What changed in this filing

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Item 1. Financial Statements

2023-03-13 compared with 2022-12-13 · 164 added, 103 removed, 381 unchanged (41% of the section changed)

41 unchanged sentences

Common Stock, no par value, authorized 115,000,000 shares;

47,158,442 and 46,733,544 shares issued at October 29, 2022 and April 30, 2022, respectively

47,373,959 and 46,733,544 shares issued at January 28, 2023 and April 30, 2022, respectively

63,002 61,794

1 unchanged sentence

Retained earnings 82,011 96,608

Treasury Stock, at cost, 1,907,445 shares at October 29, 2022 and April 30, 2022, respectively

Treasury Stock, at cost, 1,907,445 shares at January 28, 2023 and April 30, 2022, respectively

( 10,285 ) ( 10,285 )

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended Six Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Net sales $ 184,975 $ 139,558 $ 544,334 $ 448,767

5 unchanged sentences

Product design and development 7,250 6,925 21,655 21,283

Goodwill impairment 4,576 — 4,576 —

34,595 27,988 96,086 82,395

4 unchanged sentences

Income (loss) before income taxes 5,340 ( 6,417 ) 69 1,886

Income tax expense 14,039 1,000 13,039 2,244

Net (loss) income $ ( 12,984 ) $ 2,374 $ ( 18,310 ) $ 6,059

Income tax expense (benefit) 1,627 ( 2,067 ) 14,666 177

Net income (loss) $ 3,713 $ ( 4,350 ) $ ( 14,597 ) $ 1,709

Weighted average shares outstanding:

9 unchanged sentences

(in thousands)

Three Months Ended Six Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Net (loss) income $ ( 12,984 ) $ 2,374 $ ( 18,310 ) $ 6,059

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Net income (loss) $ 3,713 $ ( 4,350 ) $ ( 14,597 ) $ 1,709

Other comprehensive (loss):

2 unchanged sentences

Total other comprehensive (loss), net of tax 1,982 ( 724 ) ( 181 ) ( 1,147 )

Comprehensive (loss) income $ ( 14,506 ) $ 2,324 $ ( 20,473 ) $ 5,636

Comprehensive income (loss) $ 5,695 $ ( 5,074 ) $ ( 14,778 ) $ 562

See notes to condensed consolidated financial statements.

17 unchanged sentences

Balance as of October 29, 2022 $ 62,388 $ 49,217 $ 78,298 $ ( 10,285 ) $ ( 7,088 ) $ 172,530

Net Income — — 3,713 — — 3,713

Cumulative translation adjustments — — — — 1,976 1,976

Unrealized gain (loss) on available-for-sale securities, net of tax — — — — 6 6

Share-based compensation — 502 — — — 502

Employee savings plan activity 614 — — — — 614

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

See notes to condensed consolidated financial statements.

17 unchanged sentences

Balance as of October 30, 2021 $ 61,175 $ 47,412 $ 102,075 $ ( 7,101 ) $ ( 2,758 ) $ 200,803

Net loss — — ( 4,350 ) — — ( 4,350 )

Cumulative translation adjustments — — — — ( 714 ) ( 714 )

Unrealized gain (loss) on available-for-sale securities, net of tax — — — — ( 10 ) ( 10 )

Share-based compensation — 491 — — — 491

Exercise of stock options 5 — — — — 5

Employee savings plan activity 614 — — — — 614

Treasury stock purchase — — — ( 3,000 ) — ( 3,000 )

Balance as of January 29, 2022 $ 61,794 $ 47,903 $ 97,725 $ ( 10,101 ) $ ( 3,482 ) $ 193,839

See notes to condensed consolidated financial statements .

