loss) earnings per share	$	(6,189	)	44,518	$	(0.14	)
Dilution associated with stock compensation plans	—			—	—
Diluted (loss) earnings per share	$	(6,189	)	44,518	$	(0.14	)
For the three months ended January 28, 2017
Basic (loss) earnings per share	$	(5,127	)	44,102	$	(0.12	)
Dilution associated with stock compensation plans	—			—	—
Diluted (loss) earnings per share	$	(5,127	)	44,102	$	(0.12	)
For the nine months ended January 27, 2018
Basic earnings per share	$	9,372		44,403	$	0.21
Dilution associated with stock compensation plans	—			395	—
Diluted earnings per share	$	9,372		44,798	$	0.21
For the nine months ended January 28, 2017
Basic earnings per share	$	9,433		44,071	$	0.21
Dilution associated with stock compensation plans	—			135	—
Diluted earnings per share	$	9,433		44,206	$	0.21



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Balance as of January 27, 2018
Certificates of deposit	$	8,918	$	—	$	—		$	8,918
U.S. Government sponsored entities	9,104		—		(73		)	9,031
Municipal bonds	6,001		—		(13		)	5,988
	$	24,023	$	—	$	(86	)	$	23,937
Balance as of April 29, 2017
Certificates of deposit	$	12,487	$	—	$	—		$	12,487
U.S. Government securities	400		—		—			400
U.S. Government sponsored entities	12,260		—		(22		)	12,238
Municipal bonds	7,574		14		—			7,588
	$	32,721	$	14	$	(22	)	$	32,713



	Less than 12 months		1-5 Years		Total
Certificates of deposit	$	5,207	$	3,711	$	8,918
U.S. Government sponsored entities	999		8,032		9,031
Municipal bonds	2,598		3,390		5,988
	$	8,804	$	15,133	$	23,937



	January 27, 2018		April 29, 2017
Raw materials	$	26,833	$	24,801
Work-in-process	11,813		7,366
Finished goods	31,805		34,319
	$	70,451	$	66,486



	Amount
Beginning accrued warranty obligations	$	27,899
Warranties issued during the period	9,652
Settlements made during the period	(13,581		)
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations	5,230
Ending accrued warranty obligations	$	29,200



Fiscal years ending	Amount
2018	$	775
2019	2,624
2020	2,101
2021	1,771
2022	1,437
Thereafter	544
	$	9,252



Contingent liability as of April 29, 2017	$	1,891
Settlements	(1,009		)
Interest	30
Foreign currency translation	122
Contingent liability as of January 27, 2018	$	1,034



	January 27, 2018				April 29, 2017
	U.S. Dollars		Foreign Currency		U.S. Dollars	Foreign Currency
Foreign Currency Exchange Forward Contracts:
U.S. Dollars/Australian Dollars	2,615		3,408		7,984	10,669
U.S. Dollars/Canadian Dollars	1,424		1,864		256	345
U.S. Dollars/British Pounds	6,402		4,778		4,936	3,959
U.S. Dollars/Singapore Dollars	237		312		605	844
U.S. Dollars/Euros	(1,277	)	(1,061	)	528	491
U.S. Dollars/Swiss Franc	998		989		—	—



	Three Months Ended
	January 27, 2018				January 28, 2017
	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
(in thousands)	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
Commercial	$	7,546	21.3	%	$	7,711	21.3	%
Live Events	9,747		21.6		6,629		16.2
High School Park and Recreation	2,768		24.1		3,198		25.3
Transportation	3,570		31.9		2,325		25.5
International	4,936		18.3		3,453		20.6
	$	28,567	21.9	%	$	23,316	20.1	%



	Fiscal Years (dollars in thousands)
	2018			2019			2020			2021			2022			Thereafter
Assets:
Long-term receivables, including current maturities:
Fixed-rate	$	572		$	2,030		$	689		$	447		$	341		$	68
Average interest rate	8.9		%	8.7		%	8.7		%	8.5		%	9.0		%	9.0		%
Liabilities:
Long- and short-term debt:
Fixed-rate	$	379		$	575		$	1,013		$	—		$	—		$	—
Average interest rate	5.5		%	4.5		%	3.3		%	—		%	—		%	—		%
Long-term marketing obligations, including current portion:
Fixed-rate	$	131		$	200		$	109		$	10		$	—		$	—
Average interest rate	8.6		%	7.8		%	9.0		%	9.0		%	—		%	—		%