DAKTRONICS INC /SD/ 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Daktronics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Daktronics, Inc and subsidiaries (the "Company") as of April 30, 2022 and May 1, 2021, the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows, for each of the three years in the period ended April 30, 2022, and the related notes (collectively referred to as the "financial statements"). We have also audited the Company's internal control over financial reporting as of April 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2022 and May 1, 2021, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 35 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Uniquely Configured Contracts — Refer to Notes 1 and 2 to the financial statements Critical Audit Matter Description The Company recognizes revenue as its contractual performance obligations are satisfied, which may be at a point in time or over time. Certain of the Company’s contracts are for the delivery, installation, and integration of uniquely configured audio-visual communication systems. Revenue for these uniquely configured systems is recognized over time using the cost incurred input method. This input method requires management to make estimates of the costs that will ultimately be incurred at the completion of each contract. Revenue is recognized based on the transaction price and the percentage of cost incurred as of the balance sheet date in relation to the total estimated inputs at completion. We identified revenue associated with uniquely configured contracts as a critical audit matter because of the significant judgments necessary for management to estimate total costs to be incurred to recognize revenue under these contracts. Changes in estimated costs could have a significant impact on the timing and amount of revenue recognized. This required an increased level of auditor judgment due to the complexity of uniquely configured contracts and extent of effort when performing audit procedures to audit management’s estimate of total costs and evaluating the reasonableness of the underlying estimates. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to estimates of total cost used to recognize revenue for uniquely configured contracts included the following, among others: • We tested the effectiveness of controls over uniquely configured contracts, including management’s controls over the estimates of total costs. • We selected a sample of uniquely configured contracts and performed the following: • Compared costs incurred to date to the costs management estimated to be incurred to date. • Evaluated management’s ability to achieve the estimates of total cost by performing corroborating inquiries with the Company’s project managers and engineers, and compared the estimates to management’s work plans, engineering specifications, and supplier contracts. • Confirmed contractual terms with third parties. • Tested the mathematical accuracy of management’s estimate of total costs. • We evaluated management’s ability to accurately estimate total costs by comparing actual costs to management’s historical estimates for uniquely configured contracts that have been fulfilled. /s/ Deloitte & Touche LLP Minneapolis, Minnesota June 16, 2022 36 Table of Contents We have served as the Company's auditor since 2017. 37 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) April 30, 2022 May 1, 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 17,143 $ 77,590 Restricted cash 865 2,812 Marketable securities 4,020 — Accounts receivable, net 101,099 67,808 Inventories 134,392 74,356 Contract assets 41,687 32,799 Current maturities of long-term receivables 2,798 1,462 Prepaid expenses and other current assets 14,963 7,445 Income tax receivables 603 731 Total current assets 317,570 265,003 Property and equipment, net 66,765 58,682 Long-term receivables, less current maturities 1,490 1,635 Goodwill 7,927 8,414 Intangibles, net 1,472 2,083 Investment in affiliates and other assets 32,321 27,403 Deferred income taxes 13,331 11,944 TOTAL ASSETS $ 440,876 $ 375,164 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 76,313 $ 40,251 Contract liabilities 90,393 64,495 Accrued expenses 34,959 30,672 Warranty obligations 11,621 10,464 Income taxes payable 408 738 Total current liabilities 213,694 146,620 Long-term warranty obligations 17,257 15,496 Long-term contract liabilities 10,998 10,720 Other long-term obligations 6,599 7,816 Long-term income tax payable 477 548 Deferred income taxes 287 410 Total long-term liabilities 35,618 34,990 SHAREHOLDERS' EQUITY: Preferred Shares, no par value, authorized 50,000 shares; no shares issued and outstanding — — Common stock, no par value, authorized 115,000,000 shares; 46,733,544 and 46,264,576 shares issued at April 30, 2022 and May 1, 2021, respectively 61,794 60,575 Additional paid-in capital 48,372 46,595 Retained earnings 96,608 96,016 Treasury stock, at cost, 1,907,445 and 1,297,409 shares at April 30, 2022 and May 1, 2021, respectively ( 10,285 ) ( 7,297 ) Accumulated other comprehensive loss ( 4,925 ) ( 2,335 ) TOTAL SHAREHOLDERS' EQUITY 191,564 193,554 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 440,876 $ 375,164 See notes to consolidated financial statements. 38 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Net sales $ 610,970 $ 482,033 $ 608,932 Cost of sales 494,273 361,450 470,232 Gross profit 116,697 120,583 138,700 Operating expenses: Selling 51,075 48,649 65,902 General and administrative 32,563 27,980 35,193 Product design and development 29,013 26,846 37,772 112,651 103,475 138,867 Operating income (loss) 4,046 17,108 ( 167 ) Nonoperating income (expense): Interest income (expense), net 171 ( 65 ) 699 Other expense, net ( 3,109 ) ( 2,983 ) ( 541 ) Income (loss) before income taxes 1,108 14,060 ( 9 ) Income tax expense (benefit) 516 3,134 ( 500 ) Net income $ 592 $ 10,926 $ 491 Weighted average shares outstanding: Basic 45,188 44,989 45,031 Diluted 45,326 45,202 45,316 Earnings per share: Basic $ 0.01 $ 0.24 $ 0.01 Diluted $ 0.01 $ 0.24 $ 0.01 See notes to consolidated financial statements. 39 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME (in thousands) Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Net income $ 592 $ 10,926 $ 491 Other comprehensive (loss) income: Cumulative translation adjustments ( 2,556 ) 2,942 ( 965 ) Unrealized (loss) gain on available-for-sale securities, net of tax ( 34 ) — 44 Total other comprehensive (loss) income, net of tax ( 2,590 ) 2,942 ( 921 ) Comprehensive (loss) income $ ( 1,998 ) $ 13,868 $ ( 430 ) See notes to consolidated financial statements. 40 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Balance as of April 27, 2019: $ 57,699 $ 42,561 $ 93,593 $ ( 1,834 ) $ ( 4,356 ) $ 187,663 Net income — — 491 — — 491 Cumulative translation adjustments — — — — ( 965 ) ( 965 ) Unrealized gain (loss) on available-for-sale securities, net of tax — — — — 44 44 Share-based compensation — 2,265 — — — 2,265 Tax payments related to RSU issuances — ( 199 ) — — — ( 199 ) Employee savings plan activity 2,311 — — — — 2,311 Dividends paid ($ 0.20 per share) — — ( 8,994 ) — — ( 8,994 ) Treasury stock purchase — — — ( 5,636 ) — ( 5,636 ) Balance as of May 2, 2020: 60,010 44,627 85,090 ( 7,470 ) ( 5,277 ) 176,980 Net income — — 10,926 — — 10,926 Cumulative translation adjustments — — — — 2,942 2,942 Share-based compensation — 2,067 — — — 2,067 Tax payments related to RSU issuances — ( 125 ) — — — ( 125 ) Employee savings plan activity 565 — — — — 565 Treasury stock reissued — 26 — 173 — 199 Balance as of May 1, 2021: 60,575 46,595 96,016 ( 7,297 ) ( 2,335 ) 193,554 Net income — — 592 — — 592 Cumulative translation adjustments — — — — ( 2,556 ) ( 2,556 ) Unrealized gain (loss) on available-for-sale securities, net of tax — — — — ( 34 ) ( 34 ) Share-based compensation — 1,973 — — — 1,973 Exercise of stock options 8 — — — — 8 Tax payments related to RSU issuances — ( 200 ) — — — ( 200 ) Employee savings plan activity 1,211 — — — — 1,211 Treasury stock purchase — — — ( 3,184 ) — ( 3,184 ) Treasury stock reissued — 4 — 196 — 200 Balance as of April 30, 2022: $ 61,794 $ 48,372 $ 96,608 $ ( 10,285 ) $ ( 4,925 ) $ 191,564 See notes to consolidated financial statements. 41 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended April 30, 2022 May 1, 2021 May 2, 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 592 $ 10,926 $ 491 Adjustments to reconcile net income to net cash (used) provided by operating activities: Depreciation and amortization 15,394 17,077 17,718 Gain on sale of property, equipment and other assets ( 743 ) ( 572 ) ( 35 ) Share-based compensation 1,973 2,067 2,265 Equity in loss of affiliates 2,970 2,370 741 Provision for doubtful accounts, net of recovery ( 286 ) 1,299 ( 99 ) Deferred income taxes, net ( 1,555 ) 1,314 ( 2,183 ) Change in operating assets and liabilities ( 45,380 ) 31,731 ( 8,090 ) Net cash (used)/provided by operating activities ( 27,035 ) 66,212 10,808 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 20,376 ) ( 7,891 ) ( 18,091 ) Proceeds from sales of property, equipment and other assets 885 3,184 322 Purchases of marketable securities ( 4,045 ) — — Proceeds from sales or maturities of marketable securities — 1,230 25,162 Purchases of and loans to equity investees ( 7,848 ) ( 6,744 ) ( 11,664 ) Net cash used in investing activities ( 31,384 ) ( 10,221 ) ( 4,271 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on notes payable 46,801 — 15,000 Payments on notes payable ( 46,801 ) ( 15,000 ) — Principal payments on long-term obligations ( 200 ) ( 460 ) ( 2,149 ) Dividends paid — — ( 8,994 ) Proceeds from exercise of stock options 8 — — Payments for common shares repurchased ( 3,184 ) — ( 5,636 ) Tax payments related to RSU issuances ( 200 ) ( 125 ) ( 199 ) Net cash used in financing activities ( 3,576 ) ( 15,585 ) ( 1,978 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 399 ) ( 416 ) 111 NET (DECREASE)/ INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 62,394 ) 39,990 4,670 CASH, CASH EQUIVALENTS AND RESTRICTED CASH: Beginning of period 80,402 40,412 35,742 End of period $ 18,008 $ 80,402 $ 40,412 See notes to consolidated financial statements. 