3 unchanged sentences

(in thousands)

Six Months Ended

2022 October 30,

Nine Months Ended

2023 January 29,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Equity in loss of affiliates 2,596 1,966

Provision for doubtful accounts, net of recovery 573 ( 588 )

Provision (recovery) for doubtful accounts, net 674 ( 600 )

Deferred income taxes, net 13,028 151

Goodwill impairment 4,576 —

Change in operating assets and liabilities ( 29,206 ) ( 41,000 )

3 unchanged sentences

Proceeds from sales of property, equipment and other assets 612 838

Purchases of marketable securities — ( 4,045 )

Proceeds from sales or maturities of marketable securities 3,490 —

5 unchanged sentences

Principal payments on long-term obligations — ( 200 )

Payments for common shares repurchased — ( 3,000 )

Proceed from exercise of stock options — 8

32 unchanged sentences

In each 53-week fiscal year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period.

The six months ended October 29, 2022 and October 30, 2021 contained operating results for 26 weeks.

The nine months ended January 28, 2023 and January 29, 2022 contained operating results for 39 weeks.

Cash and cash equivalents and restricted cash

1 unchanged sentence

Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees.

2022 October 30,

2023 January 29,

Cash and cash equivalents $ 10,022 $ 30,883

1 unchanged sentence

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 10,730 $ 31,719

We have foreign currency cash accounts to operate our global business.

These accounts are impacted by changes in foreign currency rates.

Of our $ 10,022 in cash and cash equivalents balances at January 28, 2023, $ 3,257 were denominated in U.S.

dollars, of which $ 498 were held by our foreign subsidiaries.

As of January 28, 2023, we had an additional $ 6,765 in cash balances denominated in foreign currencies, of which $ 5,421 were maintained in accounts of our foreign subsidiaries.

Liquidity and Going Concern

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

We continue to experience volatility in our business driven by global economic conditions and supply chain disruptions.

All of these conditions have caused volatility in our cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs.

We believe it is likely these conditions will continue to have negative impacts in fiscal 2023.

During much of the past calendar year, we have experienced negative impacts in our business driven by global economic conditions and supply chain disruptions.

These conditions have caused volatility in our cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs.

To adapt, we used cash and line of credit borrowings to increase our investment in inventory to add stability to our production processes to fulfill backlog and used cash to invest in property and equipment to expand our capacity and add automation.

To improve operations and cash flows, we have increased prices of our goods and services.

We have also increased investment in inventory levels to add production stability.

To adapt, we used cash and line of credit borrowings to source inventory to add stability to our production processes to fulfill backlog.

We also continue to invest in property

and equipment to expand our capacity and add automation.

In addition, we instituted a liquidity enhancement plan program focusing our teams on improving our cash flow and enhancing our liquidity.

Our ability to fund inventory levels, operations, and capital expenditures in the future will be dependent on our ability to generate cash flow from operations in these conditions, to maintain or improve margins, and to use funds from our credit facility.

Our credit facility expires in April 2025, and it requires us to comply with certain covenants.

Although supply chain disruptions have started to ease and we expect our inventory levels to decline, we cannot be certain we will not experience future disruptions or need additional liquidity to fund inventory levels, operations, and capital expenditures.

We will need additional liquidity to meet our obligations as they come due in the 12 months following the date of this Report and we cannot be assured that such liquidity will be available or the form of such liquidity, such as equity raises or debt financing.

$ 35,000 of our credit facility expires in April 2025 and $ 10,000 expires in May 2023, and it requires us to comply with certain covenants.

Although supply chain disruptions have started to ease and we expect our inventory levels and working capital levels to decline, we cannot be certain we will not experience future disruptions or need additional liquidity to fund inventory levels, operations, and capital expenditures.

Therefore, we plan to obtain additional liquidity to meet our obligations as they come due in the 12 months following the date of this Report, and we cannot be assured that such liquidity will be available or the form of such liquidity, such as equity raises or debt financing.

These conditions raise substantial doubt about our ability to continue as a going concern.

In response to these conditions, we are pursuing additional liquidity through various means, including but not limited to obtaining financing secured by a mortgage on our facilities, a sales-leaseback transaction, leasing property and equipment, and continued focus on reducing working capital.

Since these plans are not finalized and are subject to market conditions and restrictions from our existing financing agreements that are not within our control, they cannot be deemed probable.

