UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~January 28,~~July 29, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___.

Commission File Number: 0-23246

Daktronics, Inc.

(Exact Name of Registrant as Specified in its Charter)


South Dakota			46-0306862
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

201 Daktronics Drive	Brookings,	SD	57006
(Address of Principal Executive Offices) (Zip Code)

(605) 692-0200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer			o
Accelerated filer			x
Non-accelerated filer			o
Smaller reporting company			o

Emerging growth company			o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s common stock outstanding as of ~~March 1,~~August 21, 2023 was ~~45,465,728.~~45,716,424.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

FORM 10-Q

For the Quarter Ended ~~January 28,~~July 29, 2023

Table of Contents


		Page
Part I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~January 28,~~July 29, 2023 and April ~~30, 2022~~29, 2023	1
	Condensed Consolidated Statements of Operations for the Three ~~and~~ ~~Nine~~Months Ended ~~January~~ ~~28,~~July 29, 2023 and ~~January~~29 ~~, 202~~2	2
	~~Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and~~ ~~Nine~~ ~~Months Ended~~ ~~January~~ 2 8 ~~, 202~~3 ~~and~~ ~~January~~29 ~~, 202~~2July 30, 2022	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended July 29, 2023 and July 30, 2022	4
	Condensed Consolidated Statements of Shareholders' Equity for the Three ~~and~~ ~~Nine~~ Months Ended J ~~January~~ 2 8uly 29 , ~~202~~2023 and J 3 ~~and~~ ~~January~~uly 2930 , ~~202~~22022	45
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended J ~~January~~uly 2 89 , ~~202~~2023 and J 3 ~~and~~ ~~January~~uly 2930 , ~~202~~22022	67
	Notes to the Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1921
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3128
Item 4.	Controls and Procedures	3128

Part II.	Other Information	3228
Item 1.	Legal Proceedings	3228
Item 1A.	Risk Factors	3229
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	3229
Item 3.	Defaults Upon Senior Securities	3229
Item 4.	Mine Safety Disclosures	3229
Item 5.	Other Information	3229
Item 6.	Exhibits	3229

Index to Exhibits		3330
Signatures		3431

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

January 28,
2023 April 30,
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,022 $ 17,143
Restricted cash 708 865
Marketable securities 530 4,020
Accounts receivable, net 115,840 101,099
Inventories 164,879 134,392
Contract assets 36,098 41,687
Current maturities of long-term receivables 1,716 2,798
Prepaid expenses and other current assets 8,770 14,963
Income tax receivables 3,258 603
Total current assets 341,821 317,570
Property and equipment, net 73,795 66,765
Long-term receivables, less current maturities 452 1,490
Goodwill 3,293 7,927
Intangibles, net 1,220 1,472
Investment in affiliates and other assets 33,071 32,321
Deferred income taxes — 13,331
TOTAL ASSETS $ 453,652 $ 440,876
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 70,592 $ 76,313
Contract liabilities 97,703 90,393
Accrued expenses 32,711 34,959
Warranty obligations 10,998 11,621
Income taxes payable 382 408
Total current liabilities 212,386 213,694
Long-term warranty obligations 19,216 17,257
Long-term contract liabilities 12,674 10,998
Other long-term obligations 6,397 7,076
Line of Credit 23,638 —
Deferred income taxes — 287
Total long-term liabilities 61,925 35,618
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; 47,373,959 and 46,733,544 shares issued at January 28, 2023 and April 30, 2022, respectively 63,002 61,794
Additional paid-in capital 49,719 48,372
Retained earnings 82,011 96,608
Treasury Stock, at cost, 1,907,445 shares at January 28, 2023 and April 30, 2022, respectively (10,285) (10,285)
Accumulated other comprehensive loss (5,106) (4,925)
TOTAL SHAREHOLDERS' EQUITY 179,341 191,564
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 453,652 $ 440,876


	July 29, 2023		April 29, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	45,775	$	23,982
Restricted cash	8,575		708
Marketable securities	539		534
Accounts receivable, net	125,613		109,979
Inventories	144,794		149,448
Contract assets	50,539		46,789
Current maturities of long-term receivables	970		1,215
Prepaid expenses and other current assets	9,848		9,676
Income tax receivables	5		326
Total current assets	386,658		342,657

Property and equipment, net	72,080		72,147
Long-term receivables, less current maturities	153		264
Goodwill	3,332		3,239
Intangibles, net	1,090		1,136
Debt issuance costs	—		3,866
Investment in affiliates and other assets	27,866		27,928
Deferred income taxes	16,839		16,867
TOTAL ASSETS	$	508,018	$	468,104

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

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


	July 29, 2023		April 29, 2023
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	1,500	$	—
Accounts payable	62,449		67,522
Contract liabilities	89,318		91,549
Accrued expenses	31,992		36,005
Warranty obligations	13,644		12,228
Income taxes payable	5,514		2,859
Total current liabilities	204,417		210,163

Long-term warranty obligations	20,926		20,313
Long-term contract liabilities	14,541		13,096
Other long-term obligations	5,463		5,709

Long-term debt, net	41,422		17,750

Deferred income taxes	202		195
Total long-term liabilities	82,554		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; 45,644,800 and 45,488,595 shares issued at July 29, 2023 and April 29, 2023, respectively	63,684		63,023
Additional paid-in capital	50,816		50,259
Retained earnings	122,606		103,410
Treasury Stock, at cost, 1,907,445 shares at July 29, 2023 and April 29, 2023, respectively	(10,285)		(10,285)
Accumulated other comprehensive loss	(5,774)		(5,529)
TOTAL SHAREHOLDERS' EQUITY	221,047		200,878
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	508,018	$	468,104

See notes to condensed consolidated financial statements.

Table of Contents

DAKTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Three Months Ended Nine Months Ended
January 28,
2023 January 29,
2022 January 28,
2023 January 29,
2022
Net sales $ 184,975 $ 139,558 $ 544,334 $ 448,767
Cost of sales 143,262 117,250 445,123 362,007
Gross profit 41,713 22,308 99,211 86,760
Operating expenses:
Selling 12,908 12,735 41,866 37,012
General and administrative 9,861 8,328 27,989 24,100
Product design and development 7,250 6,925 21,655 21,283
Goodwill impairment 4,576 — 4,576 —
34,595 27,988 96,086 82,395
Operating income (loss) 7,118 (5,680) 3,125 4,365
Nonoperating (expense) income:
Interest (expense) income, net (398) 56 (721) 134
Other expense, net (1,380) (793) (2,335) (2,613)
Income (loss) before income taxes 5,340 (6,417) 69 1,886
Income tax expense (benefit) 1,627 (2,067) 14,666 177
Net income (loss) $ 3,713 $ (4,350) $ (14,597) $ 1,709
Weighted average shares outstanding:
Basic 45,387 45,223 45,320 45,263
Diluted 45,448 45,223 45,320 45,442
Earnings (loss) per share:
Basic $ 0.08 $ (0.10) $ (0.32) $ 0.04
Diluted $ 0.08 $ (0.10) $ (0.32) $ 0.04

~~See notes to condensed consolidated financial statements.~~

~~Table of Contents~~

~~DAKTRONICS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME~~

~~(in thousands)~~

~~(unaudited)~~

Three Months Ended Nine Months Ended
January 28,
2023 January 29,
2022 January 28,
2023 January 29,
2022
Net income (loss) $ 3,713 $ (4,350) $ (14,597) $ 1,709
Other comprehensive (loss):
Cumulative translation adjustments 1,976 (714) (187) (1,137)
Unrealized gain (loss) on available-for-sale securities, net of tax 6 (10) 6 (10)
Total other comprehensive (loss), net of tax 1,982 (724) (181) (1,147)
Comprehensive income (loss) $ 5,695 $ (5,074) $ (14,778) $ 562


	Three Months Ended
	July 29, 2023		July 30, 2022
Net sales	$	232,531	$	171,920
Cost of sales	161,384		146,126
Gross profit	71,147		25,794

Operating expenses:
Selling	12,929		14,433
General and administrative	9,599		9,441
Product design and development	8,403		7,439

	30,931		31,313
Operating income (loss)	40,216		(5,519)

Nonoperating (expense) income:
Interest (expense) income, net	(881)		(60)
Change in fair value of convertible note	(7,260)		—
Other expense and debt issuance costs write-off, net	(3,979)		(747)

Income (loss) before income taxes	28,096		(6,326)
Income tax expense (benefit)	8,900		(1,000)
Net income (loss)	$	19,196	$	(5,326)

Weighted average shares outstanding:
Basic	45,645		45,097
Diluted	46,198		45,097

Earnings (loss) per share:
Basic	$	0.42	$	(0.12)
Diluted	$	0.42	$	(0.12)

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
	July 29, 2023		July 30, 2022

Net income (loss)	$	19,196	$	(5,326)

Other comprehensive (loss):
Cumulative translation adjustments	(252)		(642)
Unrealized gain on available-for-sale securities, net of tax	7		1
Total other comprehensive income (loss), net of tax	(245)		(641)
Comprehensive income (loss)	$	18,951	$	(5,967)

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 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 (loss) gain 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


	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 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

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 May 1, 2021 $ 60,575 $ 46,595 $ 96,016 $ (7,297) $ (2,335) $ 193,554
Net income — — 3,685 — — 3,685
Cumulative translation adjustments — — — — (373) (373)
Share-based compensation — 518 — — — 518
Employee savings plan activity 597 — — — — 597
Treasury stock reissued — 4 — 196 — 200
Balance as of July 31, 2021 61,172 47,117 99,701 (7,101) (2,708) 198,181
Net income — — 2,374 — — 2,374
Cumulative translation adjustments — — — — (50) (50)
Share-based compensation — 494 — — — 494
Exercise of stock options 3 — — — — 3
Tax payments related to RSU issuances — (199) — — — (199)
Balance as of October 30, 2021 $ 61,175 $ 47,412 $ 102,075 $ (7,101) $ (2,758) $ 200,803
Net loss — — (4,350) — — (4,350)
Cumulative translation adjustments — — — — (714) (714)
Unrealized gain (loss) on available-for-sale securities, net of tax — — — — (10) (10)
Share-based compensation — 491 — — — 491
Exercise of stock options 5 — — — — 5
Employee savings plan activity 614 — — — — 614
Treasury stock purchase — — — (3,000) — (3,000)
Balance as of January 29, 2022 $ 61,794 $ 47,903 $ 97,725 $ (10,101) $ (3,482) $ 193,839


	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

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					Three Months Ended
		January 28, 2023		January 29, 2022			July 29, 2023		July 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(14,597)	$	1,709
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Net income (loss)						Net income (loss)	$	19,196	$	(5,326)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	12,543		11,544		Depreciation and amortization	4,669		4,025
Gain on sale of property, equipment and other assets		(588)		(737)
Loss (gain) on sale of property, equipment and other assets						Loss (gain) on sale of property, equipment and other assets	11		(361)
Share-based compensation	Share-based compensation	1,487		1,503		Share-based compensation	557		511
Equity in loss of affiliates	Equity in loss of affiliates	2,596		1,966		Equity in loss of affiliates	690		890
Provision (recovery) for doubtful accounts, net	Provision (recovery) for doubtful accounts, net	674		(600)		Provision (recovery) for doubtful accounts, net	(65)		177
Deferred income taxes, net	Deferred income taxes, net	13,028		151		Deferred income taxes, net	12		12
Goodwill impairment		4,576		—
Non-cash impairment changes						Non-cash impairment changes	442		—
Change in fair value of convertible note						Change in fair value of convertible note	7,260		—
Debt issuance costs write-off						Debt issuance costs write-off	3,353		—
Change in operating assets and liabilities	Change in operating assets and liabilities	(29,206)		(41,000)		Change in operating assets and liabilities	(16,875)		(22,743)
Net cash used in operating activities		(9,487)		(25,464)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	19,250		(22,815)

CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	Purchases of property and equipment	(21,809)		(10,024)		Purchases of property and equipment	(4,547)		(10,655)
Proceeds from sales of property, equipment and other assets	Proceeds from sales of property, equipment and other assets	612		838		Proceeds from sales of property, equipment and other assets	27		365
Purchases of marketable securities		—		(4,045)

