UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒  

For the quarterly period ended July 31, 2021

30, 2022

For the transition period from ___ to ___.

Commission File Number: 0-23246

(Exact Name of Registrant as Specified in its Charter)

(Registrant’s Telephone Number, Including Area Code)

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.

FORM 10-Q

For the Quarter Ended July 31, 2021

30, 2022

(dollar amounts in thousands, except per share data)

(unaudited)

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are the world'san industry leader 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. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Daktronics, Inc. operates on a 52-52- or 53-week53-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-week13-week periods following the beginning of each fiscal year. In each 53-week53-week fiscal year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week13-week period. The three months ended July 30, 2022 and July 31, 2021,and August 1, 2020, contained operating results for 13 weeks.

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.

		July 31,				August 1,
		2021				2020
Cash and cash equivalents		$	74,658			$	44,609
Restricted cash			2,541				96
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows		$	77,199			$	44,705

Other Business Developments - Coronavirus Pandemic

During fiscal 2021, the global spread of the coronavirus pandemic ("COVID-19") and restrictions impacted our business and created significant volatility, uncertainty and global economic disruption. We took proactive steps to solidify our financial position and mitigate any adverse consequences. Our orders and sales decline, in fiscal 2021, indicate the impacts of the pandemic. To align our expenses to the change in the market, we reduced investments in capital assets, reduced executive pay and board member compensation for fiscal 2021, and instituted initiatives to reduce other costs in the business. On April 1, 2020, our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. In addition, throughout fiscal 2021, we temporarily furloughed employees to manage our cost structure to align with decreased demand.

A special voluntary retirement and voluntary exit incentive program ("Offering") and a reduction in force ("RIF") were instituted during the first quarter of fiscal 2021 to adjust our capacity and reduce on-going expenses due to the reduced revenue and uncertainties created by the COVID-19 pandemic. During the first quarter of fiscal 2021, 60 employees agreed to participate in the Offering and completed employment. The approximate cost of this Offering was $931. Under the RIF, employment was terminated with 108 employees with severance totaling $1,426.

We received governmental wage subsidies from various governmental programs related to COVID implications of $77 and $812 during the three months ended July 31, 2021 and August 1, 2020, respectively and recorded as a reduction of compensation expense, which is mostly included in the "Costs of sales" line item in our condensed consolidated statements of operations. We also have elected to defer payments of the employer portion of social security taxes during the payroll tax deferral period, which ended on December 31, 2020. As of July 31, 2021 the total amount of such deferral was $5,122, which is included in the "Accrued expenses" and in the "Other long-term obligations" line items in our condensed consolidated balance sheet. Per the terms of the deferral program, 50 percent of the deferred amount is due on December 31, 2021 with the remaining 50 percent due on December 31, 2022.

We continue to monitor guidance from international and domestic authorities, regarding the COVID-19 pandemic and may take additional actions based on their requirements and recommendations. Since late fiscal 2021, order and quoting activities have increased creating a strong backlog and positive outlook; however, there is no assurance that this trend will continue in future quarters. Supply chain disruptions continue to emerge as a result of several factors including - the pandemic, shipping container shortages, and the changes in global demand. Specifically, we are impacted by the global shortage of semiconductors and related electronic components, other materials needed for production, and freight availability. We expect headwinds in material, labor, freight availability and inflation as the world economies recover, which may cause volatility in our revenue cycles and production costs. While we cannot predict the length or severity of these conditions, it is reasonably possible they will continue to have some impact on our operations during fiscal 2022.

There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K10-K for the fiscal year ended May 1, 2021.

Accounting Standards Adopted

There are no significant Accounting Standard Updates ("ASU's") issued that were adopted in the three-months ended July 31, 2021. 

April 30, 2022.

There are no significant ASU'sASUs issued that the Company has not yet adopted as of July 31, 2021.

30, 2022.

The aggregate amount of our investments accounted for under the equity method was $19,141$16,026 and $19,887 at $16,916 as of July 31, 2021 30, 2022 and May 1, 2021,April 30, 2022, respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income,expense, net" line item in our condensed consolidated statements of operations. For the three months ended July 31, 2021 and August 1, 2020,30, 2022, our share of the losses of our affiliates was $890 as compared to $746 and $529, respectively.for the three months ended July 31, 2021. We purchased services for research and development activities from our equity method investments.investees. The total of these related party transactions was $470 for the three months ended July 30, 2022 and July 31, 2021, was $0 and $470, respectively, which wasis included in the "Product design and development" line item in in our condensed consolidated statementstatements of operations, and $275 of thisfor the three months ended July 30, 2022, $52 remains unpaid and is included in the "Accounts payable"payable " line item in our condensed consolidated balance sheet. There were 0 related party transactions forsheets. During the three months ended August 1, 2020.

July 30, 2022, we invested $1,081 of convertible notes ("Notes") which are included in the "Investment in affiliates and other assets" line item in our condensed consolidated balance sheets.