In response to these conditions, the Board of Directors formed an independent Strategy and Financing Review Committee in December 2022, to address the Company's near-term credit needs and to examine alternatives for strengthening the Company's longer-term financial structure and liquidity profile.

The Committee retained financial and legal advisors to explore additional ways to improve our long-term liquidity profile.

We are pursuing additional liquidity through various means from potential financing sources, including but not limited to obtaining financing secured by a mortgage on our facilities, a sales-leaseback transaction, leasing property and equipment, longer-term asset-based lending structures, and junior capital.

We have continued focusing on reducing working capital and improving profitability through activities in our liquidity enhancement plan.

Because these plans are not finalized and are subject to market conditions and restrictions from our existing financing agreements that are not within our control, they cannot be deemed probable.

As a result, we have concluded that our plans do not alleviate substantial doubt about our ability to continue as a going concern.

Refer to Note 7 for additional considerations related to our financing agreements.

Refer to "Note 7.

Financing Agreements" for additional considerations related to our financing agreements.

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

Variable Interest Entities

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

Variable Interest Entities:

A VIE is an entity (i) that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties;

(ii) whose equity holders lack the characteristics of a controlling financial interest;

and/or (iii) that is established with non-substantive voting rights.

A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE.

This assessment may involve subjectivity in the determination of which activities most significantly affect the VIE’s performance and making estimates about current and future fair value of the assets held by the VIE and financial performance of the VIE.

In assessing the Company's interests in the VIE, we also consider interests held by its related parties, including de facto agents.

Additionally, we assess whether it is a member of a related party group that collectively meets the power and benefits criteria and, if so, whether we are most closely associated with the VIE.

In performing the related party analysis, we consider both qualitative and

quantitative factors including, but not limited to:

the characteristics and size of its investment relative to the related party;

our and the related party's ability to control or significantly influence key decisions of the VIE, including consideration of involvement by de facto agents;

the obligation or likelihood for us or the related party to fund operating losses of the VIE;

and the similarity and significance of the VIE’s business activities to those of us and the related party.

The determination of whether an entity is a VIE, and whether we are the primary beneficiary, may involve significant judgment, and depends upon facts and circumstances specific to an entity at the time of the assessment.

At the end of each reporting period, we reassess whether changes in facts and circumstances cause a change in the status of an entity as a VIE or voting interest entity, and/or a change in our consolidation assessment.

Changes in consolidation status are applied prospectively.

An entity may be consolidated as a result of this reassessment, in which case, the assets, liabilities and noncontrolling interest in the entity are recorded at fair value upon initial consolidation.

Any existing equity interest held by us in the entity prior to us obtaining control will be remeasured at fair value, which may result in a gain or loss recognized upon initial consolidation.

However, if the consolidation represents an asset acquisition of a voting interest entity, our existing interest in the acquired assets, if any, is not remeasured to fair value but continues to be carried at historical cost.

We may also deconsolidate a subsidiary as a result of this reassessment, which may result in a gain or loss recognized upon deconsolidation depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of any interests retained.

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

Recent Accounting Pronouncements

1 unchanged sentence

Accounting Standards Adopted

There were no standards adopted since the last quarterly report.

There were no standards adopted since our last Quarterly Report on Form 10-Q.

Accounting Standards Not Yet Adopted

There are no significant ASUs issued that the Company has not yet adopted as of October 29, 2022.

There are no significant new Accounting Standards Updates issued that the Company has not yet adopted as of January 28, 2023.

Investments in Affiliates

The aggregate amount of our investments accounted for under the equity method was $ 18,040 and $ 16,916 as of October 29, 2022 and April 30, 2022, respectively.

We evaluated the nature of our investment in affiliates of XdisplayTM company, which is developing micro-LED mass transfer expertise and technologies, and Miortech (dba Etulipa), which is developing low power outdoor electrowetting technology.