Proceeds from sales or maturities of marketable securities	Proceeds from sales or maturities of marketable securities	3,490		—		Proceeds from sales or maturities of marketable securities	—		999
Purchases of equity and loans to equity investees	Purchases of equity and loans to equity investees	(3,240)		(6,695)		Purchases of equity and loans to equity investees	(1,186)		(1,081)
Net cash used in investing activities	Net cash used in investing activities	(20,947)		(19,926)		Net cash used in investing activities	(5,706)		(10,372)

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable	Borrowings on notes payable	283,115		—		Borrowings on notes payable	40,000		92,098
Payments on notes payable	Payments on notes payable	(259,477)		—		Payments on notes payable	(17,750)		(67,970)
Principal payments on long-term obligations	Principal payments on long-term obligations	—		(200)		Principal payments on long-term obligations	(102)		—
Payments for common shares repurchased		—		(3,000)

Debt issuance cost						Debt issuance cost	(5,838)		—
Proceed from exercise of stock options	Proceed from exercise of stock options	—		8		Proceed from exercise of stock options	46		—
Tax payments related to RSU issuances		(140)		(199)
Net cash provided by (used in) financing activities		23,498		(3,391)

Net cash provided by financing activities						Net cash provided by financing activities	16,356		24,128

EFFECT OF EXCHANGE RATE CHANGES ON CASH	EFFECT OF EXCHANGE RATE CHANGES ON CASH	(342)		98		EFFECT OF EXCHANGE RATE CHANGES ON CASH	(240)		80
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(7,278)		(48,683)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH						NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	29,660		(8,979)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:	CASH, CASH EQUIVALENTS AND RESTRICTED CASH:					CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period	Beginning of period	18,008		80,402		Beginning of period	24,690		18,008
End of period	End of period	$	10,730	$	31,719	End of period	$	54,350	$	9,029

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for:	Cash paid for:					Cash paid for:
Interest	Interest	$	760	$	—	Interest	$	97	$	75
Income taxes, net of refunds	Income taxes, net of refunds	4,456		1,601		Income taxes, net of refunds	5,771		685

Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Demonstration equipment transferred to inventory		$	—	$	53

Purchases of property and equipment included in accounts payable	Purchases of property and equipment included in accounts payable	1,538		1,795		Purchases of property and equipment included in accounts payable	839		3,326
Contributions of common stock under the ESPP	Contributions of common stock under the ESPP	1,207		1,211		Contributions of common stock under the ESPP	614		594

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

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are an 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 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 disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at April ~~30, 2022~~29, 2023 has been derived from the audited financial statements at that date, but it does not include all the information and 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 ~~30, 2022,~~29, 2023, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange 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- or 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~~three months ended ~~January 28,~~July 29, 2023 and ~~January 29,~~July 30, 2022 contained operating results for 3913 weeks.

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 issuances of foreign bank ~~guarantees.~~guarantees and letters of credit outstanding under a previous credit agreement.


		January 28, 2023		January 29, 2022			July 29, 2023		July 30, 2022
Cash and cash equivalents	Cash and cash equivalents	$	10,022	$	30,883	Cash and cash equivalents	$	45,775	$	8,279
Restricted cash	Restricted cash	708		836		Restricted cash	8,575		750
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	10,730	$	31,719	Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	54,350	$	9,029

The increase in the restricted cash balance is due to bank guarantees or other financial instruments for display installations issued by other banks and secured by restricted cash deposits.

We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Of our ~~$10,022~~$45,775 in cash and cash ~~equivalents~~equivalent balances ~~at January 28,~~as of July 29, 2023, ~~$3,257~~$36,426 were denominated in ~~U.S.~~United States dollars, of which ~~$498~~$941 were held by our foreign subsidiaries. As of ~~January 28,~~July 29, 2023, we had an additional ~~$6,765~~$9,349 in cash balances denominated in foreign currencies, of which ~~$5,421~~$8,513 were maintained in accounts of our foreign subsidiaries.

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~~Liquidity and Going Concern~~

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

During much of the past calendar year, we have experienced negative impacts in our business driven by global economic conditions and supply chain disruptions. These conditions have caused volatility in our cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs. To adapt, we used cash and line of credit borrowings to increase our investment in inventory to add stability to our production processes to fulfill backlog and used cash to invest in property and equipment to expand our capacity and add automation. To improve operations and cash flows, we have increased prices of our goods and services. In addition, we instituted a liquidity enhancement plan program focusing our teams on improving our cash flow and enhancing our liquidity. Our ability to fund inventory levels, operations, and capital expenditures in the future will be dependent on our ability to generate cash flow from operations in these conditions, to maintain or improve margins, and to use funds from our credit facility. $35,000 of our credit facility expires in April 2025 and $10,000 expires in May 2023, and it requires us to comply with certain covenants.

Although supply chain disruptions have started to ease and we expect our inventory levels and working capital levels to decline, we cannot be certain we will not experience future disruptions or need additional liquidity to fund inventory levels, operations, and capital expenditures. Therefore, we plan to obtain additional liquidity to meet our obligations as they come due in the 12 months following the date of this Report, and we cannot be assured that such liquidity will be available or the form of such liquidity, such as equity raises or debt financing. These conditions raise substantial doubt about our ability to continue as a going concern.

In response to these conditions, the Board of Directors formed an independent Strategy and Financing Review Committee in December 2022, to address the Company's near-term credit needs and to examine alternatives for strengthening the Company's longer-term financial structure and liquidity profile. The Committee retained financial and legal advisors to explore additional ways to improve our long-term liquidity profile. We are pursuing additional liquidity through various means from potential financing sources, including but not limited to obtaining financing secured by a mortgage on our facilities, a sales-leaseback transaction, leasing property and equipment, longer-term asset-based lending structures, and junior capital. We have continued focusing on reducing working capital and improving profitability through activities in our liquidity enhancement plan. Because these plans are not finalized and are subject to market conditions and restrictions from our existing financing agreements that are not within our control, they cannot be deemed probable. As a result, we have concluded that our plans do not alleviate substantial doubt about our ability to continue as a going concern.

~~Refer to "Note 7. Financing Agreements" for additional considerations related to our financing agreements.~~

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

~~Variable Interest Entities~~

We consolidate entities in which we have a controlling financial interest by first considering if an entity meets the definition of a variable interest entity ("VIE") for which we are deemed to be the primary beneficiary, or if we have the power to control an entity through a majority of voting interest or through other arrangements.

~~Variable Interest Entities:~~ A VIE is an entity (i) that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties; (ii) whose equity holders lack the characteristics of a controlling financial interest; and/or (iii) that is established with non-substantive voting rights. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. This assessment may involve subjectivity in the determination of which activities most significantly affect the VIE’s performance and making estimates about current and future fair value of the assets held by the VIE and financial performance of the VIE. In assessing the Company's interests in the VIE, we also consider interests held by its related parties, including de facto agents. Additionally, we assess whether it is a member of a related party group that collectively meets the power and benefits criteria and, if so, whether we are most closely associated with the VIE. In performing the related party analysis, we consider both qualitative and

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quantitative factors including, but not limited to: the characteristics and size of its investment relative to the related party; our and the related party's ability to control or significantly influence key decisions of the VIE, including consideration of involvement by de facto agents; the obligation or likelihood for us or the related party to fund operating losses of the VIE; and the similarity and significance of the VIE’s business activities to those of us and the related party. The determination of whether an entity is a VIE, and whether we are the primary beneficiary, may involve significant judgment, and depends upon facts and circumstances specific to an entity at the time of the assessment.

At the end of each reporting period, we reassess whether changes in facts and circumstances cause a change in the status of an entity as a VIE or voting interest entity, and/or a change in our consolidation assessment. Changes in consolidation status are applied prospectively. An entity may be consolidated as a result of this reassessment, in which case, the assets, liabilities and noncontrolling interest in the entity are recorded at fair value upon initial consolidation. Any existing equity interest held by us in the entity prior to us obtaining control will be remeasured at fair value, which may result in a gain or loss recognized upon initial consolidation. However, if the consolidation represents an asset acquisition of a voting interest entity, our existing interest in the acquired assets, if any, is not remeasured to fair value but continues to be carried at historical cost. We may also deconsolidate a subsidiary as a result of this reassessment, which may result in a gain or loss recognized upon deconsolidation depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of any interests retained.

~~See "Note 2. Investment in Affiliates" of the Notes to our Condensed Consolidated Financial Statements included in this Report.~~

Recent Accounting Pronouncements

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 ~~30, 2022.~~29, 2023.

Accounting Standards Adopted

~~There were~~In July 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU 2023-03”). This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Bulletin ("SAB") number 120. ASU 2023-03 does not provide any new guidance, so there is no ~~standards~~transition or effective date. ASU 2023-03 did not have a material impact on our condensed consolidated financial statements.

In August 2020, the FASB issued 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. This ASU (1) simplified the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in 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 ~~since~~ASU 2020-06. Upon adoption, we prospectively utilized the if-converted method to calculate the dilutive impact of our ~~last Quarterly Report~~convertible note issued on May 11, 2023 (the "Convertible Note"). See "Note 7. Financing Agreements" of the Notes to our Condensed Consolidated Financial Statements included in this Form ~~10-Q.~~10-Q for further information on the Convertible Note.

Accounting Standards Not Yet Adopted

There are no significant ~~new Accounting Standards Updates~~ASU's issued that the Company has not yet adopted as of ~~January 28, 2023.~~July 29, 2023

Note 2. Investments in Affiliates

We evaluated the nature of our investment in affiliates of ~~XdisplayTM company,~~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 ~~VIE,~~variable interest entity (VIE), and based on management's analysis, we determined that Daktronics is not the primary beneficiary; therefore, the investment in Miortech is accounted for under the equity method.

The aggregate amount of our investments accounted for under the equity method was ~~$17,145~~$10,804 and ~~$16,916~~$11,934 as of ~~January 28,~~July 29, 2023 and April ~~30, 2022,~~29, 2023, respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "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 28,~~July 29, 2023, our share of the losses of our affiliates was ~~$895 and $2,596~~$690 as compared to ~~$401 and $1,966~~$890 for the three ~~and nine~~ months ended ~~January 29,~~July 30, 2022.

We purchased services for research and development activities from our equity method investees. The total of these related party transactions for the ~~nine~~three months ended ~~January 28,~~July 29, 2023 and ~~January 29,~~July 30, 2022 was ~~$672~~$78 and ~~$1,520,~~$0, respectively, which is included in the "Product design and development" line item in our condensed consolidated statements of operations, and

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for the ~~nine~~three months ended ~~January 28,~~July 29, 2023, ~~$52~~$2 remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheets.

During the ~~nine~~three months ended ~~January 28,~~July 29, 2023, we invested ~~$2,250 evidenced by~~$750 in convertible notes and ~~$990 evidenced by~~$436 in promissory notes ~~("Notes"~~(collectively, "Notes") inof our affiliates, which is included in the "Investment in affiliates and other assets" line item in our condensed consolidated balance sheets. During the ~~nine~~three months ended ~~January 28,~~July 29, 2023, we ~~converted $2,823 evidenced by the~~did not convert any Notes to stock ownership. ~~After this conversion of Notes to stock ownership, our ownership increased to~~

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~~54.5 percent in Miortech.~~ Our ownership in ~~XdisplayTM company is~~Miortech was 55.9 percent and in XdisplayTM was 16.4 percent as of ~~January 28,~~July 29, 2023. The total amount of Notes as of July 29, 2023 was $9,993 and is included in the "Investments in affiliates and other assets" line item in our condensed consolidated balance ~~sheets~~sheets. The Notes balance combined with the investment in affiliates balance totaled $20,797 and $24,414 as of ~~January 28,~~July 29, 2023 ~~was $7,693.~~and July 30, 2022, respectively.