The following is a reconciliation of the net (loss) income and common share amounts used in the calculation of basic and diluted EPS for the three months ended July 30, 2022 and July 31, 2021 and August 1, 2020:

		Net income				Shares				Per share income
For the three months ended July 31, 2021
Basic earnings per share		$	3,685				45,139			$	0.08
Dilution associated with stock compensation plans			—				280				—
Diluted earnings per share		$	3,685				45,419			$	0.08
For the three months ended August 1, 2020
Basic earnings per share		$	7,467				44,654			$	0.17
Dilution associated with stock compensation plans			—				97				—
Diluted earnings per share		$	7,467				44,751			$	0.17

2021:

Options outstanding to purchase 2,102 shares of common stock with a weighted average exercise price of $8.12 for the three months ended July 30, 2022 and 1,810 shares of common stock with a weighted average exercise price of $9.52 for the three months ended July 31, 2021 and 2,119 shares of common stock with a weighted average exercise price of $9.96 for the three months ended August 1, 2020 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

The following table presents our disaggregation of revenue by segments:

		Three Months Ended July 31, 2021
										High School
		Commercial				Live Events				Park and Recreation				Transportation				International				Total
Type of performance obligation
Unique configuration		$	3,587			$	41,508			$	4,166			$	6,541			$	5,883			$	61,685
Limited configuration			25,907				5,842				22,957				5,352				11,545				71,603
Service and other			3,287				5,037				771				665				1,684				11,444
		$	32,781			$	52,387			$	27,894			$	12,558			$	19,112			$	144,732
Timing of revenue recognition
Goods/services transferred at a point in time		$	26,379			$	6,829			$	21,941			$	5,571			$	12,019			$	72,739
Goods/services transferred over time			6,402				45,558				5,953				6,987				7,093				71,993
		$	32,781			$	52,387			$	27,894			$	12,558			$	19,112			$	144,732

		Three Months Ended August 1, 2020
										High School
		Commercial				Live Events				Park and Recreation				Transportation				International				Total
Type of performance obligation
Unique configuration		$	8,727			$	41,975			$	7,668			$	7,724			$	4,012			$	70,106
Limited configuration			22,555				5,419				20,688				6,266				8,653				63,581
Service and other			3,224				4,080				587				508				1,558				9,957
		$	34,506			$	51,474			$	28,943			$	14,498			$	14,223			$	143,644
Timing of revenue recognition
Goods/services transferred at a point in time		$	22,892			$	6,214			$	19,368			$	6,374			$	9,179			$	64,027
Goods/services transferred over time			11,614				45,260				9,575				8,124				5,044				79,617
		$	34,506			$	51,474			$	28,943			$	14,498			$	14,223			$	143,644

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

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

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

		July 31,				May 1,				Dollar				Percent
		2021				2021				Change				Change
Contract assets		$	38,133			$	32,799			$	5,334				16.3	%
Contract liabilities - current			67,507				64,495				3,012				4.7	%
Contract liabilities - noncurrent			10,586				10,720				(134	)			(1.3	)%

The changes in our contract assets and contract liabilities from May 1, 2021April 30, 2022 to July 31, 202130, 2022 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 material impairments of contract assets for the three months ended July 31, 2021.

30, 2022.

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

		July 31,
		2021
Balance at beginning of period		$	24,590
New contracts sold			10,165
Less: reductions for revenue recognized			(8,669	)
Foreign currency translation and other			(86	)
Balance at end of period		$	26,000

As of July 31, 2021 and May 1, 2021, our

Contracts in progress that were identified as loss contracts as of July 30, 2022 were $839 and as of April 30, 2022 were immaterial. For these contracts, the provision for losses is includedLoss provisions are recorded in the "Accrued expenses" line item in our condensed consolidated balance sheets.

During the three months ended July 31, 2021,30, 2022, we recognized revenue of $31,587$46,041 related to our contract liabilities as of May 1, 2021.

April 30, 2022.

As of July 31, 2021,30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations was $339,192.$530,457. We expect approximately $297,849$462,516 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements at July 31, 2021 are $285,32230, 2022 were $469,126 and $53,870,$61,331, respectively. 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 following table sets forth certain financial information for each of our five reporting segments for the periods indicated:

		Three Months Ended
		July 31,				August 1,
		2021				2020
Net sales:
Commercial		$	32,781			$	34,506
Live Events			52,387				51,474
High School Park and Recreation			27,894				28,943
Transportation			12,558				14,498
International			19,112				14,223
Total company net sales			144,732				143,644
Gross profit:
Commercial			7,178				7,742
Live Events			8,582				9,354
High School Park and Recreation			9,509				10,476
Transportation			3,751				5,143
International			3,168				3,046
			32,188				35,761
Operating expenses:
Selling			11,795				11,556
General and administrative			7,571				7,124
Product design and development			7,162				7,532
			26,528				26,212
Operating income			5,660				9,549
Nonoperating income (expense):
Interest income			153				85
Interest expense			(16	)			(73	)
Other (expense) income, net			(868	)			(627	)
Income before income taxes		$	4,929			$	8,934
Depreciation and amortization:
Commercial		$	702			$	772
Live Events			1,337				1,451
High School Park and Recreation			438				496
Transportation			139				237
International			726				693
Unallocated corporate depreciation			710				688
		$	4,052			$	4,337