We determined that Miortech is a VIE, and based on management's analysis, we determined that Daktronics is not the primary beneficiary;

therefore, the investment in Miortech is accounted for under the equity method.

The aggregate amount of our investments accounted for under the equity method was $ 17,145 and $ 16,916 as of January 28, 2023 and April 30, 2022, respectively.

Our proportional share of the respective affiliates' earnings or losses is included in the "Other expense, net" line item in our condensed consolidated statements of operations.

For the three and six months ended October 29, 2022, our share of the losses of our affiliates was $ 811 and $ 1,701 as compared to $ 819 and $ 1,565 for the three and six months ended October 30, 2021.

For the three and nine months ended January 28, 2023, our share of the losses of our affiliates was $ 895 and $ 2,596 as compared to $ 401 and $ 1,966 for the three and nine months ended January 29, 2022.

We purchased services for research and development activities from our equity method investees.

The total of these related party transactions for the six months ended October 29, 2022 and October 30, 2021 was $ 672 and $ 898 , respectively, which is included in the "Product design and development" line item in our condensed consolidated statements of operations, and for the six months ended October 29, 2022, $ 52 remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheets.

During the six months ended October 29, 2022, we invested $ 2,882 of convertible notes ("Notes"), which are included in the "Investment in affiliates and other assets" line item in our condensed consolidated balance sheets.

During the six months ended October 29, 2022, we converted $ 2,824 from Notes to stock ownership.

The total of these related party transactions for the nine months ended January 28, 2023 and January 29, 2022 was $ 672 and $ 1,520 , respectively, which is included in the "Product design and development" line item in our condensed consolidated statements of operations, and for the nine months ended January 28, 2023, $ 52 remains unpaid and is included in the "Accounts payable" line item in our condensed consolidated balance sheets.

During the nine months ended January 28, 2023, we invested $ 2,250 evidenced by convertible notes and $ 990 evidenced by promissory notes ("Notes") in our affiliates, which is included in the "Investment in affiliates and other assets" line item in our condensed consolidated balance sheets.

During the nine months ended January 28, 2023, we converted $ 2,823 evidenced by the Notes to stock ownership.

After this conversion of Notes to stock ownership, our ownership increased to

54.5 percent in Miortech.

Our ownership in XdisplayTM company is 16.4 percent as of January 28, 2023.

The total amount of Notes included in the "Investments in affiliates and other assets" line item in our condensed consolidated balance sheets as of January 28, 2023 was $ 7,693 .

Earnings Per Share ("EPS")

The following is a reconciliation of the net (loss) income and common share amounts used in the calculation of basic and diluted EPS for the three and six months ended October 29, 2022 and October 30, 2021:

Net (loss) income Shares Per share (loss) income

For the three months ended October 29, 2022

Basic and diluted (loss) earnings per share $ ( 12,984 ) 45,317 $ ( 0.29 )

Diluted (loss) earnings per share $ ( 12,984 ) 45,317 $ ( 0.29 )

For the three months ended October 30, 2021

The following is a reconciliation of the net income (loss) and common share amounts used in the calculation of basic and diluted EPS for the three and nine months ended January 28, 2023 and January 29, 2022:

Net income (loss) Shares Per share (loss) income

For the three months ended January 28, 2023

Basic earnings per share $ 3,713 45,387 $ 0.08

1 unchanged sentence

Diluted earnings per share $ 3,713 45,448 $ 0.08

For the six months ended October 29, 2022

For the three months ended January 29, 2022

Basic and diluted (loss) earnings per share $ ( 4,350 ) 45,223 $ ( 0.10 )

Diluted (loss) earnings per share $ ( 4,350 ) 45,223 $ ( 0.10 )

For the six months ended October 30, 2021

For the nine months ended January 28, 2023

Basic and diluted (loss) earnings per share $ ( 14,597 ) 45,320 $ ( 0.32 )

Diluted (loss) earnings per share $ ( 14,597 ) 45,320 $ ( 0.32 )