Note 3. Earnings Per Share ("EPS")

In the first quarter of fiscal 2024, we adopted ASU 2020-06. Upon adoption, we prospectively utilized the if-converted method to calculate the dilutive impact of our convertible note issued on May 11, 2023 (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. Under the if-converted method, the Convertible Note is assumed to be converted into common stock at the beginning of the reporting period, and the resulting shares are included in the denominator of the calculation. In addition, interest charges, net of any income tax effects, are added back to the numerator of the calculation. 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 28,~~July 29, 2023 and ~~January 29,~~July 30, 2022:

Net income (loss) Shares Per share (loss) income
For the three months ended January 28, 2023
Basic earnings per share $ 3,713 45,387 $ 0.08
Dilution associated with stock compensation plans — 61 —
Diluted earnings per share $ 3,713 45,448 $ 0.08
For the three months ended January 29, 2022
Basic and diluted (loss) earnings per share $ (4,350) 45,223 $ (0.10)
Diluted (loss) earnings per share $ (4,350) 45,223 $ (0.10)
For the nine months ended January 28, 2023
Basic and diluted (loss) earnings per share $ (14,597) 45,320 $ (0.32)
Diluted (loss) earnings per share $ (14,597) 45,320 $ (0.32)
For the nine months ended January 29, 2022
Basic earnings per share $ 1,709 45,263 $ 0.04
Dilution associated with stock compensation plans — 179 —
Diluted earnings per share $ 1,709 45,442 $ 0.04


	Three Months Ended
	July 29, 2023		July 30, 2022
Earnings per share - basic
Net income (loss)	$	19,196	$	(5,326)
Weighted average shares outstanding	45,645		45,097
Basic earnings (loss) per share	$	0.42	$	(0.12)

Earnings per share - diluted
Net income (loss)	$	19,196	$	(5,326)

Diluted net income (loss)	$	19,196	$	(5,326)

Weighted average common shares outstanding	45,645		45,097
Dilution associated with stock compensation plans	553		—

Weighted average common shares outstanding, assuming dilution	46,198		45,097

Diluted earnings (loss) per share	$	0.42	$	(0.12)

Options outstanding to purchase 1,326 shares of common stock with a weighted average exercise price of $8.97 for the three months ended July 29, 2023 and 2,102 shares of common stock with a weighted average exercise price of ~~$7.13~~$8.12 for the three months ended ~~January 28, 2023 and 2,216 shares of common stock with a weighted average exercise price of $8.17 for the three months ended January 29,~~July 30, 2022 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Options outstanding to purchase 2,089 shares of common stock with a weighted average exercise price of $7.59 for the nine months ended January 28, 2023 and 1,857 shares of common stock with a weighted average exercise price of $9.26 for the nine months ended January 29, 2022 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

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Note 4. Revenue Recognition

Disaggregation of revenue

In accordance with Accounting Standards Codification ("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.

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The following table presents our disaggregation of revenue by segments:


		Three Months Ended January 28, 2023													Three Months Ended July 29, 2023
		Commercial		Live Events		High School Park and Recreation		Transportation		International		Total			Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation	Type of performance obligation													Type of performance obligation
Unique configuration	Unique configuration	$	9,929	$	53,437	$	3,380	$	11,446	$	8,138	$	86,330	Unique configuration	$	12,918	$	76,547	$	15,119	$	12,584	$	8,790	$	125,958
Limited configuration	Limited configuration	35,864		7,858		23,865		5,328		11,040		83,955		Limited configuration	29,913		9,961		40,337		8,067		5,239		93,517
Service and other	Service and other	4,174		6,453		1,067		804		2,192		14,690		Service and other	4,052		5,491		778		718		2,017		13,056
		$	49,967	$	67,748	$	28,312	$	17,578	$	21,370	$	184,975		$	46,883	$	91,999	$	56,234	$	21,369	$	16,046	$	232,531
Timing of revenue recognition	Timing of revenue recognition													Timing of revenue recognition
Goods/services transferred at a point in time	Goods/services transferred at a point in time	$	36,746	$	10,125	$	22,716	$	5,571	$	11,861	$	87,019	Goods/services transferred at a point in time	$	31,018	$	10,777	$	39,081	$	8,267	$	5,843	$	94,986
Goods/services transferred over time	Goods/services transferred over time	13,221		57,623		5,596		12,007		9,509		97,956		Goods/services transferred over time	15,865		81,222		17,153		13,102		10,203		137,545
		$	49,967	$	67,748	$	28,312	$	17,578	$	21,370	$	184,975		$	46,883	$	91,999	$	56,234	$	21,369	$	16,046	$	232,531

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

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Three Months Ended January 29, 2022
Commercial Live Events
High School
Park and Recreation
Transportation International Total
Type of performance obligation
Unique configuration $ 4,112 $ 25,950 $ 4,167 $ 9,803 $ 8,606 $ 52,638
Limited configuration 32,081 6,843 18,717 5,269 10,453 73,363
Service and other 3,902 6,264 837 751 1,803 13,557
$ 40,095 $ 39,057 $ 23,721 $ 15,823 $ 20,862 $ 139,558
Timing of revenue recognition
Goods/services transferred at a point in time $ 32,829 $ 8,540 $ 17,351 $ 5,576 $ 10,967 $ 75,263
Goods/services transferred over time 7,266 30,517 6,370 10,247 9,895 64,295
$ 40,095 $ 39,057 $ 23,721 $ 15,823 $ 20,862 $ 139,558


		Nine Months Ended January 29, 2022													Three Months Ended July 30, 2022
		Commercial		Live Events		High School Park and Recreation		Transportation		International		Total			Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation	Type of performance obligation													Type of performance obligation
Unique configuration	Unique configuration	$	12,258	$	110,986	$	15,241	$	25,320	$	26,051	$	189,856	Unique configuration	$	4,687	$	42,168	$	6,592	$	12,486	$	6,501	$	72,434
Limited configuration	Limited configuration	83,965		21,510		66,590		15,173		32,464		219,702		Limited configuration	31,776		8,480		28,283		6,099		11,501		86,139
Service and other	Service and other	11,116		18,344		2,531		1,941		5,277		39,209		Service and other	3,655		5,735		934		955		2,068		13,347
		$	107,339	$	150,840	$	84,362	$	42,434	$	63,792	$	448,767		$	40,118	$	56,383	$	35,809	$	19,540	$	20,070	$	171,920
Timing of revenue recognition	Timing of revenue recognition													Timing of revenue recognition
Goods/services transferred at a point in time	Goods/services transferred at a point in time	$	85,570	$	26,877	$	62,407	$	15,781	$	33,801	$	224,436	Goods/services transferred at a point in time	$	32,557	$	9,222	$	27,090	$	6,382	$	11,876	$	87,127
Goods/services transferred over time	Goods/services transferred over time	21,769		123,963		21,955		26,653		29,991		224,331		Goods/services transferred over time	7,561		47,161		8,719		13,158		8,194		84,793
		$	107,339	$	150,840	$	84,362	$	42,434	$	63,792	$	448,767		$	40,118	$	56,383	$	35,809	$	19,540	$	20,070	$	171,920

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

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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 28,
2023 April 30,
2022 Dollar
Change Percent
Change
Contract assets $ 36,098 $ 41,687 $ (5,589) (13.4) %
Contract liabilities - current 97,703 90,393 7,310 8.1
Contract liabilities - noncurrent 12,674 10,998 1,676 15.2

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	July 29, 2023		April 29, 2023		Dollar Change		Percent Change
Contract assets	$	50,539	$	46,789	$	3,750	8.0	%
Contract liabilities - current	89,318		91,549		(2,231)		(2.4)
Contract liabilities - noncurrent	14,541		13,096		1,445		11.0

The changes in our contract assets and contract liabilities from April ~~30, 2022~~29, 2023 to ~~January 28,~~July 29, 2023 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 no impairments of contract assets for the ~~nine~~three months ended ~~January 28,~~July 29, 2023.

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". Changes in unearned service-type warranty contracts, net were as follows:


	~~January 28,~~July 29, 2023
Balance as of April ~~30, 2022~~29, 2023	$	~~26,346~~28,338
New contracts sold	~~35,319~~13,218
Less: reductions for revenue recognized	~~(32,406)~~(9,785)
Foreign currency translation and other	~~(128)~~(1,044)
Balance as of ~~January 28,~~July 29, 2023	$	~~29,131~~30,727

Contracts in progress identified as loss contracts as of ~~January 28,~~July 29, 2023 and as of April ~~30, 2022~~29, 2023 were immaterial. Loss provisions are recorded in the "Accrued expenses" line item in our condensed consolidated balance sheets.

During the ~~nine~~three months ended ~~January 28,~~July 29, 2023, we recognized revenue of ~~$81,966~~$59,506 related to our contract liabilities as of April ~~30, 2022.~~29, 2023.

Remaining performance obligations

As of ~~January 28,~~July 29, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations was ~~$491,345.~~$386,622. Remaining performance obligations related to product and service agreements ~~at January 28,~~as of July 29, 2023 were ~~$429,097~~$323,725 and ~~$62,248,~~$62,897, respectively. We expect approximately ~~$430,602~~$320,898 of our remaining performance obligations to be recognized over the 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 three months ended July 29, 2023 and July 30, 2022 was immaterial.

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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					Three Months Ended
		January 28, 2023		January 29, 2022		January 28, 2023		January 29, 2022			July 29, 2023		July 30, 2022
Net sales:	Net sales:									Net sales:
Commercial	Commercial	$	49,967	$	40,095	$	127,132	$	107,339	Commercial	$	46,883	$	40,118
Live Events	Live Events	67,748		39,057		193,370		150,840		Live Events	91,999		56,383
High School Park and Recreation	High School Park and Recreation	28,312		23,721		106,127		84,362		High School Park and Recreation	56,234		35,809
Transportation	Transportation	17,578		15,823		53,797		42,434		Transportation	21,369		19,540
International	International	21,370		20,862		63,908		63,792		International	16,046		20,070
		184,975		139,558		544,334		448,767			232,531		171,920

Gross profit:	Gross profit:									Gross profit:
Commercial	Commercial	10,547		8,239		21,565		22,862		Commercial	12,769		4,821
Live Events	Live Events	14,405		3,094		26,174		17,261		Live Events	27,940		3,786
High School Park and Recreation	High School Park and Recreation	7,555		6,958		29,343		27,216		High School Park and Recreation	20,825		9,977
Transportation	Transportation	5,534		4,108		15,456		12,263		Transportation	7,089		5,838
International	International	3,672		(91)		6,673		7,158		International	2,524		1,372
		41,713		22,308		99,211		86,760			71,147		25,794

Operating expenses:	Operating expenses:									Operating expenses:
Selling	Selling	12,908		12,735		41,866		37,012		Selling	12,929		14,433
General and administrative	General and administrative	9,861		8,328		27,989		24,100		General and administrative	9,599		9,441
Product design and development	Product design and development	7,250		6,925		21,655		21,283		Product design and development	8,403		7,439
Goodwill impairment		4,576		—		4,576		—

		34,595		27,988		96,086		82,395			30,931		31,313
Operating income (loss)	Operating income (loss)	7,118		(5,680)		3,125		4,365		Operating income (loss)	40,216		(5,519)

Nonoperating (expense) income:	Nonoperating (expense) income:									Nonoperating (expense) income:
Interest (expense) income, net	Interest (expense) income, net	(398)		56		(721)		134		Interest (expense) income, net	(881)		(60)
Other expense, net		(1,380)		(793)		(2,335)		(2,613)
Change in fair value of convertible note										Change in fair value of convertible note	(7,260)		—
Other expense and debt issuance costs write-off, net										Other expense and debt issuance costs write-off, net	(3,979)		(747)
Income (loss) before income taxes	Income (loss) before income taxes	$	5,340	$	(6,417)	$	69	$	1,886	Income (loss) before income taxes	$	28,096	$	(6,326)

Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
Commercial	Commercial	$	927	$	646	$	2,564	$	1,949	Commercial	$	1,042	$	803
Live Events	Live Events	1,534		1,275		4,727		3,860		Live Events	1,613		1,566
High School Park and Recreation	High School Park and Recreation	452		318		1,174		1,096		High School Park and Recreation	462		339
Transportation	Transportation	163		136		416		402		Transportation	168		125
International	International	608		703		1,719		2,181		International	566		545
Unallocated corporate depreciation		634		677		1,943		2,056
Unallocated corporate depreciation and amortization										Unallocated corporate depreciation and amortization	818		647
		$	4,318	$	3,755	$	12,543	$	11,544		$	4,669	$	4,025

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:

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		Three Months Ended				Nine Months Ended					Three Months Ended
		January 28, 2023		January 29, 2022		January 28, 2023		January 29, 2022			July 29, 2023		July 30, 2022
Net sales:	Net sales:									Net sales:
United States	United States	$	161,467	$	112,389	$	474,048	$	374,692	United States	$	214,593	$	149,438
Outside United States	Outside United States	23,508		27,169		70,286		74,075		Outside United States	17,938		22,482
		$	184,975	$	139,558	$	544,334	$	448,767		$	232,531	$	171,920


		January 28, 2023		April 30, 2022			July 29, 2023		April 29, 2023
Property and equipment, net of accumulated depreciation:	Property and equipment, net of accumulated depreciation:					Property and equipment, net of accumulated depreciation:
United States	United States	$	65,073	$	58,643	United States	$	64,251	$	63,786
Outside United States	Outside United States	8,722		8,122		Outside United States	7,829		8,361
		$	73,795	$	66,765		$	72,080	$	72,147

We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net ~~sales for the three and nine months ended January 28, 2023 and January 29, 2022;~~sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services.

We have numerous raw material and component suppliers, and no supplier accounts for 10 percent or more of our cost of sales; however, we have a complex global supply chain subject to geopolitical and transportation risks and a number of single-source suppliers that could limit our supply or cause delays in obtaining raw materials and components needed in manufacturing.

Note 6. Goodwill

The changes in the carrying amount of goodwill related to each reportable segment for the ~~nine~~three months ended ~~January 28,~~July 29, 2023 were as follows:

Live Events Commercial Transportation International Total
Balance as of April 30, 2022 $ 2,296 $ 3,349 $ 68 $ 2,214 $ 7,927
Foreign currency translation (15) (109) (15) 81 (58)
Goodwill impairment (2,281) — — (2,295) (4,576)
Balance as of January 28, 2023 $ — $ 3,240 $ 53 $ — $ 3,293


	Commercial		Transportation		Total
Balance as of April 29, 2023	$	3,198	$	41	$	3,239
Foreign currency translation	72		21		93

Balance as of July 29, 2023	$	3,270	$	62	$	3,332

We perform an analysis of goodwill on an annual basis and test for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. Our annual analysis is performed during our third quarter of each fiscal year based on the goodwill amount as of the first business day of our third fiscal quarter.

We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded an impairment charge as noted in the above table. We determined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows. Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts. The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our liquidity caused by disrupted supply chains and geopolitical conditions that have given ongoing logistics challenges to certain large projects. As a result the present value of our future cash flows was lower, which caused the $4,576 impairment charge. Based on our annual impairment test, we concluded that the fair value of the Commercial and Transportation reporting units exceeded their respective carrying values and concluded no goodwill impairment existed for those reporting units.

Note 7. Financing Agreements

~~We have~~Long-term debt consists of the following:

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	July 29, 2023		April 29, 2023
ABL credit facility	$	—	$	—
Prior line of credit	—		17,750
Mortgage	15,000		—
Convertible note	25,000		—
Long-term debt, gross	40,000		17,750
Debt issuance costs	(4,338)		—
Change in fair value of convertible note	7,260		—
Current portion	(1,500)		—
Long-term debt, net	$	41,422	$	17,750

Credit Agreements

On May 11, 2023, we closed on a ~~$35,000 line~~$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, secured by first priority lien on the Company's assets and which is subject to certain factors which 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 factors can impact our borrowing capacity. As of July 29, 2023, our borrowing capacity was $47,596, and there were no borrowings outstanding and $1,460 used to secure letters of credit ~~which expires~~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 percent 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 ~~April 2025.~~ 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 the Mortgage on the Company's Brookings, South Dakota real estate. It amortizes over 10 years and has monthly payments of $125. The Delayed Draw Loan is subject to the terms of the Credit Agreement and matures on May 11, 2026. The interest rate on the Delayed Draw Loan is set on a sliding scale based on the trailing 12 month fixed charge coverage ratio and ranges between 1.0 percent and 2.0 percent over the Commercial Bank Floating Rate (CBFR).

Convertible Note

On ~~January 23,~~May 11, 2023, we ~~entered~~issued $25,000 in aggregate principal amount evidenced by the secured Convertible Note due May 11, 2027. The Convertible Note holder has a second priority lien on assets securing the ABL facility and 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 among the Company, JPMorgan Chase Bank N.A., and the holder of the Convertible Note.

Conversion Features

•The Convertible Note allows the Investor and any of the Investor’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 ~~agreement~~initial conversion price of $6.31 per share, subject to ~~temporarily expand~~adjustment in accordance with the ~~line~~terms of ~~credit by $10,000 through May 1, 2023. As of January 28, 2023, $23,638 had been advanced~~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 the 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 Note.

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

Interest

Interest is payable in either (i) cash or (ii) in a combination of cash interest and capitalized interest at the option of the Company; 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 ~~loan portion~~Convertible Note, the annual interest rate will increase to 12.0 percent. The annual rate of 9.0 percent was used to calculate the interest accrued as of July 29, 2023.

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 ~~line of credit,~~Condensed Consolidated Financial Statements included in this Form 10-Q for further information. The financial liability was initially measured at its issue-date fair value and 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 ~~balance~~accrued interest component separately in the income statement. Therefore, interest will be recognized and accrued separately in interest expense, with changes in fair value of ~~letters~~the Note presented in the "Change in fair value of ~~credit outstanding~~convertible note" line item in our condensed consolidated statements of operations.

The changes in fair value of the Convertible Note during the quarter ended July 29, 2023 is as follows:


	Liability Component
	(in thousands)
As of May 11, 2023	$	25,000
Redemption of convertible promissory note	—
Fair Value Change Recognized	7,260
As of July 29, 2023	$	32,260

The estimated fair value of the Convertible Note upon issuance date May 11, 2023 and as of July 29, 2023 was ~~approximately $7,516.~~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)	4.34	%
Implied Yield	18.54	%
Volatility (Annual)	55.00	%
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 28,~~July 29, 2023, we were in compliance with our financial ~~covenants.~~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 $8,019 in debt issuance costs. During the first quarter, 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 first quarter, we have amortized $328 of debt issuance costs. The remaining debt issuance costs of $4,338 is being amortized over the four-year term of the Credit Facility agreement.

Fair Value and Future Maturities

As of ~~January 28,~~July 29, 2023 and April 29, 2023, the fair value of long-term debt, gross was $47,260 and $17,750, respectively. The fair value of the Convertible Notes was $32,260 as of July 29, 2023.

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


Fiscal years ending	Amount
Remainder of 2024	$	1,125
2025	1,500
2026	1,500
2027	10,875
2028	25,000
2029 and beyond	—
Total senior secured notes and convertible notes	$	40,000

As of July 29, 2023, we had ~~$616~~$6,114 of bank guarantees or other financial instruments for display installations issued by ~~another bank~~other banks and secured by a restricted cash ~~deposit.~~deposits. If we are unable to meet the terms of the arrangement, the bank would subrogate its loss by drawing on the secured cash deposit.

Note 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.

For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss ~~will~~would be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. We do not expect the ultimate liability of these unresolved legal proceedings or claims to have a material effect on our financial position, liquidity, or capital resources.

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On December 21, 2022, a putative class action lawsuit captioned Settles, et al. v. Daktronics, Inc., et al., Case No. 22-cv-10793 (“Securities Action”) was filed against the Company and two of its officers in the U.S. District Court for the Southern District of New York. The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 10, 2022 through December 6, 2022. We are still evaluating the complaint, which is subject to amendment, but based on current knowledge we believe that the claims are without merit. We believe the likelihood of loss is remote. Accordingly, no accrual has been made.

Warranties: Changes in our warranty obligation for the ~~nine~~three months ended ~~January 28,~~July 29, 2023 consisted of the following:


	~~January 28,~~July 29, 2023
Beginning accrued warranty obligations	$	~~28,878~~32,541
Warranties issued during the period	~~9,423~~4,375
Settlements made during the period	~~(8,251)~~(2,744)
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations	~~164~~398
Ending accrued warranty obligations	$	~~30,214~~34,570

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 contracts. As of ~~January 28,~~July 29, 2023, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of ~~$7,516, $616~~$1,460, $6,114 and ~~$63,312,~~$40,394, 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 but ~~are~~ 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 28,~~July 29, 2023, we were not aware of any material indemnification ~~claim from a customer.~~claims.

Note 9. Income Taxes

The provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income (or loss) for the year, projections of the proportion of income (or loss) earned and taxed in foreign jurisdictions, and permanent and temporary differences and the likelihood of recovering deferred tax assets, then adjusted for any discrete items. The accounting estimates used to compute the provision for income taxes may change as new events occur, assumptions change, or additional information is obtained.

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Under GAAP, we are required to evaluate the recoverability of our deferred tax assets and establish a valuation allowance if necessary to reduce our deferred tax assets to an amount that is more likely than not to be realized. Significant judgment is required in determining whether valuation allowances should be established, as well as in determining the amount of such allowances. We establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that we will be able to realize the value of the deferred tax assets. We evaluate all significant available positive and negative evidence as part of our analysis, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. The underlying assumptions we use in forecasting future taxable income requires significant judgment and takes into account our recent performance. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible or creditable. If actual experience differs from these estimates and assumptions, the recognized deferred tax asset value may not be fully realized, resulting in an increase to income tax expense in our results of operations. Due to various factors, including our estimate of annual income, our effective tax rate is subject to fluctuation.

Our effective tax rate for the three months ended ~~January 28,~~July 29, 2023 was a tax rate of ~~30.5~~31.7 percent, as compared to an effective tax rate of ~~32.2~~15.8 percent for the three months ended ~~January 29,~~July 30, 2022. ~~For the nine months ended~~ ~~January 28, 2023, our effective~~The higher tax rate ~~was significantly impacted~~is caused by the ~~recording of a full valuation allowance on deferred tax assets during the second quarter of fiscal 2023 related~~fair value adjustment to ~~GAAP accounting for~~ income taxes and related information. For the nine months ended January 29, 2022, our effective tax was 9.4 percent. See "Note 1. Basis of Presentation - Liquidity and Going Concern" of the Notes to our Condensed Consolidated Financial Statements included in this Report.

If, in the future, we determine we can support the recoverability of all or a portion of the deferred tax assets under the guidance, the tax benefits relating to any reversal of the valuation allowance on net deferred tax assets will be accounted for as a reduction of income tax expense. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future.that is not taxable.

We operate both domestically and internationally and, as of ~~January 28,~~July 29, 2023, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely. Additionally, as of ~~January 28,~~July 29, 2023, we had ~~$361~~$521 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

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Note 10. Fair Value Measurement

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 ~~at January 28,~~as of July 29, 2023 and April ~~30, 2022~~29, 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									Fair Value Measurements
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Balance as of January 28, 2023
Balance as of July 29, 2023										Balance as of July 29, 2023
Cash and cash equivalents	Cash and cash equivalents	$	10,022	$	—	$	—	$	10,022	Cash and cash equivalents	$	45,775	$	—	$	—	$	45,775
Restricted cash	Restricted cash	708		—		—		708		Restricted cash	8,575		—		—		8,575
Convertible Note Payable										Convertible Note Payable	—		—		32,260		32,260
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:							—

US Government sponsored entities	US Government sponsored entities	—		530		—		530		US Government sponsored entities	—		539		—		539

Derivatives - liability position	Derivatives - liability position	$	—	$	(6)	$	—	$	(6)	Derivatives - liability position	—		(542)		—		(542)

		$	10,730	$	524	$	—	$	11,254		$	54,350	$	(3)	$	32,260	$	86,607
Balance as of April 30, 2022
Balance as of April 29, 2023										Balance as of April 29, 2023
Cash and cash equivalents	Cash and cash equivalents	$	17,143	$	—	$	—	$	17,143	Cash and cash equivalents	$	23,982	$	—	$	—	$	23,982
Restricted cash	Restricted cash	865		—		—		865		Restricted cash	708		—		—		708
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
US Government securities		3,486		—		—		3,486

US Government sponsored entities	US Government sponsored entities	—		534		—		534		US Government sponsored entities	—		534		—		534

Derivatives - asset position		—		934		—		934

Derivatives - liability position	Derivatives - liability position	—		(311)		—		(311)		Derivatives - liability position	—		(579)		—		(579)

		$	21,494	$	1,157	$	—	$	22,651		$	24,690	$	(45)	$	—	$	24,645

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 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 because it does not have readily determinable or observable inputs for the valuation. There have been no other changes in the valuation techniques used by us to value our financial instruments since the end of fiscal ~~2022.~~2023. For additional information, see our Annual Report on Form 10-K for the fiscal year ended April ~~30, 2022~~29, 2023 for the methods and assumptions used to estimate the fair value of each class of financial instrument.

Note 11. Related Party Transactions

The Board has adopted a 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 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 Form 10-K, effective on May 11, 2023, the Company entered into the Securities Purchase Agreement with Alta Fox Opportunities Fund, LP (the “Investor”). Under the Securities Purchase Agreement, the Company sold and issued to the Investor the Convertible Note in exchange for the payment by the Investor to the Company of $25,000. As of May 11, 2023, and based on Amendment No. 3 to the Schedule 13D filed

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by the Investor and its affiliates named therein on May 15, 2023 with the SEC, the Investor and its affiliates beneficially owned 4,768 shares of common stock of the Company, representing 9.99 percent of the Company’s common stock, causing the Investor 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 Investor 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 $25,475, consisting of $25,000 of principal and $475 of interest; a total of $25,475 outstanding; and, since May 11, 2023; no payments of principal or interest had been made on the amounts due under the Convertible Note.

The description of the Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Investor and the Company, the Registration Rights Agreement, 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” was hereby incorporated by reference into this Item 13 of the form 10-K. In addition, the Company is a party to the Standstill and Voting Agreement dated as of March 19, 2023 with Alta Fox Management, LLC and Connor Haley (the “Standstill Agreement”). The Standstill Agreement is filed as Exhibit 10.13 to Form 10-K.

As described in Amendment No. 3 (“Amendment No. 3”) to the Schedule 13D filed by the Investor and its affiliates named therein on June 9, 2023 with the SEC and based on other information provided by the Investor, the following persons may be deemed to be beneficial owners of the shares of the Company’s common stock owned by the Investor: 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 Investor 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 Investor may own. Based on Amendment No. 3, the Investor and its affiliates identified in Amendment No. 3 owned 2,293 shares of common stock on June 9, 2023, representing 4.99 percent of the common stock of the Company, meaning the Investor 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.

During the first quarter of fiscal 2024, the Company and South Dakota Board of Regents entered into a contract for video display systems for Dakota State University. The amount of the contract was $150. A member of the Company's Board of Directors is the President of Dakota State University.

See Note 2 for further details of related party transactions with our Investments in 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 ~~30, 2022,~~29, 2023, to and including ~~January 28,~~July 29, 2023 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 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 financial performance. The words "may," "would," "could," "should," "will," "expect," "estimate," "anticipate," "believe," "intend," "plan," "forecast," "project" and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any and all forecasts and projections in this document are ~~“forward looking~~“forward-looking statements” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us. Any or all forward-looking statements in this report and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties 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 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 “substantial doubt” regarding the Company’s ability to continue as a 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 described more fully in the Company’s Annual Report on Form 10-K for the fiscal year ended April ~~30, 2022 and the Company’s Quarterly Reports on Form 10-Q for the quarters ended July 30, 2022 and October~~ 29, ~~2022~~2023 filed with the Securities and Exchange Commission, 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 ~~30, 2022~~29, 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 design, marketing, and manufacture of a wide range of integrated electronic display systems and related products which are sold in a variety of markets throughout the 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.

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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 ~~30, 2022~~29, 2023 and the consolidated financial statements set forth in that Annual Report on Form 10-K, including the notes to consolidated financial statements included therein.

CURRENT CONDITIONS

~~Over much~~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 ~~past calendar year,~~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 in the coming months 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 ~~products~~company. Orders and ~~services increased significantly while at the same time our capacity was constrained due~~revenue levels are expected tosignificant and unusual part shortages, a challenging labor environment, and operating disruptions from COVID-19 related absences and the shutdown of our facilities in Shanghai, China due to a government mandated COVID-19 zero tolerance policy. Through this time, we also experienced increased input costs for materials, commodities, personnel, freight, and tariffs. We were specifically be impacted by the ~~global shortage~~timing of semiconductors and related electronic components. Although supply chain disruptions have started to ease, supply chain disruptions continue as a result of several factors, including the pandemic lockdowns, shipping container shortages, labor shortages, war and other conflicts, and changes in global demand.

In addition, there continues to be certain risk related to the movement of materials globally. Geopolitical events and pandemic related risks remain high and could cause disruptions in our globally dispersed supplier base. Also, the movement of materials is impacted throughout the United States because of a number of factors including: the expiration of the International Longshore and Warehouse Union (ILWU) contract with the Pacific Maritime Association on July 1, 2022. While negotiations are in process, a strike or work slow-down mandate is possible. This would have a negative impact on the movement of material through west coast ports. We continue to monitor the dispute between the country’s Class 1 railroads and twelve rail unions. The U.S. administration signed a tentative agreement into law on Dec 2, 2022, effectively forcing the unions back to work. Rank and file workers are threatening an illegal, but not unprecedented wildcat strike. And finally, the UPS contract with its driver’s union expires in July 2023. While a strike is not expected at this time, the driver’s union did strike for two weeks in 1997. UPS is our largest small package carrier. To alleviate risks, we are actively working to move business to other small package carriers, to hopefully minimize any negative impact if a UPS driver's union strike occurs.

~~Macroeconomic events, including the possibility of sustained high inflation, tightening financial conditions,~~multi-million dollar projects and the ~~potential for higher interest rates, could increase the likelihood~~impacts of ~~deteriorating global economic conditions. We also expect impacts to~~ global economic conditions, ~~in reaction to the evolving~~ war ~~in Ukraine~~ and ~~the current~~ geopolitical ~~environment. These conditions could impact the growth rate~~situations, or other factors outside of our business and availability of our parts supply. Conditions and disruptions have and will likely continue to cause volatility in our cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs, and it is likely these conditions will have a negative impact in the remainder of fiscal 2023 and into fiscal 2024.

~~We cannot predict the length or severity of these conditions.~~

Due to this volatility and risks, we have taken a number of actions. To support our high backlog and expectation of continued order demand and manage through the uncertainties in the supply chain, we increased our inventory planning horizons and have purchased and carried higher quantities of inventory. While we have added more inventory for fulfillment, our production and schedules have been disrupted over the past year, creating changes in the timing of payments from our customers. These conditions created an increased consumption of cash.

As supply chain conditions ease, we expect our inventory levels to continue to decline to more normalized levels through production and reductions in purchases; however, we cannot be certain we will not experience future disruptions or need additional liquidity to fund inventory levels, operations, and capital expenditures.

We have responded to input cost increases by increasing pricing through the last half of fiscal 2022 and implementing additional increases at the beginning of fiscal 2023. We also use pricing policies and opportunity evaluations across markets to manage price levels. We will continue to monitor our supply chains and our marketplaces and adapt our pricing methodologies as we see appropriate to remain profitable and competitive. We have also allocated resources to redesigns of certain products to provide the ability to source available components which increases the robustness of our fulfillment.

Our teams are focused on improving our cash flow and liquidity enhancement program, which includes: cash management focus through working capital reductions, including reductions in inventory and accounts receivables; productivity improvements from factory capacity expansion and investments in capital equipment and hiring critical manufacturing and service employees to increase output; operating margin improvement through pricing actions, product mix adjustments, and prudent management of operating expenses; selective reduction in future capital asset spending; and obtaining additional sources of liquidity, which requires the consent of our current lender.

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The Board of Directors formed an independent Strategy and Financing Review Committee in December 2022 to address the Company's near-term credit needs and to examine alternatives for strengthening the Company's longer-term financial structure and liquidity profile. The Committee retained financial and legal advisors to assist it with its activities. We are pursuing additional liquidity through various means from potential financing sources, including but not limited to obtaining financing secured by a mortgage on our facilities, a sales-leaseback transaction, leasing property and equipment, longer term asset based lending structures, and junior capital. Because these plans are not finalized and are subject to market conditions and restrictions from our existing financing agreements that are not within our control, they cannot be deemed probable. As a result, we have concluded that our plans do not alleviate substantial doubt about our ability to continue as a going concern.

We are monitoring these situations, but it is difficult and uncertain to predict the level of impact they may have on our supply chain, our costs, our liquidity, and our financial condition and results of operations.

For additional information, refer to the COVID-19 and raw material and component related risk factors disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.control.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED ~~JANUARY 28,~~JULY 29, 2023 AND ~~JANUARY 29,~~JULY 30, 2022

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 in the future. Orders are contractually binding purchase commitments from customers. Orders are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Orders and backlog are not measures defined by 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 ~~our large project business.~~multimillion dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. 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 28,~~July 29, 2023 was ~~$429.1~~$323.7 million as compared to ~~$353.3~~$469.1 million as of ~~January 29,~~July 30, 2022 and ~~$471.6~~$400.7 million at April ~~30, 2022.~~29, 2023. The ~~increase of $75.8 million between January 28, 2023 and January 29, 2022 was~~decrease in backlog is driven by ~~record~~fulfilling orders at a greater pace as supply chain conditions stabilized, we utilized our increased capacity, and the order ~~volume and softer conversions~~pace returned to ~~sales due to supply challenges.~~more normalized rates.

We expect to fulfill the backlog as of ~~January 28,~~July 29, 2023 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.~~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 28,~~July 29, 2023 and ~~January 29,~~July 30, 2022:


		Three Months Ended									Three Months Ended
(in thousands)	(in thousands)	January 28, 2023		January 29, 2022		Dollar Change		Percent Change		(in thousands)	July 29, 2023		July 30, 2022		Dollar Change		Percent Change
Net Sales:	Net Sales:									Net Sales:
Commercial	Commercial	$	49,967	$	40,095	$	9,872	24.6	%	Commercial	$	46,883	$	40,118	$	6,765	16.9	%
Live Events	Live Events	67,748		39,057		28,691		73.5		Live Events	91,999		56,383		35,616		63.2
High School Park and Recreation	High School Park and Recreation	28,312		23,721		4,591		19.4		High School Park and Recreation	56,234		35,809		20,425		57.0
Transportation	Transportation	17,578		15,823		1,755		11.1		Transportation	21,369		19,540		1,829		9.4
International	International	21,370		20,862		508		2.4		International	16,046		20,070		(4,024)		(20.0)
		$	184,975	$	139,558	$	45,417	32.5	%		$	232,531	$	171,920	$	60,611	35.3	%
Orders: (1)	Orders: (1)									Orders: (1)
Commercial	Commercial	$	28,737	$	47,012	$	(18,275)	(38.9)	%	Commercial	$	32,434	$	47,678	$	(15,244)	(32.0)	%
Live Events	Live Events	61,011		79,478		(18,467)		(23.2)		Live Events	52,203		51,753		450		0.9
High School Park and Recreation	High School Park and Recreation	28,097		35,884		(7,787)		(21.7)		High School Park and Recreation	35,739		37,579		(1,840)		(4.9)
Transportation	Transportation	13,525		20,810		(7,285)		(35.0)		Transportation	18,985		15,704		3,281		20.9
International	International	17,005		31,605		(14,600)		(46.2)		International	19,269		17,509		1,760		10.1
		$	148,375	$	214,789	$	(66,414)	(30.9)	%		$	158,630	$	170,223	$	(11,593)	(6.8)	%

(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 ~~2023 third~~2024 first quarter, net sales were ~~$185.0~~$232.5 million, an increase of ~~$45.4~~$60.6 million from net sales in the prior year's ~~third quarter. Sales growth~~first quarter and a quarterly record. This increase was ~~driven by strong market demand, increased~~primarily due to higher throughput from our past investments in capacity and ~~realization of price increases implemented in late fiscal~~the more stable operating environment. Last year ~~2022~~during the first quarter, we faced material supply shortages which extended lead times and ~~beginning of fiscal year 2023. We have seen stabilizing and improving supply chain conditions and have invested in automated machinery and equipment and in labor capacity to increase~~delayed the ~~rate of~~ conversion of orders into ~~sales, creating more throughput in our factories.~~sales.

Order volume decreased in the ~~third~~first quarter of fiscal ~~2023~~2024 from the prior year's ~~third quarter as orders~~first quarter. The change is primarily related to a decrease in the ~~year-earlier were driven~~Commercial business unit caused by ~~pent-up demand after COVID, which was unusual and was not expected to be repeated~~volatility in ~~fiscal 2023. Orders decreased in International in the third quarter~~bookings of ~~fiscal 2023 compared to the third quarter of fiscal 2022 due to a weakening economic outlook relating to inflationary pressures, geopolitical events, and currency headwinds.~~larger sized Spectacular LED video displays projects.

Gross Profit and Contribution Margin

Three Months Ended
January 28, 2023 January 29, 2022
(in thousands) Amount As a Percent of Net Sales Amount As a Percent of Net Sales
Gross Profit:
Commercial $ 10,547 21.1 % $ 8,239 20.5 %
Live Events 14,405 21.3 3,094 7.9
High School Park and Recreation 7,555 26.7 6,958 29.3
Transportation 5,534 31.5 4,108 26.0
International 3,672 17.2 (91) (0.4)
$ 41,713 22.6 % $ 22,308 16.0 %

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	Three Months Ended
	July 29, 2023				July 30, 2022
(in thousands)	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
Gross Profit:
Commercial	$	12,769	27.2	%	$	4,821	12.0	%
Live Events	27,940		30.4		3,786		6.7
High School Park and Recreation	20,825		37.0		9,977		27.9
Transportation	7,089		33.2		5,838		29.9
International	2,524		15.7		1,372		6.8
	$	71,147	30.6	%	$	25,794	15.0	%

The increase in gross profit percentage for the ~~third~~first quarter of fiscal ~~2023 was primarily due~~2024 is attributable to the record sales volume over our fixed manufacturing cost structure, past strategic pricing ~~changes made in the 2022 calendar year~~actions, stabilization of input costs, and ~~continuing throughout fiscal year 2023, and because of~~ fewer supply chain and operational disruptions during the ~~third~~first quarter of fiscal ~~2023. These price changes are just beginning~~2024 as compared to ~~be realized through sales during the third quarter~~ a year earlier.

Table of fiscal 2023. We continue to intensely monitor our production capabilities, inflation's impact on material prices and labor, and supply conditions in the ever-evolving geopolitical and global economic environment to ensure we quickly adjust our resources and product pricing to protect our margins and grow our profitability. Contents

Total warranty costs as a percent of sales for the three months ended ~~January 28,~~July 29, 2023 compared to the same period one year ago ~~decreased~~increased to ~~1.7~~2.1 percent from ~~2.4~~1.6 percent.


		Three Months Ended													Three Months Ended
		January 28, 2023								January 29, 2022					July 29, 2023								July 30, 2022
(in thousands)	(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales		(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Contribution Margin:	Contribution Margin:													Contribution Margin:
Commercial	Commercial	$	6,684	13.4	%	$	2,363	54.7	%	$	4,321	10.8	%	Commercial	$	8,721	18.6	%	$	8,521	4260.5	%	$	200	0.5	%
Live Events	Live Events	12,109		17.9		11,562		2113.7		547		1.4		Live Events	25,415		27.6		24,441		2509.3		974		1.7
High School Park and Recreation	High School Park and Recreation	4,373		15.4		435		11.0		3,938		16.6		High School Park and Recreation	17,463		31.1		10,882		165.4		6,581		18.4
Transportation	Transportation	4,443		25.3		1,206		37.3		3,237		20.5		Transportation	6,190		29.0		1,247		25.2		4,943		25.3
International	International	1,196		5.6		3,666		148.4		(2,470)		(11.8)		International	429		2.7		1,766		132.1		(1,337)		(6.7)
		$	28,805	15.6	%	$	19,232	200.9	%	$	9,573	6.9	%		$	58,218	25.0	%	$	46,857	412.4	%	$	11,361	6.6	%

Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of ~~personnel related~~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 for the fiscal quarter ended ~~January 28,~~July 29, 2023 was positively impacted by the previously discussed sales levels and impacts on gross profit. We have adjusted our sales and marketing activities and staffing levels to achieve current and expected future sales levels. Our order volume is directly associated with our marketing and sales expenses.

~~The following table reconciles~~Reconciliation from non-GAAP contribution margin to ~~GAAP~~the operating income ~~(loss):~~GAAP measure is as follows:


		Three Months Ended													Three Months Ended
		January 28, 2023								January 29, 2022					July 29, 2023								July 30, 2022
(in thousands)	(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales		(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Contribution margin	Contribution margin	$	28,805	15.6	%	$	19,232	200.9	%	$	9,573	6.9	%	Contribution margin	$	58,218	25.0	%	$	46,857	412.4	%	$	11,361	6.6	%
General and administrative	General and administrative	9,861		5.3		1,533		18.4		8,328		6.0		General and administrative	9,599		4.1		158		1.7		9,441		5.5
Product design and development	Product design and development	7,250		3.9		325		4.7		6,925		5.0		Product design and development	8,403		3.6		964		13.0		7,439		4.3
Goodwill impairment		4,576		2.5		4,576		—		—		—

Operating income (loss)	Operating income (loss)	$	7,118	3.8	%	$	12,798	225.3	%	$	(5,680)	(4.1)	%	Operating income (loss)	$	40,216	17.3	%	$	45,735	828.7	%	$	(5,519)	(3.2)	%

General and administrative expenses in the ~~third~~first quarter of fiscal ~~2023 increased as compared to the same period one year ago primarily due to increases in professional fees related to legal fees and accounting and auditing services.~~

~~Product design and development expensesin the third quarter of fiscal 2023~~2024 remained relatively flat as compared to the same period one year ago.

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

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As described within "Note 6. Goodwill" to the Condensed Consolidated Financial Statements included in this Report, we performed our annual goodwill impairment test and concluded that the carrying value of the International and Live Events reporting units exceeded their respective fair values. Consequently, we recorded a $4.6 million non-cash goodwill impairment charge, which contributed to the increase in operating expenses.

Other Income and Expenses


		Three Months Ended													Three Months Ended
		January 28, 2023								January 29, 2022					July 29, 2023								July 30, 2022
(in thousands)	(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales		(in thousands)	Amount		As a Percent of Net Sales		Dollar Change		Percent Change		Amount		As a Percent of Net Sales
Interest (expense) income, net	Interest (expense) income, net	$	(398)	(0.2)	%	$	(454)	(810.7)	%	$	56	—	%	Interest (expense) income, net	$	(881)	(0.4)	%	$	(821)	1368.3	%	$	(60)	—	%
Other expense, net		$	(1,380)	(0.7)	%	$	(587)	74.0	%	$	(793)	(0.6)	%
Change in fair value of convertible note														Change in fair value of convertible note	$	(7,260)	(3.1)	%	$	(7,260)	—	%	$	—	—	%
Other expense and debt issuance costs write-off, net														Other expense and debt issuance costs write-off, net	$	(3,979)	(1.7)	%	$	(3,232)	432.7	%	$	(747)	(0.4)	%

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

Change in fair value of convertible note: For the three months ended July 29, 2023, we recorded an expense of $7.3 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 increase in our stock price over the conversion price and 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 ~~third~~first quarter of fiscal ~~2023~~2024 as compared to the same period one year ago was primarily due to losses recorded for equity method affiliates and foreign currency ~~volatility.~~volatility and write-off of $3.4 million debt issuance costs related to convertible debt carried at fair value. .

Income Taxes

Our effective tax rate for the ~~third~~first quarter of fiscal ~~2023~~2024 was ~~30.5~~31.7 percent as compared to an effective tax rate of ~~32.2~~15.8 percent for the ~~third quarter of fiscal 2022.~~

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~~RESULTS OF OPERATIONS~~

~~COMPARISON OF THE NINE MONTHS ENDED JANUARY 28, 2023 AND JANUARY 29, 2022~~

~~Net Sales~~

~~The following table shows information regarding net sales for the nine months ended January 28, 2023 and January 29, 2022:~~

Nine Months Ended
(in thousands) January 28, 2023 January 29, 2022 Dollar Change Percent Change
Net Sales:
Commercial $ 127,132 $ 107,339 $ 19,793 18.4 %
Live Events 193,370 150,840 42,530 28.2
High School Park and Recreation 106,127 84,362 21,765 25.8
Transportation 53,797 42,434 11,363 26.8
International 63,908 63,792 116 0.2
$ 544,334 $ 448,767 $ 95,567 21.3 %
Orders: (1)
Commercial $ 119,126 $ 143,699 $ (24,573) (17.1) %
Live Events 193,763 169,665 24,098 14.2
High School Park and Recreation 97,574 107,246 (9,672) (9.0)
Transportation 45,812 56,854 (11,042) (19.4)
International 45,130 82,778 (37,648) (45.5)
$ 501,405 $ 560,242 $ (58,837) (10.5) %

~~(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 2023, net sales were $544.3 million, an increase of $95.6 million from the prior year's first nine-month period. The year-over-year growth was driven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of price increases implemented in late fiscal year 2022 and beginning of fiscal year 2023. We have seen stabilizing and improving supply chain conditions and have invested in automated machinery and equipment and in labor capacity to increase the rate of conversion of orders into sales, creating more throughput in our factories.

~~Order volume decreased in the first nine months of fiscal 2023 from the prior year's nine-month period.~~ ~~Fiscal~~ ~~2022~~ ~~saw a record number of orders from pent-up demand after COVID, and orders for fiscal~~ ~~2023~~ ~~continue to be strong.~~ Order bookings in the first nine months of fiscal 2023 were strong in multiple sports venues in the Live Events unit. International markets have seen some softening in demand through the first nine months of fiscal 2023 due to the inflationary environment and geopolitical events.

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~~Gross Profit and Contribution Margin~~

Nine Months Ended
January 28, 2023 January 29, 2022
(in thousands) Amount As a Percent of Net Sales Amount As a Percent of Net Sales
Gross Profit:
Commercial $ 21,565 17.0 % $ 22,862 21.3 %
Live Events 26,174 13.5 17,261 11.4
High School Park and Recreation 29,343 27.6 27,216 32.3
Transportation 15,456 28.7 12,263 28.9
International 6,673 10.4 7,158 11.2
$ 99,211 18.2 % $ 86,760 19.3 %

The decline in overall gross profit percentage in the nine months ended January 28, 2023 was primarily impacted by inflationary challenges in materials, freight, and personnel related costs, partially offset by the realization of pricing increases beginning in the third quarter of fiscal 2023. ~~In addition, extraordinary supply chain disruptions~~The higher tax rate is caused by the fair value adjustment to income that is not taxable. Absent any major tax changes, we expect our full year effective tax rate to be in the ~~first half~~mid-twenties, before the impacts of the year, including the mandated Shanghai factory closure, created intermittent work stoppages and factory inefficiencies, adding additional costs to meet customer commitments, especially in the Live Events business unit. We also recorded a $0.3 million provision for estimated losses on contracts in progress during the nine months ended ~~January 28, 2023~~.

~~Total warranty costs as a percent of sales~~fair value accounting for the ~~nine~~ ~~months ended January 28, 2023 compared to the same period one year ago increased to 2.0 percent from 1.6 percent. We recognized warranty expense of $1.0 million in the second quarter of fiscal~~ ~~2023~~ ~~for probable and reasonable estimated costs to remediate a component and manufacturing quality issue discovered during the~~ ~~nine~~ ~~months ended~~ ~~January 28, 2023~~.

Nine Months Ended
January 28, 2023 January 29, 2022
(in thousands) Amount As a Percent of Net Sales Dollar Change Percent Change Amount As a Percent of Net Sales
Contribution Margin:
Commercial $ 8,803 6.9 % $ (2,444) (21.7) % $ 11,247 10.5 %
Live Events 18,297 9.5 8,098 79.4 10,199 6.8
High School Park and Recreation 19,392 18.3 853 4.6 18,539 22.0
Transportation 12,412 23.1 2,811 29.3 9,601 22.6
International (1,559) (2.4) (1,721) (1062.3) 162 0.3
$ 57,345 10.5 % $ 7,597 15.3 % $ 49,748 11.1 %

~~Contribution margin in the nine months ended~~ ~~January 28, 2023~~ was impacted negatively primarily by the previously discussed increases in input costs and labor costs and supply chain disruptions on productivity as noted in the impacts on gross profit. Selling expenses have increased as we have adjusted our sales and marketing activities and staffing levels to achieve current and expected future sales levels.convertible debt.

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~~The following table reconciles non-GAAP contribution margin to GAAP operating loss:~~

Nine Months Ended
January 28, 2023 January 29, 2022
(in thousands) Amount As a Percent of Net Sales Dollar Change Percent Change Amount As a Percent of Net Sales
Contribution margin $ 57,345 10.5 % $ 7,597 15.3 % $ 49,748 11.1 %
General and administrative 27,989 5.1 3,889 16.1 24,100 5.4
Product design and development 21,655 4.0 372 1.7 21,283 4.7
Goodwill impairment 4,576 0.8 4,576 — — —
Operating income $ 3,125 0.6 % $ (1,240) (28.4) % $ 4,365 1.0 %

General and administrative expenses in the first nine months of fiscal 2023 increased as compared to the same period one year ago primarily due to $2.1 million professional fees relating to legal, accounting and auditing services, and for other personnel related expenses.

~~Product design and development expensesin the first nine months of fiscal 2023 remained relatively flat as compared to the same period one year ago.~~

~~Increased revenue offset by lower margins led to higher operating income for the first nine months of fiscal 2023 compared to the prior year nine-month period.~~

We performed our annual goodwill impairment test and concluded that the carrying value of the International and Live Events reporting units exceeded their respective fair values. Consequently, we recorded a $4.6 million non-cash goodwill impairment charge, which contributed to the increase in operating expenses.

~~Other Income and Expenses~~

Nine Months Ended
January 28, 2023 January 29, 2022
(in thousands) Amount As a Percent of Net Sales Dollar Change Percent Change Amount As a Percent of Net Sales
Interest (expense) income, net $ (721) (0.1) % $ (855) (638.1) % $ 134 — %
Other expense, net $ (2,335) (0.4) % $ 278 (10.6) % $ (2,613) (0.6) %

~~Interest (expense) income, net:~~ The change in interest income and expense, net for the first nine months of fiscal 2023 compared to the same period one year ago was primarily due to utilizing our line of credit during the 2023 first nine months for our strategic investments in inventory.

~~Other expense, net:~~ The change in other expense, net for the first nine months quarter of fiscal 2023 as compared to the same period one year ago was primarily due to losses recorded for equity method affiliates and foreign currency volatility.

~~Income Taxes~~

~~For the nine months ended~~ ~~January 28, 2023, our effective tax rate was significantly impacted by the~~ recording of a full valuation allowance on deferred tax assets during the second quarter of fiscal 2023 related to GAAP accounting for income taxes and related information. For the nine months ended January 29, 2022, our effective tax was 9.4 percent. See "Note 1. Basis of Presentation - Liquidity and Going Concern" of the Notes to our Condensed Consolidated Financial Statements included in this Report.

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LIQUIDITY AND CAPITAL RESOURCES

Nine Months Ended
(in thousands) January 28,
2023 January 29,
2022 Dollar Change
Net cash (used in) provided by:
Operating activities $ (9,487) $ (25,464) $ 15,977
Investing activities (20,947) (19,926) (1,021)
Financing activities 23,498 (3,391) 26,889
Effect of exchange rate changes on cash (342) 98 (440)
Net decrease in cash, cash equivalents and restricted cash $ (7,278) $ (48,683) $ 41,405

Cash decreased by $7.3 million for the first nine months of fiscal 2023 compared to a decrease of $48.7 million in the first nine months of fiscal 2022. The use of cash in the first nine months of fiscal 2023 is primarily due to investments in inventory required to support the conversion of increased backlog and strong order bookings into sales and as a strategy to add stability to our manufacturing processes during this time of supply chain disruptions. The decrease in cash was also due to investing in capital assets for increased capacity and automation and loans to affiliated entities. We utilized our line of credit financing to support these uses of cash.


	Three Months Ended
(in thousands)	July 29, 2023		July 30, 2022		Dollar Change
Net cash provided by (used in):
Operating activities	$	19,250	$	(22,815)	$	42,065
Investing activities	(5,706)		(10,372)		4,666
Financing activities	16,356		24,128		(7,772)
Effect of exchange rate changes on cash	(240)		80		(320)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	29,660	$	(8,979)	$	38,639

Net cash ~~used in~~provided by (used in) operating activities: Net cash ~~used in~~provided by operating activities was ~~$9.5~~$19.3 million for the first ~~nine~~three months of fiscal ~~2023~~2024 compared to net cash used in operating activities of ~~$25.5~~$22.8 million in the first ~~nine~~three months of fiscal ~~2022.~~2023. The ~~difference between net~~$42.1 million change in cash ~~used in~~provided by (used in) operating activities ~~in the first nine months of fiscal 2023 compared to net cash used in operating activities in the first nine months of fiscal 2022~~ was primarily the result of ~~changes~~an

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increase in net income of $24.5 million over the year time frame as strategic pricing actions and operating ~~assets and liabilities and the result~~conditions improved. The was also a $7.3 million of ~~having a net loss~~non-cash fair value change of our convertible debt. We also had strategically invested in inventory through the first ~~nine months~~quarter of fiscal 2023 ~~compared~~as a reaction to ~~net income~~supply chain constraints and historic backlog which consumed cash. Since last year at the end of July, we have reduced inventory and related payables for inventory as we reduced backlog and generated cash from inventory reduction. Increases in ~~the first nine months~~accounts receivable and contract assets levels have used some cash for working capital because of ~~2022.~~business increases.

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

Nine Months Ended
January 28,
2023 January 29,
2022
(Increase) decrease:
Accounts receivable $ (15,753) $ (29,015)
Long-term receivables 1,265 205
Inventories (30,346) (37,116)
Contract assets 5,653 (7,534)
Prepaid expenses and other current assets 6,176 (5,465)
Income tax receivables (2,653) (1,696)
Investment in affiliates and other assets (581) (29)
Increase (decrease):
Accounts payable (2,921) 21,429
Contract liabilities 9,196 15,781
Accrued expenses (1,220) 3,177
Warranty obligations (623) 916
Long-term warranty obligations 1,958 298
Income taxes payable (150) (239)
Long-term marketing obligations and other payables 793 (1,712)
$ (29,206) $ (41,000)

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	Three Months Ended
	July 29, 2023		July 30, 2022
(Increase) decrease:
Accounts receivable	$	(15,437)	$	(12,495)
Long-term receivables	369		688
Inventories	4,419		(23,237)
Contract assets	(3,693)		(3,690)
Prepaid expenses and other current assets	(179)		3,342
Income tax receivables	322		(1,725)
Investment in affiliates and other assets	23		(900)
Increase (decrease):
Accounts payable	(5,958)		7,212
Contract liabilities	(881)		6,975
Accrued expenses	(554)		(409)
Warranty obligations	1,415		(110)
Long-term warranty obligations	612		643
Income taxes payable	2,786		(6)
Long-term marketing obligations and other payables	(119)		969
	$	(16,875)	$	(22,743)

Net cash used in investing activities: Net cash used in investing activities totaled ~~$20.9~~$5.7 million in the first ~~nine~~three months of fiscal ~~2023~~2024 compared to net cash used in investing activities of ~~$19.9~~$10.4 million in the first ~~nine~~three months of fiscal ~~2022.~~2023. Purchases of property and equipment totaled ~~$21.8~~$4.5 million in the first ~~nine~~three months of fiscal ~~2023~~2024 compared to ~~$10.0~~$10.7 million in the first ~~nine~~three months of fiscal ~~2022.~~2023. Fiscal 2023 purchases were higher because of initiatives to upgrade or increase manufacturing equipment for capacity and automation. Purchases of equity and loans to affiliates accounted for by the equity investment method totaled $~~3.2~~1.2 million in the first ~~nine~~three months of fiscal ~~2023~~2024 as compared to ~~$6.7~~$1.1 million in the first ~~nine~~three months of fiscal ~~2022.~~2023.

Net cash provided by ~~(used in)~~ financing activities: Net cash provided by financing activities was ~~$23.5~~$16.4 million for the ~~nine~~three months ended ~~January 28,~~July 29, 2023 due to cash provided by the closing of a $25.0 million convertible note financing and a $15.0 million mortgage financing offset by the payoff of our previous credit line of $17.8 million and $5.8 million of debt issuance costs as compared to $24.1 million of cash provided from financing due to draws on our line of credit ~~compared to cash used by financing activities of $3.4 million for other investing activities~~ in the first ~~nine~~three months of fiscal ~~2022.~~2023.

~~Other Liquidity~~Debt and ~~Capital Resources Discussion:~~ ~~The timing and amounts of working capital changes, dividend payments, stock repurchases, capital spending, profitability, and investments in affiliates impact our liquidity. Our~~ cash ~~needs are funded through a combination of cash flow from operations and borrowings under bank credit agreements.~~

We believe the audiovisual industry fundamentals will drive long-term growth for our business; however, our customers may reduce their spend on audiovisual systems and related services because of the impacts of global economic conditions, business implications of COVID-19, supply chain challenges, and war and geopolitical situations. Resulting supply chain disruptions and inflationary challenges in materials, freight and personnel related costs are also likely to continue, yet have eased during this past quarter. These conditions likely will continue to cause volatility in our cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs. We are proactively monitoring and adjusting our business operations for these factors.

To improve operations and cash flows, we have increased prices of our goods and services. We have also increased investment in inventory levels to add production stability to our production processes to fulfill backlog, and we are focused on reducing these levels as supply chains stabilize. We also continue to selectively invest in property and equipment to expand our capacity and add automation. Our ability to fund inventory levels, operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations in these conditions, to maintain ~~or improve margins, and to use funds from our credit facility. $35.0~~a $60.0 million ~~of our~~asset-based revolving credit facility ~~expires in April 2025 and $10.0 million expires in May 2023, and it requires us to comply~~("ABL") with ~~certain covenants.~~

Although supply chain disruptions have started to ease and we expect our inventory levels to decline, we cannot be certain we will not experience future disruptions or need additional liquidity to fund inventory levels, operations, and capital expenditures. We plan to obtain additional liquidity to meet our obligations as they come due in the 12 months following thea maturity date of this Report, and we cannot be assured that such liquidity will be available or the form of such liquidity, such as equity raises or debt financing. Although we are in the process of obtaining additional liquidity through various means, including but not limited to obtaining financing secured by a mortgage on our facilities, a sales-leaseback transaction, leasing property and equipment, and continued focus on reducing working capital, these plans are not finalized and areMay 11, 2027 subject to ~~market conditions that are not within our control. See "Note 1. Basis~~customary covenants and conditions. As of ~~Presentation - Liquidity and Going Concern" of the Notes to our Condensed Consolidated Financial Statements included in this Report.~~

Working capital was $129.4 million and $103.9 million as of January 28, 2023 and April 30, 2022, respectively. The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, contract assets and liabilities, are impacted by the sports market and construction seasonality. These changes can have a significant impact on the amount of net cash provided or used by operating activities largely due to the timing of payments for inventory and subcontractors and receipts from our customers. On multimillion-dollar orders, the time between order acceptance and project completion may extend up to or exceed 12 months depending on the amount of custom work and a customer’s delivery needs. We use cash to purchase inventory and services at the beginning of these orders and often receive down payments or progress payments on these orders to balance cashflows. We expect to use cash in operations as our business returns and exceeds pre-pandemic levels and due to longer planning horizons and volatility in supply chains. While these conditions continue, we plan to carry higher quantities of inventory and anticipate changes in the timing of payments from our customers as we work through different disruptions and fulfill our backlog.

~~We have $35.0 million line of credit of which expires in April 2025. On January 23,~~July 29, 2023, we ~~entered into~~had no borrowings against the seventh amendment (the "Amendment") to the credit facility to, among other things, increases the maturity of a $10.0 million portion of the line of credit through May 1, 2023. We had $23.6 million advanced on our line of creditABL and ~~$7.5~~$1.5 million used to secure letters of credit asoutstanding. We also have a delayed draw loan of ~~January 28, 2023. As~~$15.0 million secured by a first priority mortgage on our Brookings, South Dakota real estate and $25.0 million of ~~January 28, 2023, there was $13.9 million available to advance~~convertible debt secured by a second priority lien on assets securing the ~~line~~ABL facility and a first priority lien on substantially all the other assets of ~~credit.~~the Company, excluding all real property.

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~~The~~As of July 29, 2023, we had $45.8 million in cash and cash equivalents and $47.6 million in borrowing capacity under our ABL. We believe cash flow from operations, existing lines of credit, ~~agreement~~ and ~~amendments require us~~access to debt and capital markets will be sufficient to meet our current liquidity needs, and we have committed liquidity and cash reserves in ~~compliance with certain financial ratios, including a covenant to maintain the ratio~~excess of ~~interest-bearing debt to earnings before income taxes, depreciation,~~our anticipated funding requirements.

Our cash and ~~amortization at less than 4.0 for the fiscal quarter ending January 28,~~cash equivalent balances consist of high-quality, short-term money market instruments.

Working Capital

Working capital was $182.2 million and $132.5 million as of July 29, 2023 ~~3.50 for the fiscal quarter ending~~and April 29, 2023, and 3.00 for each fiscal quarter thereafter. A minimum fixed charge coverage ratio must be met of at least 1.50 to 1 for the fiscal quarter ending January 28, 2023, and at 1.25 for any fiscal quarter thereafter. On January 23, 2023, we entered into the Amendment to our credit agreement. The Amendment, among other things, extended the maturity of $10.0 million of the $45.0 million of the credit facility through May 1, 2023, increased the rate of interest to 3.35% plus the secured overnight financial rate, and revised certain definitions and covenants (refer to "Note 7. Financing Agreements" to the Condensed Consolidated Financial Statements included in this Report).As of January 28, 2023, we were in compliance with these covenants. Based on future projections, we expect to be in compliance with these covenants through the next fiscal year; however, with the uncertainty and volatility in the supply chain, the sensitivity of the covenants in the credit agreement, as amended, and our current going concern condition, we cannot be certain we will remain in compliance with the covenants. If we violate a covenant and cannot obtain a waiver from the bank providing the credit facility, we would need to seek additional debt or equity financing.

respectively. We had ~~$10.1~~$12.5 million of retainage on long-term contracts included in receivables and contract assets as of ~~January 28,~~July 29, 2023, which has an impact on our liquidity. We expect to collect these amounts within one year.

Other Liquidity and Capital Uses

We are sometimes required to obtain bank guarantees or other financial instruments for display installations, and we utilize a global bank to provide such instruments. If we are unable to complete the installation work, our customer would draw on the banking arrangement, and the bank would subrogate its loss to Daktronics' restricted cash accounts. As of ~~January 28,~~July 29, 2023, we had $0.6 million of such instruments outstanding.

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 28,~~July 29, 2023, we had ~~$63.3~~$40.4 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 capital expenditures to be ~~approximately $28.8~~less than $19 million for all of fiscal ~~2023.~~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 ~~$1.3~~$1.5 million ~~over~~for the ~~next~~remainder of fiscal ~~year~~2024 in our current ~~affiliates, which required approval under our credit agreement.~~affiliates.

~~We may repurchase shares of our common stock from time to time in open market purchases, private transactions or other transactions. The timing, volume~~Contractual Obligations and nature of share repurchases will be at the sole discretion of management; will be dependent on market conditions, applicable securities laws and other factors; and may be suspended or discontinued at any time. Commercial Commitments

During the ~~three months~~quarter, we entered into a new credit facility, mortgage, and convertible debt as disclosed within this report, 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 ~~January~~April 28, 2023 ~~we repurchased no shares of common stock.~~for additional information regarding our contractual obligations and commercial commitments.

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 ~~30, 2022.~~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 ~~30, 2022. There have been no material changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2022.~~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" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.

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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 ~~30, 2022.~~ 29, 2023. During the first quarter of fiscal 2024, we entered into the ABL and Delayed Draw Loan which are subject to interest rate risks.

There have been no other material changes in our exposure to these risks during the first ~~nine~~three months of fiscal ~~2023.~~2024.

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 July 29, 2023, 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 28, 2023, 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 ~~that date,~~July 29, 2023, our disclosure controls and procedures were not effective ~~at a reasonable assurance level, because of~~due to the ~~previously reported~~ material ~~weaknesses~~weakness in internal control over financial reporting which we view as an integral part of our disclosure controls and procedures. In making this assessment, management used the criteria set forth in the “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).described below.

Notwithstanding ~~the~~this identified material ~~weaknesses in~~weakness, our ~~internal control over financial reporting, we have concluded that~~Chief Executive Officer and Chief Financial Officer believe the ~~unaudited~~ condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly ~~present,~~represent, in all material respects, our financial ~~position,~~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”~~"Remediation Plan".

Material Weakness in Internal Control Over Financial Reporting

In Part 1,2, Item 49A of our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the fiscal ~~quarter~~year ended ~~October~~April 29, ~~2022,~~2023, which was filed with the Securities and Exchange Commission on ~~December 13, 2022,~~July 12, 2023, management concluded that our internal control over financial reporting was not effective as of ~~October~~April 29, ~~2022. In the evaluation, management~~2023. Management identified a material weakness ~~in internal control~~ related to ~~(a)~~ the ~~failure~~ineffective operation of certain transactional level controls related to ~~timely communicate the result of our going concern assessment~~revenue contracts recognized over time. These controls operated ineffectively due to ~~all appropriate internal parties necessary, which led to us not considering the impact~~insufficient training of the ~~going concern assessment on~~control operators as to the ~~valuation~~level of ~~our deferred tax assets and (b) management not appropriately designing its going concern policy control to contemplate evaluating~~precision expected when executing the ~~income tax implications when reaching a substantial doubt going concern conclusion. The material weaknesses did not result~~revenue controls in ~~any uncorrected misstatements in~~accordance with the unaudited condensed consolidated financial statements during this period, nor in any restatements of consolidated financial statements previously reported by us, and there were no changes in previously released financial results.Company's policy.

Remediation Plan

~~In response~~Our remediation plan includes providing training to the ~~material weakness described above,~~revenue control operators relating to the level of precision expected when executing these controls in accordance with the Company's policy. During the first quarter of fiscal 2024, we ~~are in the process of remediating the deficiencies by:~~

1.Implementing a policy and practice that our going concern analysis is communicated and provided to appropriate members of the organization, including employees in our tax department, so they can consider the impactsbegan additional training of our ~~going concern conclusion.~~

2.~~Implementing a~~ control ~~activity that considers results of our going concern analysis when determining the valuation of deferred taxes and other reporting and disclosures when preparing our financial statements.~~

While we believe the steps taken to date and those planned for implementation will improve the effectiveness of our internal control over financial reporting, we have not completed all remediation efforts. We will not be able to fully remediate these material weaknesses until management has determined through testing that the controls have been operating effectively for a sufficient period of time.operators.

Changes in Internal Control Over Financial Reporting

~~Besides the remediation items noted above, there were no changes during~~

During the quarter ended ~~January 28,~~July 29, 2023, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

~~On December 21, 2022,~~We are involved in a ~~putative class action lawsuit captioned Settles, et al. v. Daktronics, Inc., et al., Case No. 22-cv-10793 (“Securities Action”) was filed against~~variety of legal actions relating to various matters during the ~~Company~~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 ~~two of its officers in the U.S. District Court for the Southern District of New York. The Securities Action asserts claims under §§ 10(b) and 20(a)~~Contingencies" of the ~~Securities Exchange Act of 1934 alleging, among other things, the Company made materially false~~Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information on any legal proceedings and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 10, 2022 through December 6, 2022. We are still evaluating the complaint, which is subject to amendment, but based on current knowledge we believe that the claims are without merit. We believe the likelihood of loss is remote. Accordingly, no accrual has been made.claims.

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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 ~~30, 2022 and Item 1A. of Part II of our Quarterly Report on Form 10-Q for the fiscal quarter ended October~~ 29, ~~2022.~~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, AND ISSUER PURCHASES OF EQUITY SECURITIES

Share Repurchases

During the three months ended ~~January 28,~~July 29, 2023, we did not repurchase any shares of our common stock.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

A list of exhibits filed as part of this Report is set forth in the following Index to Exhibits.

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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 Current Report on Form 8-K filed on January 30, 2023).
4.1			Rights Agreement dated as of November 16, 2018 between Daktronics, Inc. and Equiniti Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of Daktronics, Inc. filed on November 16, ~~2018)~~2018, Commission File No. 000-23246).
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			Second Amendment to Credit Agreement dated as of November 15, 2019 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 15, 2019).
10.4			Third Amendment to Credit Agreement dated as of August 28, 2020 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 10-Q of Daktronics, Inc. filed on August 28, 2020).
10.5			Fourth Amendment to Credit Agreement dated as of March 11, 2021 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.5 filed with our Annual Report on Form 10-K on June 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. 2020 Stock Incentive Plan ("2020 Plan") (Incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement on Schedule 14A filed on July 16, 2020).*
10.13			Form of Restricted Stock Award Agreement under the 2020 Plan (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K on September 3, 2020).*
10.14			Form of Non-Qualified Stock Option Agreement Terms and Conditions under the 2020 Plan (Incorporated by reference to Exhibit 10.3 filed with our Current Report on Form 8-K on September 3, 2020).*
10.15			Form of Incentive Stock Option Terms and Conditions under the 2020 Plan (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K on September 3, 2020).*
10.16			Form of Restricted Stock Unit Terms and Conditions under the 2020 Plan (Incorporated by reference to Exhibit 10.5 filed with our Current Report on Form 8-K on September 3, 2020).*
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.INS			Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH			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.

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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: ~~March 13,~~September 8, 2023

3431


	Net income (loss)		Shares	Per share (loss) income
For the three months ended January 28, 2023
Basic earnings per share	$	3,713	45,387	$	0.08
Dilution associated with stock compensation plans	—		61	—
Diluted earnings per share	$	3,713	45,448	$	0.08
For the three months ended January 29, 2022
Basic and diluted (loss) earnings per share	$	(4,350)	45,223	$	(0.10)

Diluted (loss) earnings per share	$	(4,350)	45,223	$	(0.10)
For the nine months ended January 28, 2023
Basic and diluted (loss) earnings per share	$	(14,597)	45,320	$	(0.32)

Diluted (loss) earnings per share	$	(14,597)	45,320	$	(0.32)
For the nine months ended January 29, 2022
Basic earnings per share	$	1,709	45,263	$	0.04
Dilution associated with stock compensation plans	—		179	—
Diluted earnings per share	$	1,709	45,442	$	0.04


	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


	Three Months Ended January 29, 2022
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	4,112	$	25,950	$	4,167	$	9,803	$	8,606	$	52,638
Limited configuration	32,081		6,843		18,717		5,269		10,453		73,363
Service and other	3,902		6,264		837		751		1,803		13,557
	$	40,095	$	39,057	$	23,721	$	15,823	$	20,862	$	139,558
Timing of revenue recognition
Goods/services transferred at a point in time	$	32,829	$	8,540	$	17,351	$	5,576	$	10,967	$	75,263
Goods/services transferred over time	7,266		30,517		6,370		10,247		9,895		64,295
	$	40,095	$	39,057	$	23,721	$	15,823	$	20,862	$	139,558