42 Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data) Note 1. Nature of Business and Summary of Significant Accounting Policies Nature of business : Daktronics, Inc. and its subsidiaries are engaged principally in the design, market, 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. Our products are designed primarily to inform and entertain people through the communication of content. Fiscal year : We operate 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 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 fiscal years ended April 30, 2022 and May 1, 2021 contained operating results for 52 weeks, while the fiscal year ended May 2, 2020 contained operating results for 53 weeks. Principles of consolidation : The consolidated financial statements include Daktronics, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. Investments in affiliates : Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting, recording the investment at cost and then subsequently adjusting to account for our share of the affiliates' profit or losses, in accordance with the provisions of Accounting Standards Codification ("ASC") 323 , Investments - Equity Method and Joint Ventures . Investments in affiliates over which we do not have the ability to exert significant influence over the affiliates' operating and financing activities are accounted for under the cost method of accounting, recording the investment at cost and then subsequently adjusting for any changes in ownership or dividends in accordance with the provisions of ASC 321 , Investments - Equity Securities . We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities. Equity method investments as a whole are assessed for other-than-temporary impairments whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. The aggregate amount of our investments in affiliates accounted for under the equity method was $ 16,916 and $ 19,887 as of April 30, 2022 and May 1, 2021 respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income, net" line item in our consolidated statements of operations. For the fiscal years 2022, 2021 and 2020, our share of the losses of our affiliates was $ 2,970 , $ 2,370 and $ 741 , respectively. During fiscal 2022, we purchased $ 7,488 of convertible notes (“Notes”) which are included in the “Investment in affiliates and other assets" and "Current maturities of long-term receivables" line items in our consolidated balance sheet. There were no convertible notes as of May 1, 2021. We purchased services for research and development activities from our equity method investees. The total of these related party transactions for fiscal year 2022, 2021 and 2020 was $ 1,520 , $ 460 , and $ 1,113 , respectively, which is included in the "Product design and development" line item in our consolidated statement of operations, and for fiscal 2022, $ 296 of this remains unpaid and is included in the "Accounts payable " line item in our consolidated balance sheet. Fiscal 2021 had $ 470 unpaid and included in the "Accounts payable" line item in our consolidated balance sheet. 43 Table of Contents Summarized financial information for equity method investments consist of the following: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Balance sheet data: Current assets $ 6,672 $ 7,534 $ 10,593 Non-current assets 4,491 4,637 4,266 Current liabilities 13,938 2,807 2,755 Non-current liabilities 1,738 1,793 4,086 Income statement data: Net loss $ ( 11,928 ) $ ( 13,436 ) $ ( 1,383 ) Use of estimates : 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 of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the financial statements; the reported amounts of revenues and expenses during the reporting period; and our ability to continue as a going concern. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the estimated total costs on uniquely configured contracts and estimated costs to be incurred for product warranties and income taxes. Estimation processes are also used in inventory valuation and determining, the allowance for doubtful accounts, share-based compensation, goodwill impairment, and extended warranty and product maintenance agreements. Changes in estimates are reflected in the periods in which they become known. Cash and cash equivalents : All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents and consist primarily of government repurchase agreements, savings accounts and money market accounts that are carried at cost, which approximates fair value. We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We have not experienced any losses in such accounts. Restricted cash : Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the totals of the same amounts shown in the 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. April 30, 2022 May 1, 2021 May 2, 2020 Cash and cash equivalents $ 17,143 $ 77,590 $ 40,398 Restricted cash 865 2,812 14 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 18,008 $ 80,402 $ 40,412 Inventories: In accordance with ASC 330 , Inventory, our inventories are stated at the lower of cost (first-in, first-out method) and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Cost is measured as the price of the components and allocated expenses for production or betterment of the inventory item. When we estimate net realizable value to be lower than cost, any necessary adjustments are charged to cost of sales in that period. In determining net realizable value, we review various factors such as current inventory levels, forecasted demand, costs of completion, and technological obsolescence. Allowance for doubtful accounts: We make estimates regarding the collectability of our accounts receivable, long-term receivables, contract assets and other receivables. In evaluating the adequacy of our allowance for doubtful accounts, we analyze specific balances, customer creditworthiness, changes in customer payment cycles, and current economic trends. If 44 Table of Contents the financial condition of any customer were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. We charge off receivables at such time it is determined collection will not occur in accordance with ASC 310, Receivables . Revenue recognition : Our accounting policies and estimates are in accordance with ASC 606 , Revenue from Contracts with Customers, and are as follows: Contracts are identified and follow the revenue recognition policies when all of the following occur: we have evidence that all parties to the contract have approved the contract and are committed to perform their respective obligations, we can identify each party’s rights regarding the goods or services to be transferred, we can identify the payment terms for the goods or services to be transferred, the contract has commercial substance, and it is probable we will collect substantially all of the consideration to which we would be entitled in exchange for the goods or services. Pre-contract costs are generally expensed as incurred, unless they are directly associated with an anticipated contract and recoverability from that contract is probable. Pre-contract costs directly associated with anticipated contracts expected to be recoverable include $ 117 and $ 492 as of April 30, 2022 and May 1, 2021, respectively. These are included in the "Inventories" line item in our consolidated balance sheets. At contract inception, we identify performance obligations by reviewing the agreement for material distinct goods and services. Goods and services are distinct when the customer can benefit from them on its own and our promises to transfer these items are identifiable from other promises within the contract. When we are contracted to provide a single promise (an integrated system), we often treat it as a single performance obligation if we are providing goods and services with the same pattern of transfer that are highly integrated or interdependent, that are modified or customized by other goods or services promised, or that provide a combined outcome for which the customer has contracted. When less interdependency or integration is necessary, or when the customer can benefit from distinct items, we separate the contract into multiple performance obligations. We account for extended warranties and other services ("service-type warranties") that represent a distinct service as a separate performance obligation. Our contracts can contain multiple components of transaction price. We evaluate each contract for these components and include fixed consideration, variable consideration, financing components, and non-cash consideration and exclude consideration payable to a customer and sales taxes in the transaction price. When we are responsible for site installations which include subcontracted work, we maintain the contractual responsibilities and risks and include the consideration for these services in the transaction price. When our contract contains variable consideration, including return rights, discounts, claims, unpriced change orders, and liquidated damages, we estimate the transaction price using the expected value (i.e., the sum of the probability-weighted amount) or the most likely amount method, whichever is expected to better predict revenue for that contract situation. We also constrain the revenue to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We consider the following factors in determining revenue associated with variable consideration: (a) the contract or other evidence providing the legal basis, (b) additional costs caused by unforeseen circumstances, (c) evidence supporting the claim, and (d) historical evidence and patterns of customers. We adjust the contract price for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer goods and services to a customer will exceed one year from the time the customer pays and represents financing. If the payment structures exceed a year but are structured to account for risks with a contract or correspond to payments on milestones or are scheduled for performance, we do not adjust the contract price for a financing component. See "Note 6 . Receivables" for amounts recorded in long-term receivables. When separate performance obligations are identified, we allocate the transaction price to the individual performance obligation based on the best method we judge as faithfully depicting the value of the performance obligation. Many of our contracts are bundled, and we do not have separate selling prices for each performance obligation; therefore, for these contracts, we primarily use the cost plus a margin approach to allocate the relative transaction price to identified performance obligations, as it is the best representative of our pricing methods. Revenue is recognized when we satisfy a performance obligation. We receive payments from customers based on a billing schedule as established in our contracts. Billing schedules include down payments and progress billings over time; set milestone payments that are specific to the project are scheduled for performance-based payments or are set time-based payment(s). Variability in contract assets and contract liabilities relates to the timing of billings and revenue recognition, which can vary significantly depending on contractual payment terms, build and installation schedules and the related timing differences in transfer of control. Balances are also impacted by the seasonality in our business. 45 Table of Contents Significant judgments and estimates are used in our revenue policies. In order to assure appropriate and consistent revenue recognition, we regularly evaluate available project related information and update estimates accordingly. We maintain internal policies and procedures to provide guidance for those involved in recording revenue. We monitor for changes in our business sales practices and customer interactions to capture the appropriate types of performance obligations and adjust for any change in control terms and conditions. Our material performance obligation types include: Unique configuration contracts : audio-visual communication systems uniquely configured (custom) or integrated for a customer's particular location and system configuration may include all or a combination of the following: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring and messaging equipment, training, other on-site services, spare parts, software licenses, and assurance-type warranties. We may have multiple performance obligations in these types of contracts; however, a majority are treated as a combined single performance obligation. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to customers is to provide significant integration services and incorporate individual goods and services into a combined output or system. Often times, the system is customized or significantly modified to the customer's desired configurations and location, and the interrelated goods and services provide utility to the customer as a package. Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost incurred input method. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed. The cost incurred input method measures costs incurred to date compared to estimated total costs for each contract. This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include materials and components; manufacturing, project management and engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as facilities and equipment depreciation and general overhead. Provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated. Contract modifications to existing contracts with customers are evaluated in accordance with the five-step revenue model. We treat contract modifications as a separate contract and new performance obligations when the additional goods or services are distinct and do not add to the unique configuration or are outside the integrated system and when the consideration reflects standalone selling prices. If the additional goods or services offered under the modification enhance the uniquely configured or integrated systems, revenue is allocated to the existing contracts' performance obligation. Modifications may cause changes in the timing of revenue recognition depending on the allocation to various performance obligations. The time between contract order and project completion is typically less than 12 months but may extend longer depending on the amount of custom work and customers’ delivery needs. Limited configuration (standard systems) and after-sale parts contracts : Limited configured (standard systems) or after-sale parts contracts with limited or no configuration or limited integration are recognized as distinct individual performance obligations when material. When not distinct, we combine into one performance obligation the goods and/or services with each other until the bundle of goods or services is distinct. For standard display purchases made in large quantities, we account for each piece of equipment separately as a distinct performance obligation from which a customer derives benefit. Immaterial goods or services in the context of the contract are included with the display system performance obligation. Standard systems and equipment with limited configurations or integrations may include all or a combination (when immaterial) of the following performance obligations: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring, messaging and audio equipment, training, spare parts, software licenses, assurance-type warranties, and after-sale parts. Revenue is recognized at a point in time when control passes, or over time as services are performed. When fulfilling limited configuration performance obligations, we are typically able to redirect the video displays or scoring, messaging, or audio equipment to another customer without incurring significant economic losses. 46 Table of Contents Therefore, we have an alternative use for the performance obligation and recognize revenue upon our substantial completion and at the point in time we estimate control has transferred to the customer. When limited configured single performance obligations are more service-type (i.e., installation and integration services), we recognize revenue over time using the cost-to-cost input method, which is the most faithful depiction of the customer obtaining control and benefits from the work performed. Services and other : Services sold on a stand-alone basis or after the initial system sale include performance obligations such as event support, control room design, on-site training, equipment service, service-type warranties, technical support, software sold as a service, and other immaterial revenue streams. These are contracted with a customer generally per service event or service type on a stand-alone basis. Services, service type warranties, and other are recognized as net sales when the services are performed, and control is transferred to the customer at a point in time when title or control passes or over time as services are performed and for time-based "stand ready to perform" type obligations. We use professional judgment to determine control transfer. If we have the right to consideration from a customer that directly corresponds with the value of our performance (where we bill a fixed amount for each hour of service provided), we recognize revenue related to the work completed. Software: Revenues from software license fees on sales, other than uniquely configured type contracts, are recognized when delivery of the product has occurred. Subscription-based licenses include the right for a customer to use our licenses and receive related support for a specified term, and revenue is recognized pro-rata over the term of the engagement. Shipping and handling costs: Shipping and handling costs collected from our customers in connection with our sales are recorded as revenue. We record shipping and handling costs as a component of cost of sales at the time the product is shipped. Warranty: We offer a standard parts coverage warranty for periods varying from one to five years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of warranties on some installations can vary from one to 10 years. The specific terms and conditions of these warranties vary primarily depending on the type of product sold. We estimate the costs which may be incurred under the contractual warranty obligations (assurance type warranty) and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly. For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Long-term receivables and advertising rights: We occasionally sell and install our products at facilities in exchange for the rights to sell or to retain future advertising revenues. For these transactions, we recognize revenue equal to the amount of the present value of the future advertising payments if enough advertising is sold to obtain normal margins on the contract, and we record the related receivable in long-term receivables. We recognize imputed interest as earned. Property and equipment : In accordance with ASC 360, Property, Plant, and Equipment, property and equipment are stated at cost and depreciated principally on the straight-line method over the following estimated useful lives: Years Buildings and improvements 5 - 40 Machinery and equipment 5 - 7 Office furniture and equipment 3 - 5 Computer software and hardware 3 - 5 Equipment held for rental 2 - 7 Demonstration equipment 3 - 5 Transportation equipment 5 - 7 Leasehold improvements are depreciated over the lesser of the useful life of the asset or the term of the lease. 47 Table of Contents Impairment of Long-Lived Assets : In accordance with ASC 360, Property, Plant, and Equipment , we assess long-lived tangible assets and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. Goodwill and Other Intangible Assets : We account for goodwill and other intangible assets with indefinite lives in accordance with ASC 350 , Goodwill and Other. Under these provisions, goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates an impairment or a decline in value may have occurred. A qualitative assessment may be used to first determine whether it is "more likely than not" that the fair value of a reporting unit is less its carrying value. Based on this assessment, if it is determined that is more likely than not that impairment has occurred, a quantitative analysis will be performed. The quantitative assessment uses an income approach to estimate the fair value of each reporting unit. The income approach is based on the projected cash flows, which are discounted to their present value using discount rates which consider the timing and risk of the forecasted cash flows. Fair value is estimated using internally developed forecasts and assumptions and takes into account management plans, business trends, and market and economic conditions. If the quantitative assessment of good impairment fails, an impairment loss equal to the amount that a reporting unit's carrying value exceeds its fair value will be recognized. We completed our annual impairment analysis during the third quarter of fiscal 2022, utilizing a quantitative approach. Based on the outcome of that analysis, goodwill was not impaired. Foreign currency translation : We follow the provisions of ASC 830, Foreign Currency Matters. Our foreign subsidiaries use the local currency of their respective countries as their functional currency. The assets and liabilities of foreign operations are translated at the exchange rates in effect at the balance sheet date. The operating results of foreign operations are translated at weighted average exchange rates. The related translation gains or losses are reported as a separate component of shareholders’ equity in accumulated other comprehensive loss. Income taxes : We account for income taxes in accordance with ASC 740 , Income Taxes . We record a tax provision for anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using currently enacted tax rates and statutory tax rates applicable to the years in which we expect these temporary differences will affect taxable income. These assets and liabilities are analyzed regularly, and we assess the likelihood that deferred tax assets will be recoverable from future taxable income. When necessary, a valuation allowance is established if it is more likely than not the deferred tax asset will not be realized. We report the net deferred tax asset and liability as a long-term asset or liability. Net deferred assets or liabilities are calculated by combining them based on their jurisdiction. In addition, because we operate in multiple income tax jurisdictions both within the United States and internationally, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and operating results. See "Note 12. Income Taxes" for further information. Comprehensive income (loss) : We follow the provisions of ASC 220 , Reporting Comprehensive Income , which establishes standards for reporting and displaying comprehensive income and its components, and disclose these components in the consolidated statements of comprehensive income. Comprehensive (loss) income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For us, comprehensive income represents net income adjusted for cumulative foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. The foreign currency translation adjustment included in the 48 Table of Contents comprehensive income (loss) calculation has not been tax affected, as the investments in foreign affiliates are deemed to be permanent. Product design and development : We follow the provisions of ASC 730, Research and Development , which states all expenses related to product design and development are charged to operations as incurred. Our product design and development activities include the enhancement of existing products and technologies and the development of new products and technologies. Earnings per share (“EPS”) : We follow the provisions of ASC 260 , Earnings Per Share, where basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock which share in our earnings. The following is a reconciliation of the net income and common share amounts used in the calculation of basic and diluted EPS for the fiscal years ended April 30, 2022, May 1, 2021 and May 2, 2020: Net income Shares Per share income For the year ended April 30, 2022: Basic earnings per share $ 592 45,188 $ 0.01 Dilution associated with stock compensation plans — 138 — Diluted earnings per share $ 592 45,326 $ 0.01 For the year ended May 1, 2021: Basic earnings per share $ 10,926 44,989 $ 0.24 Dilution associated with stock compensation plans — 213 — Diluted earnings per share $ 10,926 45,202 $ 0.24 For the year ended May 2, 2020: Basic earnings per share $ 491 45,031 $ 0.01 Dilution associated with stock compensation plans — 285 — Diluted earnings per share $ 491 45,316 $ 0.01 Options outstanding to purchase 1,846 , 2,262 and 2,198 shares of common stock with a weighted average exercise price of $ 9.15 , $ 9.11 and $ 9.95 for the fiscal years ended April 30, 2022, May 1, 2021 and May 2, 2020, respectively, were not included in the computation of diluted earnings per share because the effects would be anti-dilutive. Share-based compensation : We account for share-based compensation in accordance with ASC 718 , Compensation-Stock Compensation. Under the fair value recognition provisions of ASC 718, we measure share-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the vesting period. See "Note 10. Shareholders' Equity and Share-Based Compensation" for additional information and the assumptions we use to calculate the fair value of share-based employee compensation. Other Business Developments Impacts to and changes in global economic conditions are expected as the world economies recover from the COVID-19 pandemic, adjust to supply chain conditions and disruptions, and react to the evolving war and geopolitical environment. Our ability to fund 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 or other funding sources. We anticipate needing to utilize a portion of our line of credit which was recently extended to April 2025 to help with our continued investment in capacity to meet our expanding demand. We believe it is probable our existing cash balances and future actions will be sufficient to fund our normal business operations over the next twelve months from the date of this filing. 49 Table of Contents We received governmental wage subsidies from various governmental programs related to COVID-19 implications of $ 293 and $ 1,757 during the fiscal years 2022 and 2021, respectively and recorded the subsidies as a reduction of compensation expense, most of it is included in the "Costs of sales" line item in our 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 April 30, 2022, the total amount of such deferral was $ 2,633 , which is included in the "Accrued expenses" line item in our consolidated balance sheet. Per the terms of the deferral program, the total amount is due on December 31, 2022. Recent Accounting Pronouncements Accounting Standards Adopted In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-03, Measurement of Credit Losses on Financial Instruments , which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-03 improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, ASU 2016-03 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We adopted ASU 2016-03 and its related guidance during the first quarter of fiscal 2021, and the adoption did not have a material impact on our consolidated financial statements. We estimate an allowance for doubtful accounts using a loss rate method. We measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. A reconciliation of the beginning and ending allowance for doubtful accounts is as follows: Year Ended April 30, 2022 May 1, 2021 Balance as of Balance at beginning of year $ 3,942 $ 2,828 Charged to costs and expenses 2,083 3,318 Deductions (1) ( 3,271 ) ( 2,204 ) Balance as of Balance at end of year $ 2,754 $ 3,942 (1) Includes account collections and write offs There have been no significant ASUs issued that we adopted during the fiscal year ended April 30, 2022. Accounting Standards Not Yet Adopted In November 2021, FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance ("ASU 2021-10"), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy. For transactions covered by ASU 2021-10, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. ASU 2021-10 is effective for annual periods beginning after December 15, 2021, which for us is the first quarter of fiscal 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2021-10 to have a material impact on future disclosures. Note 2 . Revenue Recognition Disaggregation of revenue In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment. 50 Table of Contents The following table presents our disaggregation of revenue by segments: Fiscal Year 2022 Commercial Live Events High School Park and Recreation Transportation International Total Type of performance obligation Unique configuration $ 20,849 $ 144,095 $ 20,175 $ 38,843 $ 32,658 $ 256,620 Limited configuration 118,308 30,181 88,162 21,370 43,029 301,050 Service and other 15,054 24,830 3,479 2,494 7,443 53,300 $ 154,211 $ 199,106 $ 111,816 $ 62,707 $ 83,130 $ 610,970 Timing of revenue recognition Goods/services transferred at a point in time $ 120,776 $ 37,229 $ 82,678 $ 22,088 $ 45,036 $ 307,807 Goods/services transferred over time 33,435 161,877 29,138 40,619 38,094 303,163 $ 154,211 $ 199,106 $ 111,816 $ 62,707 $ 83,130 $ 610,970 Fiscal Year 2021 Commercial Live Events High School Park and Recreation Transportation International Total Type of performance obligation Unique configuration $ 16,535 $ 104,682 $ 22,258 $ 36,398 $ 22,266 $ 202,139 Limited configuration 96,420 18,679 66,697 19,690 32,583 234,069 Service and other 14,345 19,688 2,602 2,196 6,994 45,825 $ 127,300 $ 143,049 $ 91,557 $ 58,284 $ 61,843 $ 482,033 Timing of revenue recognition Goods/services transferred at a point in time $ 98,243 $ 23,906 $ 60,859 $ 20,180 $ 34,388 $ 237,576 Goods/services transferred over time 29,057 119,143 30,698 38,104 27,455 244,457 $ 127,300 $ 143,049 $ 91,557 $ 58,284 $ 61,843 $ 482,033 51 Table of Contents Fiscal Year 2020 Commercial Live Events High School Park and Recreation Transportation International Total Type of performance obligation Unique configuration $ 35,212 $ 140,044 $ 19,176 $ 43,519 $ 40,454 $ 278,405 Limited configuration 102,847 31,897 74,266 24,588 45,626 279,224 Service and other 14,568 24,650 2,972 2,032 7,081 51,303 $ 152,627 $ 196,591 $ 96,414 $ 70,139 $ 93,161 $ 608,932 Timing of revenue recognition Goods/services transferred at a point in time $ 105,096 $ 39,521 $ 68,582 $ 25,157 $ 47,345 $ 285,701 Goods/services transferred over time 47,531 157,070 27,832 44,982 45,816 323,231 $ 152,627 $ 196,591 $ 96,414 $ 70,139 $ 93,161 $ 608,932 See "Note 3. Segment Reporting" for a disaggregation of revenue by geography. Contract balances Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the clients in excess of revenue recognized to date. The following table reflects the balances and changes in our contract assets and liabilities: April 30, 2022 May 1, 2021 Contract assets $ 41,687 $ 32,799 Contract liabilities - current 90,393 64,495 Contract liabilities - non-current 10,998 10,720 The changes in our contract assets and contract liabilities from May 1, 2021 to April 30, 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 fiscal 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". Changes in unearned service-type warranty contracts, net were as follows: April 30, 2022 May 1, 2021 Balance at beginning of year $ 24,590 $ 24,490 New contracts sold 42,619 35,623 Less: reductions for revenue recognized ( 40,614 ) ( 36,723 ) Foreign currency translation and other ( 249 ) 1,200 Balance at end of year $ 26,346 $ 24,590 52 Table of Contents As of April 30, 2022 and May 1, 2021, our contracts in progress that were identified as loss contracts were immaterial. For these contracts, the provision for losses are included in the "Accrued expenses" line item in our consolidated balance sheets. During fiscal 2022, we recognized revenue of $ 53,241 related to our contract liabilities as of May 1, 2021. Remaining performance obligations As of April 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations was $ 533,340 . We expect approximately $ 452,289 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 April 30, 2022 are $ 471,589 and $ 61,751 , 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. Note 3 . Segment Reporting We organize and manage our business by the following five segments which meet the definition of reportable segments under ASC 280-10 , Segment Reporting : Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type or geography and are the same as our business units. Separate financial information is available and regularly evaluated by our chief operating decision-maker (CODM), who is our president and chief executive officer, in making resource allocation decisions for our segments. Our CODM evaluates segment performance according to the GAAP measure of gross profit. Our Commercial business unit primarily consists of sales of our integrated video display systems, digital billboards, Galaxy ® and Fuelight ™ product lines, and dynamic messaging systems to resellers (primarily sign companies), out-of-home ("OOH") companies, national retailers, quick-serve restaurants, casinos, shopping centers, cruise ships, commercial building owners, and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales of our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy ® displays and video display systems to primary and secondary education facilities and resellers (primarily sign companies). Our Transportation business unit primarily consists of sales of intelligent transportation systems dynamic messaging signs for road management, mass transit, and aviation applications and other electronic signage for advertising and way-finding needs, which includes our Vanguard ® and Galaxy ® product lines and other intelligent transportation systems dynamic message signs, to governmental transportation departments, transportation industry contractors, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, architectural lighting, and transportation related products for sale outside of the United States and Canada to the related type of company, including sports and commercial business facilities, OOH companies, and governmental transportation agencies. Assets are not allocated to the segments. Depreciation and amortization are allocated to each segment based on various financial measures; however, some depreciation and amortization are corporate in nature and remain unallocated. Our segments follow the same accounting policies as those described in "Note 1. Nature of Business and Summary of Significant Accounting Policies." Some expenses or services are not directly allocable to a sale or segment or the resources and related expenses are shared across business segment areas. These expenses are allocated using estimates and allocation methodologies based on financial measures and professional judgment. Shared or unabsorbed manufacturing costs are allocated to the business unit benefiting most from that manufacturing location's production capabilities. Shared or unabsorbed costs of domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures in the segment analysis. We do not maintain information on sales by products; therefore, disclosure of such information is not practical. 53 Table of Contents The following table sets forth certain financial information for each of our five reporting segments for the periods indicated: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Net sales: Commercial $ 154,211 $ 127,300 $ 152,627 Live Events 199,106 143,049 196,591 High School Park and Recreation 111,816 91,557 96,414 Transportation 62,707 58,284 70,139 International 83,130 61,843 93,161 Total company net sales 610,970 482,033 608,932 Gross profit: Commercial 31,851 33,072 29,246 Live Events 21,787 24,397 39,518 High School Park and Recreation 35,477 31,472 28,874 Transportation 18,172 20,329 23,910 International 9,410 11,313 17,152 116,697 120,583 138,700 Operating expenses Selling 51,075 48,649 65,902 General and administrative 32,563 27,980 35,193 Product design and development 29,013 26,846 37,772 112,651 103,475 138,867 Operating income (loss) 4,046 17,108 ( 167 ) Nonoperating income (expense): Interest income (expense), net 171 ( 65 ) 699 Other expense, net ( 3,109 ) ( 2,983 ) ( 541 ) Income (loss) before income taxes $ 1,108 $ 14,060 $ ( 9 ) Depreciation and amortization: Commercial $ 2,677 $ 3,037 $ 3,682 Live Events 5,238 5,798 5,605 High School Park and Recreation 1,420 1,942 2,025 Transportation 551 979 1,029 International 2,796 2,887 2,460 Unallocated corporate depreciation 2,712 2,434 2,917 $ 15,394 $ 17,077 $ 17,718 54 Table of Contents No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Net sales: United States $ 513,740 $ 413,211 $ 504,931 Outside United States 97,230 68,822 104,001 $ 610,970 $ 482,033 $ 608,932 Property and equipment, net of accumulated depreciation: United States $ 58,643 $ 50,130 $ 58,422 Outside United States 8,122 8,552 9,062 $ 66,765 $ 58,682 $ 67,484 We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10% or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services. We have numerous raw material and component suppliers, and no supplier accounts for 10% or more of our cost of sales; however, we have a number of single-source and limited-source suppliers that could limit our supply or cause delays in obtaining raw material and components needed in manufacturing. Note 4 . Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill related to each reportable segment for the fiscal year ended April 30, 2022 were as follows: Live Events Commercial Transportation International Total Balance as of May 1, 2021: $ 2,313 $ 3,464 $ 84 $ 2,553 $ 8,414 Foreign currency translation ( 17 ) ( 115 ) ( 16 ) ( 339 ) ( 487 ) Balance as of April 30, 2022: $ 2,296 $ 3,349 $ 68 $ 2,214 $ 7,927 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 and concluded no goodwill impairment existed for fiscal years 2022, 2021, and 2020. 55 Table of Contents Intangible Assets The following table summarizes intangible assets, net, as of April 30, 2022 and May 1, 2021: April 30, 2022 Weighted Average Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Registered trademarks 20.0 $ 639 $ 233 $ 406 Software 3.0 2,984 2,984 — Customer relationships 10.0 2,853 1,787 1,066 Other 1.0 101 101 — Total 7.6 $ 6,577 $ 5,105 $ 1,472 May 1, 2021 Weighted Average Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Registered trademarks 19.4 $ 738 $ 246 $ 492 Software 3.0 6,606 6,412 194 Customer relationships 10.0 2,984 1,588 1,396 Other 1.5 132 131 1 Total 6.1 $ 10,460 $ 8,377 $ 2,083 In the fiscal years 2022, 2021, and 2020, amortization expense was $ 504 , $ 1,502 , and $ 1,498 , respectively. Amortization expenses are included primarily in product design and development and selling expense in the consolidated statements of operations. Intangible assets are written off when fully amortized. As of April 30, 2022, amortization expenses for future periods were estimated to be as follows: Fiscal years ending Amount 2023 $ 300 2024 300 2025 300 2026 266 2027 36 Thereafter 270 Total expected amortization expense $ 1,472 Note 5 . Selected Financial Statement Data Inventories consisted of the following: April 30, 2022 May 1, 2021 Raw materials $ 71,410 $ 29,913 Work-in-process 14,238 9,948 Finished goods 48,744 34,495 $ 134,392 $ 74,356 56 Table of Contents Property and equipment, net consisted of the following: April 30, 2022 May 1, 2021 Land $ 1,899 $ 1,924 Buildings 69,170 69,608 Machinery and equipment 110,079 98,451 Office furniture and equipment 4,098 4,103 Computer software and hardware 46,922 44,851 Construction in Process 5,792 — Demonstration equipment 7,260 7,186 Transportation equipment 7,065 7,264 252,285 233,387 Less accumulated depreciation 185,520 174,705 $ 66,765 $ 58,682 Our depreciation expense was $ 14,890 , $ 15,575 , and $ 16,230 for the fiscal years 2022, 2021, and 2020, respectively. Accrued expenses consisted of the following: April 30, 2022 May 1, 2021 Compensation $ 15,944 $ 13,079 Taxes, other than income taxes 6,741 5,888 Accrued employee benefits 3,227 2,174 Operating lease liabilities 2,309 1,881 Short-term accrued expenses 6,738 7,455 Acquisition-related contingency consideration — 195 $ 34,959 $ 30,672 Other (expense) income, net consisted of the following: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Foreign currency transaction (losses) gains $ ( 227 ) $ ( 675 ) $ 207 Equity in losses of affiliates ( 2,970 ) ( 2,370 ) ( 741 ) Other 88 62 ( 7 ) $ ( 3,109 ) $ ( 2,983 ) $ ( 541 ) Note 6 . Receivables We invoice customers based on a billing schedule as established in our contracts. We sometimes have the ability to file a contractor’s lien against the product installed as collateral and to file claims against surety bonds to protect our interest in receivables. Foreign sales are at times secured by irrevocable letters of credit or bank guarantees. Accounts receivable are reported net of an allowance for doubtful accounts of $ 2,754 and $ 3,942 at April 30, 2022 and May 1, 2021, respectively. Included in accounts receivable as of April 30, 2022 and May 1, 2021 was $ 1,834 and $ 660 , respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year. In some contracts with customers, we agree to installment payments exceeding 12 months. The present value of these contracts is recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the 57 Table of Contents extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts, including accrued interest and current maturities, was $ 4,288 and $ 3,097 as of April 30, 2022 and May 1, 2021, respectively. Contract receivables bearing annual interest rates of 0.0 to 9.0 percent are due in varying annual installments through November 2025. The face value of long-term receivables was $ 4,364 as of April 30, 2022 and $ 3,438 as of May 1, 2021. Note 7 . Financing Agreements We have a credit agreement with a bank which provides for a $ 35,000 , line of credit and allows up to $ 20,000 for commercial and standby letters of credit. The bank has a security interest in certain assets located in the United States. The interest rate on the line of credit ranges from the secured overnight financing rate ("SOFR") plus 75 basis points to SOFR plus 125 basis points depending on certain ratios. The line of credit was renewed on April 29, 2022, and the maturity date of our credit agreement and related revolving bank note is April 29, 2025. The credit agreement and amendments to the credit agreement require us to be in compliance with certain financial ratios, including a covenant to maintain the ratio of interest-bearing debt to earnings before income taxes, depreciation, and amortization of less than 2.5 , and other covenants. The credit agreement and amendments to the credit agreement also contain customary events of default, including the failure to comply with covenants, the failure to pay or discharge material judgments and taxes, bankruptcy, the failure to pay loans and fees, and experiencing a change of control. The occurrence of an event of default by us would permit the lenders to terminate their commitments and accelerate repayment of the loans, foreclose on the collateral for the loans, and require collateralization of outstanding letters of credit. As of April 30, 2022, there were no advances under the loan portion of the line of credit, and the balance of the letters of credit outstanding was approximately $ 4,669 . As of April 30, 2022, $ 30,331 of the credit facility was available for borrowing. As of April 30, 2022, we had $ 715 of bank guarantees or other financial instruments for display installations issued by another bank and secured by a restricted cash deposit. 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 . Share Repurchase Program On June 17, 2016, our Board of Directors approved a stock repurchase program under which we may purchase up to $ 40,000 of the Company's outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time. In April 2020, the Board had suspended the program. On December 2, 2021, the Board of Directors of Daktronics voted to reauthorize the stock repurchase program. During fiscal 2021, we had no repurchases of shares of our outstanding common stock. During fiscal 2022 and 2020, we repurchased 641 and 1,039 , respectively, shares of common stock at a total cost of $ 3,184 and $ 5,636 , respectively. As of April 30, 2022, we had $ 29,355 of remaining capacity under our current share repurchase program. Note 9 . Leases We lease facilities and various equipment to manufacture products and provide employee collaboration space and tools. These are all classified as operating leases and have initial lease terms ranging from one to five years . These operating leases do not contain material residual value guarantees or material restrictive covenants. Our lease for our facility in Sioux Falls, South Dakota has a purchase option. We do not have any financing leases. We determine if an arrangement is a lease at the inception of the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As we are generally not able to determine the rate implicit in our leases, we use the incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. The 58 Table of Contents operating lease right-of-use asset includes any prepaid lease payments and initial direct costs and excludes any lease incentives and impairments. Some of our leases include options to extend the term, which is only included in the right-of-use assets and lease liability calculation when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and we have elected to account for all asset classes as a single lease component. Our operating leases also typically require payment of real estate taxes, insurance, and common area maintenance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Our total variable lease costs are immaterial. Operating lease cost is recognized on a straight-line basis over the lease term, and short-term lease cost is recognized when paid. During fiscal 2022, the amount of the operating lease cost included in cost of sales and operating expenses in the consolidated statements of operations was $ 2,425 and $ 870 , respectively, as compared to $ 2,241 and $ 977 , respectively, in fiscal year 2021; and $ 2,325 and $ 1,116 , respectively, in fiscal year 2020. Operating lease cost includes short-term leases, which are immaterial. As of April 30, 2022, the weighted average remaining lease term and discount rate related to operating leases was 3.6 years and 2.4 percent as compared to 4.7 years and 3.3 percent as of May 1, 2021. Supplemental unaudited cash flow information related to operating leases were as follows: Year Ended April 30, 2022 May 1, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 2,680 $ 2,752 Future minimum operating lease payments as of, and subsequent to, April 30, 2022 under ASC 842 are as follows: Operating Leases(1) Fiscal years ending 2023 $ 2,489 2024 2,285 2025 1,632 2026 807 2027 667 Thereafter — Total lease payments 7,880 Less imputed interest ( 417 ) Total lease liabilities $ 7,463 (1) Includes $ 3,556 to extend the term of the lease for our Sioux Falls, South Dakota manufacturing facility. Note 10 . Shareholders' Equity and Share-Based Compensation Authorized shares types and shareholder rights plan : Our 120,000 authorized shares consist of 115,000 shares of common stock, 50 shares of Series A Junior Participating Preferred Stock, and 4,950 shares of “undesignated stock.” Our Board of Directors has the power to authorize and issue any or all of the shares of undesignated stock without shareholder approval, including the authority to establish the rights and preferences of the undesignated stock. Each outstanding share of our common stock includes one preferred share purchase right. Each right entitles the registered holder of our common stock to purchase from us one one-thousandth of one share of our Series A Junior Participating Preferred Stock at an initial exercise price of $ 20 per right, subject to adjustment and the terms of the shareholder rights agreement under which the dividend was declared and paid. The rights become exercisable immediately after the earlier of (i) 10 business days following a public announcement that a person or group has acquired beneficial ownership of 20 59 Table of Contents percent or more of our outstanding common shares (subject to certain exceptions) or (ii) 10 business days following the commencement or announcement of an intention to make a tender offer or exchange offer for our common shares, the consummation of which would result in the beneficial ownership by a person or group of 20 percent or more of our outstanding common shares. The rights expire on November 19, 2024 , which date may be extended by our Board of Directors subject to certain additional conditions. Stock incentive plans : During fiscal 2021, we established the Daktronics, Inc. 2020 Stock Incentive Plan (“2020 Plan”) and ceased granting options under the 2015 Stock Incentive Plan ("2015 Plan"). The 2020 Plan provides for the issuance of stock-based awards, including stock options, restricted stock, restricted stock units and deferred stock, to employees, directors and consultants. Stock options issued to employees under the 2015 Plan and 2020 Plan generally have a 10-year life, an exercise price equal to the closing market value on the grant date and a five-year annual vesting period. Stock options granted to independent directors under these plans have a seven-year life and an exercise price equal to the closing market value on the date of grant. Stock options granted to independent directors vest in one year , provided that the directors remain on the Board. The restricted stock granted to independent directors vests in one year , provided that the directors remain on the Board. Restricted stock units are granted to employees and have a five-year annual vesting period. As with stock options, restricted stock and restricted stock unit ownership cannot be transferred during the vesting period. At April 30, 2022, the aggregate number of shares available for future grants under the 2020 Plan for stock options and restricted stock awards was 2,456 shares. Shares of common stock subject to all stock awards granted under the 2020 Plan are counted as one share of stock for each share of stock subject to the award. Although the 2015 Plan remains in effect for options outstanding that were granted under the 2015 Plan until the earlier of the exercise of the options or their expiration or termination without being exercised, no new options can be granted under the 2015 Plan. Restricted stock and restricted stock units : We issue restricted stock to our non-employee directors and restricted stock units to employees. Restricted stock issued to non-employee directors are participating securities and receive dividends prior to vesting. Unvested restricted stock will terminate and be forfeited upon termination of employment or service. The fair value of restricted stock and our restricted stock unit awards are measured on the grant date based on the market value of our common stock. The related compensation expense as calculated under ASC 718, net of estimated forfeitures, is recognized over the applicable vesting period. Unrecognized compensation expense related to the restricted stock and restricted stock unit awards was approximately $ 1,772 at April 30, 2022, which is expected to be recognized over a weighted-average period of 2.71 years. The total fair value of restricted stock vested was $ 1,203 , $ 1,293 , and $ 1,415 in fiscal years 2022, 2021, and 2020, respectively. A summary of non-vested restricted stock and restricted stock units for fiscal years 2022, 2021, and 2020 is as follows: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Number of Nonvested Shares Weighted Average Grant Date Fair Value Per Share Number of Nonvested Shares Weighted Average Grant Date Fair Value Per Share Number of Nonvested Shares Weighted Average Grant Date Fair Value Per Share Outstanding at beginning of year 480 $ 5.62 449 $ 7.16 444 $ 7.58 Granted 214 5.66 223 3.92 186 7.03 Vested ( 213 ) 5.58 ( 176 ) 7.27 ( 173 ) 8.10 Forfeited ( 12 ) 5.64 ( 16 ) 7.00 ( 8 ) 7.37 Outstanding at end of year 469 $ 5.65 480 $ 5.62 449 $ 7.16 60 Table of Contents Stock Options : We issue incentive stock options to our employees and non-qualified stock options to our independent directors. A summary of stock option activity under our 2015 Plan and 2020 Plan during the fiscal year ended April 30, 2022 is as follows: Stock Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at May 1, 2021 2,227 $ 8.53 4.83 $ 843 Granted 223 5.66 — — Canceled or forfeited ( 341 ) 9.17 — — Exercised ( 2 ) 4.11 — 2 Outstanding at April 30, 2022 2,107 $ 8.13 4.98 $ — Shares vested and expected to vest 2,075 $ 8.17 4.92 $ — Exercisable at April 30, 2022 1,371 $ 9.47 3.26 $ — The aggregate intrinsic value of stock options represents the difference between the exercise price of stock options and the fair market value of the underlying common stock for all in-the-money options. We define in-the-money options at April 30, 2022 as options having exercise prices lower than the $ 3.35 per share market price of our common stock on that date. There were no shares exercisable that were in-the-money options at April 30, 2022. The total intrinsic value of options exercised during fiscal years 2022, 2021, and 2020 was $ 2 , $ 0 , and $ 0 , respectively. The total fair value of stock options vested was $ 465 , $ 451 , and $ 566 for fiscal years 2022, 2021, and 2020, respectively. We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We recognize the fair value of the stock options on a straight-line basis as compensation expense. All options are recognized over the requisite service periods of the awards, which are generally the vesting periods. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. ASC 718 requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards expected to vest. The following factors are the significant assumptions used in the computation of the fair value of options: Expected life . The expected life of options granted represents the period of time they are expected to be outstanding. We estimate the expected life of options granted based on historical exercise patterns, which we believe are representative of future behavior. We have examined our historical pattern of option exercises in an effort to determine if there were any discernible patterns of activity based on certain demographic characteristics. Demographic characteristics tested included age, salary level, job level and geographic location. We have determined there were no meaningful differences in option exercise activity based on the demographic characteristics tested. Expected volatility . We estimate the volatility of our common stock at the date of grant based on historical volatility consistent with ASC 718 and Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 107, Share-Based Payments . Risk-free interest rate. The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a term similar to the expected life of the options. Dividend yield. We use an expected dividend yield consistent with our historical dividend yield pattern. 61 Table of Contents The following table provides the weighted-average fair value of options granted and the related assumptions used in the Black-Scholes model: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Fair value of options granted $ 2.43 $ 1.71 $ 1.99 Risk-free interest rate 1.07 % 0.43 % 1.51 % Expected dividend rate — % — % 3.50 % Expected volatility 40.60 % 40.53 % 37.55 % Expected life of option (in years) 6.94 6.94 6.94 Employee stock purchase plan : We have an employee stock purchase plan (“ESPP”), which enables employees after six months of continuous employment to elect, in advance and semi-annually, to contribute up to 15 percent of their compensation, subject to certain limitations, toward the purchase of our common stock at a purchase price equal to 85 percent of the lower of the fair market value of the common stock on the first or last day of the participation period. The ESPP requires participants to hold any shares purchased under the ESPP for a minimum period of one year after the date of purchase. Compensation expense recognized on shares issued under our ESPP is based on the value of a traded option to purchase shares of our stock at a 15 percent discount to the stock price. The total number of shares reserved under the ESPP is 4,000 . The number of shares of common stock issued under the ESPP totaled 310 , 170 , and 453 shares in fiscal 2022, 2021, and 2020, respectively. The number of shares of common stock reserved for future employee purchases under the ESPP totaled 705 shares at April 30, 2022. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986 (the "Code"). Total share-based compensation expense : As of April 30, 2022, there was $ 2,862 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize the cost over a weighted-average period of 2.71 years. The following table presents a summary of the share-based compensation expense by equity type as follows: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Stock options $ 458 $ 450 $ 492 Restricted stock and stock units 1,159 1,203 1,341 Employee stock purchase plans 356 414 432 $ 1,973 $ 2,067 $ 2,265 A summary of the share-based compensation expense for stock options, restricted stock, restricted stock units and shares issued under the ESPP for fiscal years 2022, 2021, and 2020 is as follows: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Cost of sales $ 434 $ 472 $ 514 Selling 472 484 572 General and administrative 656 678 717 Product design and development 411 433 462 $ 1,973 $ 2,067 $ 2,265 62 Table of Contents We received $ 8 in cash from option exercises under all share-based payment arrangements for the fiscal year ended April 30, 2022. The tax (expense) benefit related to non-qualified options and restricted stock units under all share-based payment arrangements totale d ($ 47 ), ($ 70 ), and ($ 92 ) for fiscal years 2022, 2021, and 2020, respectively. Note 11 . Retirement Benefits We sponsor a 401(k) savings plan providing benefits for substantially all United States-based employees of Daktronics, Inc. and its subsidiaries, subject to certain Internal Revenue Service ("IRS") limits. We made matching cash contributions equal to 50 percent of the employee's qualifying contribution up to six percent of such employee's compensation; however, we eliminated our matching contribution as one of our cost savings initiatives for fiscal 2021. These benefits were reinstated for fiscal 2022. Employees are eligible to participate in the 401(k) savings plan the first day of the calendar month following completion of 30 days of continuous service if they have attained the age of 21 . We contributed $ 2,573 , $ 0 and $ 2,917 for matches to the plan for fiscal years 2022, 2021, and 2020, respectively. Note 12 . Income Taxes The following tables reflect the significant components of our income tax provision. The pretax income (loss) attributable to domestic and foreign operations was as follows: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Domestic $ ( 2,696 ) $ 10,413 $ ( 4,187 ) Foreign 3,804 3,647 4,178 Income (loss) before income taxes $ 1,108 $ 14,060 $ ( 9 ) Income tax expense (benefit) consisted of the following: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Current: Federal $ 644 $ 507 $ 625 State 452 422 297 Foreign 975 891 761 Deferred: Federal ( 1,020 ) 1,216 ( 2,028 ) State ( 476 ) 59 ( 321 ) Foreign ( 59 ) 39 166 $ 516 $ 3,134 $ ( 500 ) 63 Table of Contents The reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory rate to income (loss) before income taxes is as follows: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Computed income tax expense (benefit) at federal statutory rates $ 233 $ 2,953 $ ( 2 ) Change in uncertain tax positions ( 71 ) ( 34 ) 4 Research and development tax credit ( 382 ) ( 1,047 ) ( 1,621 ) Other, net ( 227 ) 403 ( 241 ) Change in valuation allowances 609 402 482 GILTI ( 14 ) ( 156 ) 149 Base Erosion Anti-Abuse Tax (BEAT) 12 ( 285 ) 301 Stock compensation 150 355 318 Meals and entertainment 67 49 305 Dividends paid to retirement plan — — ( 111 ) State taxes, net of federal benefit 139 494 ( 84 ) $ 516 $ 3,134 $ ( 500 ) The effective income tax rate for fiscal 2022 was impacted by tax benefits from permanent tax credits offset by valuation allowances as well as other various permanent tax adjustments and state taxes with additional expense for prior year provision to return adjustments. During fiscal 2021, our effective income tax rate was impacted due to tax benefits from permanent tax credits and prior year provision to return adjustments offset by valuation allowances as well as other various permanent tax adjustments and state taxes. During fiscal 2020, our effective income tax rate was impacted due to a tax benefit of permanent tax credits reduced by a valuation allowance placed on equity investments in proportion to a small pre-tax book loss which results in an abnormal tax rate. 64 Table of Contents The components of the net deferred tax assets were as follows: April 30, 2022 May 1, 2021 Deferred tax assets: Accrued warranty obligations $ 7,117 $ 6,293 Vacation accrual 1,618 1,222 Deferred maintenance revenue 272 398 Allowance for excess and obsolete inventory 2,316 1,776 Equity compensation 276 324 Allowance for doubtful accounts 528 829 Inventory capitalization 1,278 583 Accrued compensation and benefits 1,019 1,707 Unrealized loss on foreign currency exchange — 85 Net operating loss carry forwards 729 856 Research and development tax credit carry forwards 396 516 Lease accounting - lease liability 1,918 1,572 Other 2,296 1,513 Total deferred tax assets 19,763 17,674 Valuation allowance ( 2,452 ) ( 1,732 ) Net deferred tax assets 17,311 15,942 Deferred tax liabilities: Property and equipment ( 1,693 ) ( 2,373 ) Lease accounting - right of use asset ( 1,907 ) ( 1,580 ) Prepaid expenses ( 428 ) ( 337 ) Intangible assets — ( 69 ) Unrealized gain on foreign currency exchange ( 180 ) — Other ( 59 ) ( 49 ) Total deferred tax liabilities ( 4,267 ) ( 4,408 ) Net deferred tax asset $ 13,044 $ 11,534 The classification of the net deferred tax assets in the accompanying consolidated balance sheets is: April 30, 2022 May 1, 2021 Non-current assets $ 13,331 $ 11,944 Non-current liabilities ( 287 ) ( 410 ) $ 13,044 $ 11,534 65 Table of Contents The summary of changes in the amounts related to unrecognized uncertain tax benefits are: April 30, 2022 May 1, 2021 Balance at beginning of year $ 548 $ 582 Gross increases related to prior period tax positions 17 21 Gross decreases related to prior period tax positions ( 54 ) ( 1 ) Gross increases related to current period tax positions 116 84 Lapse of statute of limitations ( 150 ) ( 138 ) Balance at end of year $ 477 $ 548 All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change due to one or more of the following events occurring in the next 12 months: expiring statutes, audit activity, tax payments, or competent authority proceedings. A statute of limitations relating to $ 166 of the unrecognized tax benefits (including interest) expires in the next 12 months. The benefit will be recognized if the statute lapses with no further action taken by regulators. Additionally, we recognized the release of $ 150 in unrecognized tax benefits related to the lapse of a statute of limitations in fiscal 2022. Interest and penalties incurred associated with uncertain tax positions are included in the "Income tax expense" line item in our consolidated statements of operations. Accrued interest and penalties are included in the related tax liability line item in our consolidated balance sheets of $ 38 and $ 38 as of April 30, 2022 and May 1, 2021, respectively. As of April 30, 2022, we had foreign net operating loss (“NOL”) carryforwards of approximately $ 3,460 primarily related to our operations in Belgium and Ireland, which have indefinite lives. A deferred tax asset has been recorded for all NOL carryforwards totaling approximately $ 723 . However, due to uncertainty in future taxable income, a valuation allowance totaling approximately $ 581 has been recorded. If sufficient evidence of our ability to generate future taxable income in the jurisdictions in which we currently maintain a valuation allowance causes us to determine that our deferred tax assets are more likely than not realizable, we would release our valuation allowance, which would result in an income tax benefit being recorded in our consolidated statements of operations. Additional tax information: We are subject to U.S. federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2019, 2020 and 2021 remain open to federal tax examinations, and fiscal years 2018, 2019, 2020 and 2021 remain open for state income tax examinations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2011. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our consolidated statement of operations. As of April 30, 2022, we had no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The Tax Act of 2017 generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and, as a result, the accumulated undistributed earnings would be subject only to other taxes, such as withholding taxes and state income taxes, on the distribution of such earnings. No additional withholding or income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it is our intention for these amounts to continue to be indefinitely reinvested in foreign operations in all of our non-U.S. jurisdictions. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 global pandemic. The CARES Act includes provisions such as: a deferral of the employer portion of certain payroll taxes, refundable payroll tax credits, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, technical corrections to tax depreciation methods for qualified improvement property, and permitting NOL carryforwards incurred in tax years 2018, 2019, and 2020 (our fiscal years 2019, 2020, and 2021) to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Subsequently to the CARES Act, the Consolidated Appropriations Act (“CAA”) of 2021 was signed into law on December 27, 2020, expanding and extending rules pertaining to payroll tax credits outlined in the CARES Act. Additionally, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law on March 11, 2021, further extending the payroll tax credits with 66 Table of Contents slight modifications. We continue to evaluate the specific rules, guidance, and procedures allowed by the provisions of the CARES Act, CAA and ARPA. Some of these provisions do not apply to our income tax results; however, we are currently participating in the payment deferral of the employer portion of certain payroll taxes. Note 13 . Cash Flow Information The changes in operating assets and liabilities consisted of the following: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 (Increase) decrease: Account receivable $ ( 33,876 ) $ 4,864 $ ( 7,461 ) Long-term receivables ( 440 ) 1,737 ( 1,173 ) Inventories ( 61,159 ) 13,900 ( 8,347 ) Contract assets ( 9,545 ) 3,080 ( 1,931 ) Prepaid expenses and other current assets ( 7,661 ) 2,450 ( 1,403 ) Income taxes receivables 121 ( 148 ) 533 Investment in affiliates and other assets ( 357 ) 744 ( 3,137 ) Increase (decrease): Accounts payable 33,002 ( 7,081 ) 2,377 Contract liabilities 27,398 12,628 4,548 Accrued expenses 6,354 ( 2,936 ) 6,745 Warranty obligations 1,160 696 273 Long-term warranty obligations 1,764 ( 367 ) 883 Income taxes payable ( 379 ) ( 173 ) 390 Long-term marketing obligations and other payables ( 1,762 ) 2,337 ( 387 ) $ ( 45,380 ) $ 31,731 $ ( 8,090 ) Supplemental disclosures of cash flow information consisted of the following: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Cash payments for: Interest $ 16 $ 264 $ 46 Income taxes, net of refunds 1,951 2,557 977 Supplemental schedule of non-cash investing and financing activities consisted of the following: Year Ended April 30, 2022 May 1, 2021 May 2, 2020 Demonstration equipment transferred to inventory $ 53 $ 56 $ 10 Purchases of property and equipment included in accounts payable 4,177 667 1,951 Contributions of common stock under the ESPP 1,211 565 2,311 67 Table of Contents Note 14 . Fair Value Measurement ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three Levels of inputs which may be utilized when measuring fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input). Level 3 - Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities. The fair values for fixed-rate long-term receivables are estimated using a discounted cash flow analysis based on interest rates currently being offered for contracts with similar terms to customers with similar credit quality. The carrying amounts reported in our consolidated balance sheets for long-term receivables approximate fair value and have been categorized as a Level 2 fair value measurement. Fair values for fixed-rate long-term marketing obligations are estimated using a discounted cash flow calculation applying interest rates currently being offered for debt with similar terms and underlying collateral. The total carrying value of long-term marketing obligations as reported in our consolidated balance sheets within other long-term obligations approximates fair value and has been categorized as a Level 2 fair value measurement. The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at April 30, 2022 and May 1, 2021 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented. Fair Value Measurements Level 1 Level 2 Level 3 Total Balance as of April 30, 2022: Cash and cash equivalents $ 17,143 $ — $ — $ 17,143 Restricted cash 865 — — 865 Available-for-sale securities: US Government Securities 3,486 — — 3,486 US Government Sponsored entities — 534 — 534 Derivatives - asset position — 934 — 934 Derivatives - liability position — ( 311 ) — ( 311 ) $ 21,494 $ 1,157 $ — $ 22,651 Balance as of May 1, 2021: Cash and cash equivalents $ 77,590 $ — $ — $ 77,590 Restricted cash 2,812 — — 2,812 Derivatives - asset position — 4 — 4 Derivatives - liability position — ( 261 ) — ( 261 ) Acquisition-related contingent consideration — — ( 363 ) ( 363 ) $ 80,402 $ ( 257 ) $ ( 363 ) $ 79,782 68 Table of Contents A roll forward of the Level 3 contingent liabilities, both short- and long-term, for the fiscal year ended April 30, 2022 is as follows: Acquisition-related contingent consideration as of May 1, 2021 $ 363 Additions 33 Settlements ( 400 ) Interest 4 Acquisition-related contingent consideration as of April 30, 2022 $ — The following methods and assumptions were used to estimate the fair value of each class of financial instrument. There have been no changes in the valuation techniques used by us to value our financial instruments. Cash and cash equivalents : Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value. Restricted cash : Consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value. Derivatives – currency forward contracts : Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 15. Derivative Financial Instruments" for more information regarding our derivatives. Contingent liabilities : Consists of the fair value of liabilities measured on expected future payments relating to business acquisitions if conditions are met. The contingent liabilities were calculated by estimating the discounted present value of expected future payments as of the acquisition date and subsequently at the end of each reporting period. The fair value measurement is based on significant unobservable inputs as of May 1, 2021. There were no contingent liabilities as of April 30, 2022. Non-recurring measurements: The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Certain long-lived assets such as goodwill, intangible assets and property and equipment are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. Other measurements using fair value : Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, contract assets and liabilities, accounts payable, warranty obligations, and other long-term obligations are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to their short-term nature . Note 15 . Derivative Financial Instruments We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives in the consolidated balance sheets within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of April 30, 2022 and May 1, 2021, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in the "Other (expense) income, net" line item in the consolidated statements of operations. 69 Table of Contents The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at April 30, 2022 and May 1, 2021 were as follows: April 30, 2022 May 1, 2021 U.S. Dollars Foreign Currency U.S. Dollars Foreign Currency Foreign Currency Exchange Forward Contracts: U.S. Dollars/Australian Dollars — — 2,410 3,464 U.S. Dollars/Canadian Dollars 942 1,189 — — U.S. Dollars/British Pounds 1,774 1,345 418 300 U.S. Dollars/Euros 8,575 7,513 — — As of April 30, 2022, there was an asset and liability of $ 934 and $ 311 , respectively, and as of May 1, 2021, there was an asset and liability of $ 4 and $ 261 , respectively, representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank. As of April 30, 2022, all contracts mature within ten months. Note 16 . Commitments and Contingencies Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for our financial statements to not be misleading. We do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies. Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals. As of May 2, 2020, we recorded a $ 2,072 reserve for the probable and reasonably estimated cost to settle a patent litigation claim, which was included in the "Accrued expenses" line item in our consolidated balance sheets and "Cost of Sales" in consolidated statement of operations. During fiscal 2021, an appellate court ruled in our favor on this matter. Since we no longer estimate we have a probable loss, we recorded a credit to the "Cost of sales" line item in our consolidated statement of operations and removed the liability from our consolidated balance sheet during fiscal 2021. For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss 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. Warranties: See "Note 1. Nature of Business and Summary of Significant Accounting Policies" for more information regarding warranties. Changes in our warranty obligation for the fiscal years ended April 30, 2022 and May 1, 2021 consisted of the following: April 30, 2022 May 1, 2021 Beginning accrued warranty obligations $ 25,960 $ 25,624 Warranties issued during the period 9,748 8,539 Settlements made during the period ( 7,503 ) ( 5,718 ) Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations 673 ( 2,485 ) Ending accrued warranty obligations $ 28,878 $ 25,960 70 Table of Contents 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 April 30, 2022, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $ 4,669 , $ 715 and $ 88,323 , 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 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 April 30, 2022, we were not aware of any indemnification claim from a customer. Purchase commitments: From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year. As of April 30, 2022, we were obligated under the following unconditional purchase commitments: Fiscal years ending Amount 2023 $ 4,389 2024 1,686 2025 113 2026 40 2027 — $ 6,228 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.