For the nine months ended January 29, 2022

Basic earnings per share $ 1,709 45,263 $ 0.04

1 unchanged sentence

Diluted earnings per share $ 1,709 45,442 $ 0.04

Options outstanding to purchase 2,063 shares of common stock with a weighted average exercise price of $ 7.51 for the three months ended October 29, 2022 and 1,943 shares of common stock with a weighted average exercise price of $ 9.22 for the three months ended October 30, 2021 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Options outstanding to purchase 2,082 shares of common stock with a weighted average exercise price of $ 7.82 for the six months ended October 29, 2022 and 1,877 shares of common stock with a weighted average exercise price of $ 9.37 for the six months ended October 30, 2021 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

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

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

Revenue Recognition

1 unchanged sentence

The following table presents our disaggregation of revenue by segments:

Three Months Ended October 29, 2022

Three Months Ended January 28, 2023

Commercial Live Events High School

10 unchanged sentences

$ 49,967 $ 67,748 $ 28,312 $ 17,578 $ 21,370 $ 184,975

Six Months Ended October 29, 2022

Nine Months Ended January 28, 2023

Commercial Live Events High School

10 unchanged sentences

$ 127,132 $ 193,370 $ 106,127 $ 53,797 $ 63,908 $ 544,334

Three Months Ended October 30, 2021

Three Months Ended January 29, 2022

Commercial Live Events High School

10 unchanged sentences

$ 40,095 $ 39,057 $ 23,721 $ 15,823 $ 20,862 $ 139,558

Six Months Ended October 30, 2021

Nine Months Ended January 29, 2022

Commercial Live Events High School

21 unchanged sentences

Contract liabilities - noncurrent 12,674 10,998 1,676 15.2

The changes in our contract assets and contract liabilities from April 30, 2022 to October 29, 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 impairments of contract assets for the six months ended October 29, 2022.

The changes in our contract assets and contract liabilities from April 30, 2022 to January 28, 2023 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets.

We had no impairments of contract assets for the nine months ended January 28, 2023.

For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred.

1 unchanged sentence

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

Balance at beginning of period $ 26,346

Balance as of April 30, 2022 $ 26,346

New contracts sold 35,319

1 unchanged sentence

Foreign currency translation and other ( 128 )

Balance at end of period $ 30,555

Contracts in progress identified as loss contracts as of October 29, 2022 were $ 482 and as of April 30, 2022 were immaterial.

Balance as of January 28, 2023 $ 29,131

Contracts in progress identified as loss contracts as of January 28, 2023 and as of April 30, 2022 were immaterial.

Loss provisions are recorded in the "Accrued expenses" line item in our condensed consolidated balance sheets.

During the six months ended October 29, 2022, we recognized revenue of $ 65,533 related to our contract liabilities as of April 30, 2022.

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

Remaining performance obligations

As of October 29, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations was $ 524,251 .

Remaining performance obligations related to product and service agreements at October 29, 2022 were $ 463,084 and $ 61,167 , respectively.

As of January 28, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations was $ 491,345 .

Remaining performance obligations related to product and service agreements at January 28, 2023 were $ 429,097 and $ 62,248 , respectively.

We expect approximately $ 430,602 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter.

3 unchanged sentences

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

Three Months Ended Six Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Commercial $ 49,967 $ 40,095 $ 127,132 $ 107,339

15 unchanged sentences

Product design and development 7,250 6,925 21,655 21,283

Goodwill impairment 4,576 — 4,576 —

34,595 27,988 96,086 82,395

14 unchanged sentences

The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:

Three Months Ended Six Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

United States $ 161,467 $ 112,389 $ 474,048 $ 374,692

6 unchanged sentences

$ 73,795 $ 66,765

We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net sales for the three and six months ended October 29, 2022 and October 30, 2021;

We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net sales for the three and nine months ended January 28, 2023 and January 29, 2022;

therefore, we are not economically dependent on a limited number of customers for the sale of our products and services.

1 unchanged sentence

however, we have a complex global supply chain subject to geopolitical and transportation risks and a number of single-source suppliers that could limit our supply or cause delays in obtaining raw materials and components needed in manufacturing.

The changes in the carrying amount of goodwill related to each reportable segment for the six months ended October 29, 2022 were as follows:

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

Live Events Commercial Transportation International Total

1 unchanged sentence

Foreign currency translation ( 15 ) ( 109 ) ( 15 ) 81 ( 58 )

Balance as of October 29, 2022 $ 2,276 $ 3,203 $ 48 $ 2,110 $ 7,637

Goodwill impairment ( 2,281 ) — — ( 2,295 ) ( 4,576 )

Balance as of January 28, 2023 $ — $ 3,240 $ 53 $ — $ 3,293

We perform an analysis of goodwill on an annual basis and test for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired.

Our annual analysis is performed during our third quarter of each fiscal year based on the goodwill amount as of the first business day of our third fiscal quarter.

We performed our annual impairment test on October 31, 2021 and concluded no goodwill impairment existed.

Our market capitalization has decreased since the completion of the October 31, 2021 evaluation which caused a trigger analysis to test goodwill impairment due to supply chain and labor supply uncertainty.

After evaluating our results, events and circumstances, we determined no goodwill impairment was necessary.

We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded an impairment charge as noted in the above table.

We determined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows.

Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts.

The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our liquidity caused by disrupted supply chains and geopolitical conditions that have given ongoing logistics challenges to certain large projects.

As a result the present value of our future cash flows was lower, which caused the $ 4,576 impairment charge.

Based on our annual impairment test, we concluded that the fair value of the Commercial and Transportation reporting units exceeded their respective carrying values and concluded no goodwill impairment existed for those reporting units.

Financing Agreements

As of October 29, 2022, $ 26,418 had been advanced under the loan portion of our line of credit, and the balance of letters of credit outstanding was approximately $ 6,917 .

As of October 29, 2022, $ 11,665 of the credit facility was available for borrowing.

On October 31, 2022, we entered into an agreement to temporarily expand the line of credit by $ 10,000 through January 31, 2023.

As of October 29, 2022, we were in compliance with our financial covenants.

On December 9, 2022, we entered into the sixth amendment to our credit agreement.

The Amendment clarifies certain definitions related to the

deferred tax asset valuation allowance and adds additional financial reporting requirements and negative covenants.

It also requires Daktronics to obtain the current lender’s approval of any additional indebtedness and receive an audit report on our fiscal 2023 financial statements that does not express substantial doubt about the Company’s ability to continue as a going concern.

As of October 29, 2022, we had $ 616 of bank guarantees or other financial instruments for display installations issued by another bank and secured by a restricted cash deposit.

We have a $ 35,000 line of credit which expires in April 2025.

On January 23, 2023, we entered into an agreement to temporarily expand the line of credit by $ 10,000 through May 1, 2023.

As of January 28, 2023, $ 23,638 had been advanced

under the loan portion of our line of credit, and the balance of letters of credit outstanding was approximately $ 7,516 .

As of January 28, 2023, we were in compliance with our financial covenants.

As of January 28, 2023, we had $ 616 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.

5 unchanged sentences

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.

Changes in our warranty obligation for the six months ended October 29, 2022 consisted of the following:

On December 21, 2022, a putative class action lawsuit captioned Settles, et al.

Daktronics, Inc., et al., Case No.

22-cv-10793 (“Securities Action”) was filed against the Company and two of its officers in the U.S.

District Court for the Southern District of New York.

The Securities Action asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 alleging, among other things, the Company made materially false and misleading statements and failed to disclose material adverse facts which allegedly resulted in harm to a putative class of purchasers of our securities from March 10, 2022 through December 6, 2022.

We are still evaluating the complaint, which is subject to amendment, but based on current knowledge we believe that the claims are without merit.

We believe the likelihood of loss is remote.

Accordingly, no accrual has been made.

Changes in our warranty obligation for the nine months ended January 28, 2023 consisted of the following:

Beginning accrued warranty obligations $ 28,878

5 unchanged sentences

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 October 29, 2022, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $ 6,917 , $ 616 and $ 72,777 , respectively.

As of January 28, 2023, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $ 7,516 , $ 616 and $ 63,312 , respectively.

Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract.

2 unchanged sentences

We make efforts to negotiate reasonable caps and limitations on the recovery of such damages.

As of October 29, 2022, we were not aware of any indemnification claim from a customer.

As of January 28, 2023, we were not aware of any indemnification claim from a customer.

The provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate.

2 unchanged sentences

Under GAAP, we are required to evaluate the recoverability of our deferred tax assets and establish a valuation allowance if necessary to reduce our deferred tax assets to an amount that is more likely than not to be realized.

Significant judgment is required in determining whether valuation allowances should be established, as well as the amount of such allowances.

Significant judgment is required in determining whether valuation allowances should be established, as well as in determining the amount of such allowances.

We establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that we will be able to realize the value of the deferred tax assets.

We evaluate all significant available positive and negative evidence as part of our analysis, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income.

The underlying assumptions we use in forecasting future taxable income requires

significant judgment and takes into account our recent performance.

The underlying assumptions we use in forecasting future taxable income requires significant judgment and takes into account our recent performance.

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible or creditable.

If actual experience differs from these estimates and assumptions, the recognized deferred tax asset value may not be fully realized, resulting in an increase to income tax expense in our results of operations.

Due to various factors, including our estimated of annual income, our effective tax rate is subject to fluctuation.

Our effective tax rate for the three and six months ended October 29, 2022 was a tax rate of 1330.7 and a tax rate of ( 247.3 ) percent, as compared to an effective tax rate of 29.6 and 27.0 percent tax for the three and six months ended October 30, 2021.

The increase in tax rate is primarily driven by the requirement to record a full valuation allowance on deferred tax assets during the second quarter of fiscal 2023 related to GAAP accounting for income taxes and related information.

Due to various factors, including our estimate of annual income, our effective tax rate is subject to fluctuation.

Our effective tax rate for the three months ended January 28, 2023 was a tax rate of 30.5 percent, as compared to an effective tax rate of 32.2 percent for the three months ended January 29, 2022.

For the nine months ended January 28, 2023, our effective tax rate was significantly impacted by the recording of a full valuation allowance on deferred tax assets during the second quarter of fiscal 2023 related to GAAP accounting for income taxes and related information.

For the nine months ended January 29, 2022, our effective tax was 9.4 percent.

Basis of Presentation - Liquidity and Going Concern" of the Notes to our Condensed Consolidated Financial Statements included in this Report.

If, in the future, we determine we can support the recoverability of all or a portion of the deferred tax assets under the guidance, the tax benefits relating to any reversal of the valuation allowance on net deferred tax assets will be accounted for as a reduction of income tax expense and result in an increase in equity.

Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future.

We operate both domestically and internationally and, as of October 29, 2022, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely.

Additionally, as of October 29, 2022, we had $ 593 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

We operate both domestically and internationally and, as of January 28, 2023, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely.

Additionally, as of January 28, 2023, we had $ 361 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

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 October 29, 2022 and April 30, 2022 according to the valuation techniques we used to determine their fair values.

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 January 28, 2023 and April 30, 2022 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.

1 unchanged sentence

Level 1 Level 2 Level 3 Total

Balance as of October 29, 2022

Balance as of January 28, 2023

Cash and cash equivalents $ 10,022 $ — $ — $ 10,022

1 unchanged sentence

Available-for-sale securities:

US Government securities — — — —

US Government sponsored entities — 530 — 530

Derivatives - asset position — 1,175 — 1,175

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

$ 10,730 $ 524 $ — $ 11,254

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For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 for the methods and assumptions used to estimate the fair value of each class of financial instrument.

Subsequent Events

On December 9, 2022, we entered into the sixth amendment to our credit agreement as described in Note 7.

T here were no other material subsequent events.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements