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 29, 2023 and April 30, 2022, the related consolidated statements of operations, comprehensive income/ (loss), shareholders' equity, and cash flows, for each of the three years in the period ended April 29, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 29, 2023 and April 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 29, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 12, 2023, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that 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. We believe that our audits provide a reasonable basis for our opinion. 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. 35 Table of Contents 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 July 12, 2023 We have served as the Company's auditor since 2017. 36 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) April 29, 2023 April 30, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 23,982 $ 17,143 Restricted cash 708 865 Marketable securities 534 4,020 Accounts receivable, net 109,979 101,099 Inventories 149,448 134,392 Contract assets 46,789 41,687 Current maturities of long-term receivables 1,215 2,798 Prepaid expenses and other current assets 9,676 14,963 Income tax receivables 326 603 Total current assets 342,657 317,570 Property and equipment, net 72,147 66,765 Long-term receivables, less current maturities 264 1,490 Goodwill 3,239 7,927 Intangibles, net 1,136 1,472 Debt issuance costs 3,866 — Investment in affiliates and other assets 27,928 32,321 Deferred income taxes 16,867 13,331 TOTAL ASSETS $ 468,104 $ 440,876 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 67,522 $ 76,313 Contract liabilities 91,549 90,393 Accrued expenses 36,005 34,959 Warranty obligations 12,228 11,621 Income taxes payable 2,859 408 Total current liabilities 210,163 213,694 Long-term warranty obligations 20,313 17,257 Long-term contract liabilities 13,096 10,998 Other long-term obligations 5,709 7,076 Line of credit 17,750 — Deferred income taxes 195 287 Total long-term liabilities 57,063 35,618 SHAREHOLDERS' EQUITY: Preferred Shares, no par value, authorized 50,000 shares; no shares issued and outstanding — — Common stock, no par value, authorized 115,000,000 shares; 45,488,595 and 44,826,099 shares issued as of April 29, 2023 and April 30, 2022, respectively 63,023 61,794 Additional paid-in capital 50,259 48,372 Retained earnings 103,410 96,608 Treasury stock, at cost, 1,907,445 shares as of April 29, 2023 and April 30, 2022, respectively ( 10,285 ) ( 10,285 ) Accumulated other comprehensive loss ( 5,529 ) ( 4,925 ) TOTAL SHAREHOLDERS' EQUITY 200,878 191,564 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 468,104 $ 440,876 See notes to consolidated financial statements. 37 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Net sales $ 754,196 $ 610,970 $ 482,033 Cost of sales 602,841 494,273 361,450 Gross profit 151,355 116,697 120,583 Operating expenses: Selling 56,655 51,075 48,649 General and administrative 38,747 32,563 27,980 Product design and development 29,989 29,013 26,846 Goodwill impairment 4,576 — — 129,967 112,651 103,475 Operating income 21,388 4,046 17,108 Nonoperating (expense) income: Interest (expense) income, net ( 920 ) 171 ( 65 ) Other expense, net ( 7,211 ) ( 3,109 ) ( 2,983 ) Income before income taxes 13,257 1,108 14,060 Income tax expense 6,455 516 3,134 Net income $ 6,802 $ 592 $ 10,926 Weighted average shares outstanding: Basic 45,404 45,188 44,989 Diluted 45,521 45,326 45,202 Earnings per share: Basic $ 0.15 $ 0.01 $ 0.24 Diluted $ 0.15 $ 0.01 $ 0.24 See notes to consolidated financial statements. 38 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (in thousands) Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Net income $ 6,802 $ 592 $ 10,926 Other comprehensive income (loss): Cumulative translation adjustments ( 616 ) ( 2,556 ) 2,942 Unrealized gain (loss) on available-for-sale securities, net of tax 12 ( 34 ) — Total other comprehensive (loss) income, net of tax ( 604 ) ( 2,590 ) 2,942 Comprehensive income (loss) $ 6,198 $ ( 1,998 ) $ 13,868 See notes to consolidated financial statements. 39 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 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 Net income — — 6,802 — — 6,802 Cumulative translation adjustments — — — — ( 616 ) ( 616 ) Unrealized gain (loss) on available-for-sale securities, net of tax — — — — 12 12 Share-based compensation — 2,027 — — — 2,027 Exercise of stock options 21 — — — — 21 Tax payments related to RSU issuances — ( 140 ) — — — ( 140 ) Employee savings plan activity 1,208 — — — — 1,208 Balance as of April 29, 2023: $ 63,023 $ 50,259 $ 103,410 $ ( 10,285 ) $ ( 5,529 ) $ 200,878 See notes to consolidated financial statements. 40 Table of Contents DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended April 29, 2023 April 30, 2022 May 1, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,802 $ 592 $ 10,926 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 16,993 15,394 17,077 Gain on sale of property, equipment and other assets ( 691 ) ( 743 ) ( 572 ) Share-based compensation 2,027 1,973 2,067 Equity in loss of affiliates 3,332 2,970 2,370 Provision (recovery) for credit losses accounts, net 1,009 ( 286 ) 1,299 Deferred income taxes, net ( 3,633 ) ( 1,555 ) 1,314 Non-cash impairment changes 9,049 — — Change in operating assets and liabilities ( 19,864 ) ( 45,380 ) 31,731 Net cash provided by (used in) operating activities 15,024 ( 27,035 ) 66,212 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 25,385 ) ( 20,376 ) ( 7,891 ) Proceeds from sales of property, equipment and other assets 822 885 3,184 Purchases of marketable securities — ( 4,045 ) — Proceeds from sales or maturities of marketable securities 3,490 — 1,230 Purchases of equity and loans to equity investees ( 4,315 ) ( 7,848 ) ( 6,744 ) Net cash used in investing activities ( 25,388 ) ( 31,384 ) ( 10,221 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on notes payable 378,694 46,801 — Payments on notes payable ( 360,944 ) ( 46,801 ) ( 15,000 ) Debt issuance costs ( 991 ) — — Borrowings on long-term obligations 1,233 — — Principal payments on long-term obligations ( 305 ) ( 200 ) ( 460 ) Payments for common shares repurchased — ( 3,184 ) — Proceeds from exercise of stock options 21 8 — Tax payments related to RSU issuances ( 140 ) ( 200 ) ( 125 ) Net cash provided by (used in) financing activities 17,568 ( 3,576 ) ( 15,585 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 522 ) ( 399 ) ( 416 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 6,682 ( 62,394 ) 39,990 CASH, CASH EQUIVALENTS AND RESTRICTED CASH: Beginning of period 18,008 80,402 40,412 End of period $ 24,690 $ 18,008 $ 80,402 See notes to consolidated financial statements. 41 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 29, 2023, April 30, 2022 and May 1, 2021 contained operating results for 52 weeks. Principles of consolidation : The consolidated financial statements include Daktronics, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. We have a variable interest in a business where we have elected to follow the proportional consolidation method because certain criteria were met under Accounting Standards Codification ("ASC") 810, Consolidations . We have an arrangement we concluded was a variable interest entity and accounted for it under the proportional consolidation method. This arrangement had an aggregate amount of contract assets and gross profit of $ 5,223 and $ 2,748 respectively, as of and for the year ended April 29, 2023. Investments in affiliates : 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 the 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. 42 Table of Contents 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 $ 11,934 and $ 16,916 as of April 29, 2023 and April 30, 2022, 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 2023, 2022 and 2021, our share of the losses of our affiliates was $ 3,332 , $ 2,970 and $ 2,370 , respectively. In fiscal year 2023, we concluded there was an other-than-temporary impairment of our investment in Miortech and recorded an impairment loss of $ 4,473 to reflect the investment at fair market value (level 3). The impairment loss is included in the "Other (expense) income, net" line item in our consolidated statements of operations. We purchased services for research and development activities from our equity method investees. The total of these related party transactions for fiscal years 2023, 2022 and 2021 was $ 672 , $ 1,520 , and $ 460 , respectively, which is included in the "Product design and development" line item in our consolidated statement of operations, and for fiscal 2023, $ 52 remains unpaid and is included in the "Accounts payable " line item in our consolidated balance sheet. Fiscal 2022 had $ 296 unpaid and included in the "Accounts payable" line item in our consolidated balance sheet. During fiscal 2023, we invested in $ 3,000 of convertible notes and in $ 1,315 of promissory notes (collectively, "Notes") in our affiliates, which is included in the “Investment in affiliates and other assets" line item in our consolidated balance sheets. During fiscal 2023, we converted $ 2,823 of Notes to stock ownership. After this conversion of Notes to stock ownership, our ownership increased to 55.9 percent in Miortech. Our ownership in XdisplayTM company is 16.4 percent as of April 29, 2023. The total amount of Notes as of April 29, 2023 was $ 8,789 and is included in the "Investments in affiliates and other assets" line item in our consolidated balance sheets. The Notes balance combined with the investment in affiliates balance totaled $ 20,723 and $ 24,404 as of April 29, 2023 and April 30, 2022, respectively. Summarized financial information for equity method investments consist of the following: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Balance sheet data: Current assets $ 5,504 $ 6,672 $ 7,534 Non-current assets 3,312 4,491 4,637 Current liabilities 25,298 13,938 2,807 Non-current liabilities 721 1,738 1,793 Income statement data: Net loss $ ( 16,932 ) $ ( 11,928 ) $ ( 13,436 ) 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 credit losses, share-based compensation, goodwill impairment, investment in affiliates impairment, value of long-term assets, 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 43 Table of Contents 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 29, 2023 April 30, 2022 May 1, 2021 Cash and cash equivalents $ 23,982 $ 17,143 $ 77,590 Restricted cash 708 865 2,812 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 24,690 $ 18,008 $ 80,402 We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Of our $ 23,982 in cash and cash equivalents balances as of April 29, 2023, $ 15,895 were denominated in United States dollars, of which $ 1,300 were held by our foreign subsidiaries. As of April 29, 2023, we had an additional $ 8,087 in cash balances denominated in foreign currencies, of which $ 7,651 were maintained in accounts of our foreign subsidiaries. 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 are applied to the purchase cost of the raw materials. 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 credit losses: 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 credit losses, we analyze specific balances, customer creditworthiness, changes in customer payment cycles, and current economic trends. If the financial condition of any customer were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. In addition, in accordance with ASC 326, Financial Instruments - Credit Losses , an allowance is maintained for estimated forward-looking losses resulting from the possible inability of customers to make required payments (current expected losses). The amount of the allowance is determined principally on the basis of past collection experience and known financial factors regarding specific customers. We charge off receivables at such time it is determined collection will not occur against the allowance for credit losses. 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 $ 860 and $ 117 as of April 29, 2023 and April 30, 2022, 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 44 Table of Contents 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 a faithful depiction of 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. 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 45 Table of Contents 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-to-cost 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-to-cost 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 configuration (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. 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, by comparing cumulative costs incurred to the total estimated costs and applying that percentage of completion to the transaction price to recognize revenue.We believe the cost-to-cost input method 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. 46 Table of Contents 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. 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. 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. 47 Table of Contents 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 goodwill impairment fails, an impairment loss equal to the amount that a reporting unit's carrying value exceeds its fair value will be recognized. 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 income (loss) 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 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. 48 Table of Contents 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 29, 2023, April 30, 2022 and May 1, 2021: Net income Shares Per share income For the year ended April 29, 2023: Basic earnings per share $ 6,802 45,404 $ 0.15 Dilution associated with stock compensation plans — 117 — Diluted earnings per share $ 6,802 45,521 $ 0.15 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 Options outstanding to purchase 2,084 , 1,846 and 2,262 shares of common stock with a weighted average exercise price of $ 7.47 , $ 9.15 and $ 9.11 for the fiscal years ended April 29, 2023, April 30, 2022 and May 1, 2021, 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. Liquidity and Going Concern : The accompanying Consolidated Financial Statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We previously disclosed in our second and third quarter fiscal 2023 Form 10-Q Quarterly Reports that we had experienced volatility in our business driven by global economic conditions and supply chain disruptions. Although supply chain disruptions had started to ease, we could not be certain at that time we wouldn't experience future disruptions or need additional liquidity to fund operations. We also reported our financing plans were not deemed probable. Those conditions raised substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of issuance of the second and third quarter fiscal 2023 Form 10-Q Quarterly Reports. We adapted to the business environment by raising prices, increased inventory levels and added capacity to improve stability of operations, and instituted a liquidity enhancement program to focus our teams on improving cash flows. On May 11, 2023, we secured long-term financing to enhance our liquidity. During fiscal 2023, we recognized operating income of $ 21,388 and generated $ 15,024 in cash flows provided by operating activities. We project we will have sufficient cash on hand and available under these financing agreements to fund future operations. Therefore, the events and conditions that gave rise to substantial doubt about our ability to continue as a going concern were resolved. Refer to "Note 17. Subsequent Events" for additional considerations related to our financing agreements. Recent Accounting Pronouncements Accounting Standards Adopted 49 Table of Contents There were no standards adopted since our last Annual Report on Form 10-K. Accounting Standards Not Yet Adopted There are no significant new Accounting Standards Updates issued that the Company had not yet adopted as of April 29, 2023. 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. The following table presents our disaggregation of revenue by segments: Fiscal Year 2023 Commercial Live Events High School Park and Recreation Transportation International Total Type of performance obligation Unique configuration $ 25,821 $ 223,560 $ 22,730 $ 45,286 $ 33,623 $ 351,020 Limited configuration 128,346 36,259 114,951 23,946 43,007 346,509 Service and other 16,423 25,081 4,067 3,074 8,022 56,667 $ 170,590 $ 284,900 $ 141,748 $ 72,306 $ 84,652 $ 754,196 Timing of revenue recognition Goods/services transferred at a point in time $ 132,728 $ 43,761 $ 109,323 $ 24,950 $ 45,687 $ 356,449 Goods/services transferred over time 37,862 241,139 32,425 47,356 38,965 397,747 $ 170,590 $ 284,900 $ 141,748 $ 72,306 $ 84,652 $ 754,196 50 Table of Contents 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 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. 51 Table of Contents The following table reflects the changes in our contract assets and liabilities: April 29, 2023 April 30, 2022 Dollar Change Percent Change Contract assets $ 46,789 $ 41,687 $ 5,102 12.2 % Contract liabilities - current 91,549 90,393 1,156 1.3 Contract liabilities - non-current 13,096 10,998 2,098 19.1 The changes in our contract assets and contract liabilities from April 30, 2022 to April 29, 2023 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no impairments of contract assets for fiscal 2023 and 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 29, 2023 April 30, 2022 Balance at beginning of year $ 26,346 $ 24,590 New contracts sold 44,216 42,619 Less: reductions for revenue recognized ( 42,132 ) ( 40,614 ) Foreign currency translation and other ( 92 ) ( 249 ) Balance at end of year $ 28,338 $ 26,346 Contracts in process identified as loss contracts as of April 29, 2023 and April 30, 2022 were immaterial. Loss provisions are recorded in "Accrued expenses" line item in our consolidated balance sheets. During fiscal 2023, we recognized revenue of $ 84,972 related to our contract liabilities as of April 30, 2022. Remaining performance obligations and revenue recognized from past performance obligations As of April 29, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations was $ 462,035 . Remaining performance obligations related to product and service agreements as of April 29, 2023 are $ 400,737 and $ 61,298 , respectively. We expect approximately $ 385,359 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate. The amount of revenue recognized associated with performance obligations satisfied in prior years during the years ended April 29, 2023 and April 30, 2022 was immaterial. 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 52 Table of Contents 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 29, 2023 April 30, 2022 May 1, 2021 Net sales: Commercial $ 170,590 $ 154,211 $ 127,300 Live Events 284,900 199,106 143,049 High School Park and Recreation 141,748 111,816 91,557 Transportation 72,306 62,707 58,284 International 84,652 83,130 61,843 754,196 610,970 482,033 Gross profit: Commercial 31,155 31,851 33,072 Live Events 49,255 21,787 24,397 High School Park and Recreation 41,145 35,477 31,472 Transportation 19,825 18,172 20,329 International 9,975 9,410 11,313 151,355 116,697 120,583 Operating expenses Selling 56,655 51,075 48,649 General and administrative 38,747 32,563 27,980 Product design and development 29,989 29,013 26,846 Goodwill impairment 4,576 — — 129,967 112,651 103,475 Operating income 21,388 4,046 17,108 Nonoperating income (expense): Interest income (expense), net ( 920 ) 171 ( 65 ) Other expense, net ( 7,211 ) — ( 3,109 ) — ( 2,983 ) Income before income taxes $ 13,257 $ 1,108 $ 14,060 Depreciation and amortization: Commercial $ 3,468 $ 2,677 $ 3,037 Live Events 6,430 5,238 5,798 High School Park and Recreation 1,632 1,420 1,942 Transportation 584 551 979 International 2,307 2,796 2,887 Unallocated corporate depreciation 2,572 2,712 2,434 $ 16,993 $ 15,394 $ 17,077 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 29, 2023 April 30, 2022 May 1, 2021 Net sales: United States $ 661,312 $ 513,740 $ 413,211 Outside United States 92,884 97,230 68,822 $ 754,196 $ 610,970 $ 482,033 Property and equipment, net of accumulated depreciation: United States $ 63,786 $ 58,643 $ 50,130 Outside United States 8,361 8,122 8,552 $ 72,147 $ 66,765 $ 58,682 We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services. 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 complex global supply chain subject to geopolitical and transportation risks and a number of single-source suppliers that could limit our supply or cause delays in obtaining raw materials and components needed in manufacturing. Note 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 29, 2023 were as follows: Live Events Commercial Transportation International Total Balance as of April 30, 2022: $ 2,296 $ 3,349 $ 68 $ 2,214 $ 7,927 Foreign currency translation ( 15 ) ( 151 ) ( 27 ) 81 ( 112 ) Goodwill impairment ( 2,281 ) — — ( 2,295 ) ( 4,576 ) Balance as of April 29, 2023: $ — $ 3,198 $ 41 $ — $ 3,239 We perform an analysis of goodwill on an annual basis and test for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. Our annual analysis is performed during our third quarter of each fiscal year based on the goodwill amount as of the first business day of our third fiscal quarter. We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded an impairment charge as noted in the above table. We determined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows. Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts. The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our liquidity caused by disrupted supply chains and geopolitical conditions. 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. The annual impairment test for fiscal years 2022 and 2021 concluded no goodwill impairment existed. 55 Table of Contents Intangible Assets The following table summarizes intangible assets, net, as of April 29, 2023 and April 30, 2022: April 29, 2023 Weighted Average Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Registered trademarks 20.0 $ 650 $ 270 $ 380 Customer relationships 10.3 2,563 1,807 756 Total 12.2 $ 3,213 $ 2,077 $ 1,136 April 30, 2022 Weighted Average Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Registered trademarks 20.0 $ 639 $ 233 $ 406 Customer relationships 10.0 2,853 1,787 1,066 Total 11.8 $ 3,492 $ 2,020 $ 1,472 In the fiscal years 2023, 2022, and 2021, amortization expense was $ 290 , $ 504 , and $ 1,502 , 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 29, 2023, amortization expenses for future periods were estimated to be as follows: Fiscal years ending Amount 2024 $ 285 2025 285 2026 254 2027 37 2028 37 Thereafter 238 Total expected amortization expense $ 1,136 Note 5 . Selected Financial Statement Data Inventories consisted of the following: April 29, 2023 April 30, 2022 Raw materials $ 81,627 $ 71,410 Work-in-process 14,155 14,238 Finished goods 53,666 48,744 $ 149,448 $ 134,392 56 Table of Contents Property and equipment, net consisted of the following: April 29, 2023 April 30, 2022 Land $ 1,996 $ 1,899 Buildings 71,222 69,170 Machinery and equipment 126,164 110,079 Office furniture and equipment 4,112 4,098 Computer software and hardware 44,700 46,922 Construction in Process 2,805 5,792 Demonstration equipment 7,432 7,260 Transportation equipment 7,057 7,065 265,488 252,285 Less accumulated depreciation 193,341 185,520 $ 72,147 $ 66,765 Our depreciation expense was $ 16,703 , $ 14,890 , and $ 15,575 for the fiscal years 2023, 2022, and 2021, respectively. Accrued expenses consisted of the following: April 29, 2023 April 30, 2022 Compensation $ 17,466 $ 15,944 Taxes, other than income taxes 3,390 6,741 Accrued employee benefits 3,953 3,227 Operating lease liabilities 2,253 2,309 Short-term accrued expenses 8,943 6,738 $ 36,005 $ 34,959 Other (expense) income, net consisted of the following: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Foreign currency transaction gains (losses) $ 479 $ ( 227 ) $ ( 675 ) Equity in losses of affiliates ( 3,332 ) ( 2,970 ) ( 2,370 ) Impairment of equity method investee ( 4,473 ) — — Other 115 88 62 $ ( 7,211 ) $ ( 3,109 ) $ ( 2,983 ) Note 6 . Accounts Receivables, Net 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 credit losses of $ 4,182 and $ 2,754 as of April 29, 2023 and April 30, 2022, respectively. Included in accounts receivable as of April 29, 2023 and April 30, 2022 was $ 1,416 and $ 1,834 , 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 $ 1,473 and $ 4,288 as of April 29, 2023 and April 30, 2022, respectively. Contract receivables bearing annual interest rates of 4.5 to 9.0 percent are due in varying annual installments through November 2026. The face value of long-term receivables was $ 1,512 and $ 4,364 as of April 29, 2023 and April 30, 2022, respectively. Note 7 . Financing Agreements As of April 29, 2023, we had a credit agreement with a bank which provided for a $ 45,000 line of credit and allowed up to $ 20,000 for commercial and standby letters of credit. As of April 29, 2023, $ 17,750 had been advanced under the loan portion of our line of credit, and the balance of letters of credit outstanding was approximately $ 7,783 . As of April 29, 2023, $ 19,467 of the credit facility was available for borrowing. Subsequent to April 29, 2023 we secured new financing agreements. For information on the new financing agreements, see "Note 17. Subsequent Events." As of April 29, 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. 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 2023 and 2021, we had no repurchases of shares of our outstanding common stock. During fiscal 2022, we repurchased 641 shares of common stock at a total cost of $ 3,184 . As of April 29, 2023, we had $ 29,355 of remaining capacity under our current share repurchase program. Note 9 . L eases 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 1 year to 5 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 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. 58 Table of Contents 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 2023, the amount of the operating lease cost included in cost of sales and operating expenses in the consolidated statements of operations was $ 2,560 and $ 906 , respectively; as compared to $ 2,425 and $ 870 , respectively, in fiscal year 2022; and $ 2,241 and $ 977 , respectively, in fiscal year 2021. Operating lease cost includes short-term leases, which are immaterial. As of April 29, 2023, the weighted average remaining lease term and discount rate related to operating leases was 2.9 years and 2.7 percent as compared to 3.6 years and 2.4 percent as of April 30, 2022. Supplemental unaudited cash flow information related to operating leases were as follows: Year Ended April 29, 2023 April 30, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 2,692 $ 2,680 Future minimum operating lease payments as of, and subsequent to, April 29, 2023 under ASC 842 are as follows: Operating Leases Fiscal years ending 2024 $ 2,383 2025 1,675 2026 897 2027 757 2028 23 Thereafter — Total lease payments 5,735 Less imputed interest ( 261 ) Total lease liabilities $ 5,474 The current and long term portions of the lease liabilities are included in the "Accrued expenses" and "Other long-term obligations" line items in our consolidated balance sheet, respectively. Note 10 . Shareholders' Equity and Share-Based Compensation Authorized share 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 under 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 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. 59 Table of Contents 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. As of April 29, 2023, the aggregate number of shares available for future grants under the 2020 Plan for stock options and restricted stock awards was 1,801 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 $ 1,666 as of April 29, 2023, which is expected to be recognized over a weighted-average period of 2.62 years. The total fair value of restricted stock vested was $ 1,160 , $ 1,203 , and $ 1,293 in fiscal years 2023, 2022, and 2021, respectively. A summary of non-vested restricted stock and restricted stock units for fiscal years 2023, 2022, and 2021 is as follows: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 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 469 $ 5.65 480 $ 5.62 449 $ 7.16 Granted 360 3.15 214 5.66 223 3.92 Vested ( 192 ) 5.98 ( 213 ) 5.58 ( 176 ) 7.27 Forfeited ( 20 ) 4.98 ( 12 ) 5.64 ( 16 ) 7.00 Outstanding at end of year 617 $ 4.11 469 $ 5.65 480 $ 5.62 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 29, 2023 is as follows: Stock Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding as of April 30, 2022 2,107 $ 8.13 4.98 $ — Granted 336 3.02 — — Canceled or forfeited ( 393 ) 9.08 — — Exercised ( 5 ) 4.11 — 7 Outstanding as of April 29, 2023 2,045 $ 7.11 5.52 $ 858 Shares vested and expected to vest 2,010 $ 7.17 5.46 $ 819 Exercisable as of April 29, 2023 1,222 $ 8.95 3.70 $ 103 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 as of April 29, 2023 as options having exercise prices lower than the $ 4.81 per share market price of our common stock on that date. There were 147 shares exercisable that were in-the-money options as of April 29, 2023. The total intrinsic value of options exercised during fiscal years 2023, 2022, and 2021 was $ 7 , $ 2 , and $ 0 , respectively. The total fair value of stock options vested was $ 467 , $ 465 , and $ 451 for fiscal years 2023, 2022, and 2021, 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 SEC Staff Accounting Bulletin No. 107, Share-Based Payments . Risk-free interest rate. The rate is based on the United States 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 29, 2023 April 30, 2022 May 1, 2021 Fair value of options granted $ 1.34 $ 2.43 $ 1.71 Risk-free interest rate 3.37 % 1.07 % 0.43 % Expected volatility 41.10 % 40.60 % 40.53 % Expected life of option (in years) 6.93 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 5,500 . The number of shares of common stock issued under the ESPP totaled 424 , 310 , and 170 shares in fiscal 2023, 2022, and 2021, respectively. The number of shares of common stock reserved for future employee purchases under the ESPP totaled 1,575 shares as of April 29, 2023. 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 29, 2023, there was $ 2,746 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 2.94 years. The following table presents a summary of the share-based compensation expense by equity type as follows: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Stock options $ 453 $ 458 $ 450 Restricted stock and stock units 1,153 1,159 1,203 Employee stock purchase plans 421 356 414 $ 2,027 $ 1,973 $ 2,067 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 2023, 2022, and 2021 is as follows: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Cost of sales $ 441 $ 434 $ 472 Selling 424 472 484 General and administrative 735 656 678 Product design and development 427 411 433 $ 2,027 $ 1,973 $ 2,067 We received $ 21 in cash from option exercises under all share-based payment arrangements for the fiscal year ended April 29, 2023. The tax expense related to non-qualified options and restricted stock units under all share-based payment arrangements totale d $ 23 , $ 47 , and $ 70 for fiscal years 2023, 2022, and 2021, respectively. 62 Table of Contents 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 $ 2,969 , $ 2,573 and $ 0 for matches to the plan for fiscal years 2023, 2022, and 2021, respectively. Note 12 . Income Taxes The following tables reflect the significant components of our income tax provision. The pretax income attributable to domestic and foreign operations was as follows: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Domestic $ 10,125 $ ( 2,696 ) $ 10,413 Foreign 3,132 3,804 3,647 Income before income taxes $ 13,257 $ 1,108 $ 14,060 Income tax expense (benefit) consisted of the following: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Current: Federal $ 6,321 $ 644 $ 507 State 1,381 452 422 Foreign 2,273 975 891 Deferred: Federal ( 3,025 ) ( 1,020 ) 1,216 State ( 456 ) ( 476 ) 59 Foreign ( 39 ) ( 59 ) 39 $ 6,455 $ 516 $ 3,134 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 before income taxes is as follows: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Computed income tax expense at federal statutory rates $ 2,784 $ 233 $ 2,953 Change in uncertain tax positions ( 86 ) ( 71 ) ( 34 ) Research and development tax credit ( 684 ) ( 382 ) ( 1,047 ) Other, net 288 ( 179 ) 579 Change in valuation allowances 2,078 609 402 GILTI 6 ( 14 ) ( 156 ) Base Erosion Anti-Abuse Tax (BEAT) 87 12 ( 285 ) Foreign-Derived Intangible Income (FDII) ( 128 ) ( 5 ) ( 84 ) Stock compensation 262 150 355 Meals and entertainment 149 67 49 Goodwill Impairment 551 — — State taxes, net of federal benefit 731 139 494 Effect of Foreign Tax Rates different than Statutory 417 ( 43 ) ( 92 ) $ 6,455 $ 516 $ 3,134 The effective income tax rate for fiscal 2023 was impacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the tax rate is higher than the United States, as well as prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits. During fiscal 2022, our effective income tax rate 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. 64 Table of Contents The components of the net deferred tax assets were as follows: April 29, 2023 April 30, 2022 Deferred tax assets: Accrued warranty obligations $ 8,088 $ 7,117 Vacation accrual 1,732 1,618 Deferred maintenance revenue 484 272 Allowance for excess and obsolete inventory 2,779 2,316 Equity compensation 255 276 Allowance for credit losses accounts 928 528 Inventory capitalization 1,339 1,278 Accrued compensation and benefits 395 1,019 Unrealized loss on foreign currency exchange 206 — Net operating loss carry forwards 1,024 729 Outside basis difference in equity method investments 3,819 1,861 Section 174 Capitalization 5,225 — Research and development tax credit carry forwards 210 396 Lease accounting - lease liability 1,426 1,918 Other 929 435 Total deferred tax assets 28,839 19,763 Valuation allowance ( 4,900 ) ( 2,452 ) Net deferred tax assets 23,939 17,311 Deferred tax liabilities: Property and equipment ( 5,292 ) ( 1,693 ) Lease accounting - right of use asset ( 1,411 ) ( 1,907 ) Prepaid expenses ( 471 ) ( 428 ) Unrealized gain on foreign currency exchange — ( 180 ) Other ( 93 ) ( 59 ) Total deferred tax liabilities ( 7,267 ) ( 4,267 ) Net deferred tax asset $ 16,672 $ 13,044 The classification of the net deferred tax assets in the accompanying consolidated balance sheets is: April 29, 2023 April 30, 2022 Non-current assets $ 16,867 $ 13,331 Non-current liabilities ( 195 ) ( 287 ) $ 16,672 $ 13,044 65 Table of Contents The summary of changes in the amounts related to unrecognized uncertain tax benefits are: April 29, 2023 April 30, 2022 Balance at beginning of year $ 477 $ 548 Gross increases related to prior period tax positions 12 17 Gross decreases related to prior period tax positions ( 56 ) ( 54 ) Gross increases related to current period tax positions 124 116 Lapse of statute of limitations ( 165 ) ( 150 ) Balance at end of year $ 392 $ 477 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 $ 171 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 $ 165 in unrecognized tax benefits related to the lapse of a statute of limitations in fiscal 2023. 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 $ 28 and $ 38 as of April 29, 2023 and April 30, 2022, respectively. As of April 29, 2023, we had foreign net operating loss (“NOL”) carryforwards of approximately $ 5,727 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 $ 1,018 . However, due to uncertainty in future taxable income, a valuation allowance has been recorded for the full amount of the asset. 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 United States federal income tax as well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2020, 2021 and 2022 remain open to federal tax examinations, and fiscal years 2019, 2020, 2021 and 2022 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 2012. 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 29, 2023, 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 United States 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-United States jurisdictions. 66 Table of Contents Note 13 . Cash Flow Information The changes in operating assets and liabilities consisted of the following: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 (Increase) decrease: Account receivable $ ( 10,422 ) $ ( 33,876 ) $ 4,864 Long-term receivables 1,950 ( 440 ) 1,737 Inventories ( 15,064 ) ( 61,159 ) 13,900 Contract assets ( 4,879 ) ( 9,545 ) 3,080 Prepaid expenses and other current assets 5,267 ( 7,661 ) 2,450 Income taxes receivables 268 121 ( 148 ) Investment in affiliates and other assets ( 261 ) ( 357 ) 744 Increase (decrease): Accounts payable ( 5,344 ) 33,002 ( 7,081 ) Contract liabilities 3,468 27,398 12,628 Accrued expenses ( 967 ) 6,354 ( 2,936 ) Warranty obligations 607 1,160 696 Long-term warranty obligations 3,055 1,764 ( 367 ) Income taxes payable 2,354 ( 379 ) ( 173 ) Long-term marketing obligations and other payables 104 ( 1,762 ) 2,337 $ ( 19,864 ) $ ( 45,380 ) $ 31,731 Supplemental disclosures of cash flow information consisted of the following: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Cash payments for: Interest $ 1,075 $ 16 $ 264 Income taxes, net of refunds 7,489 1,951 2,557 Supplemental schedule of non-cash investing and financing activities consisted of the following: Year Ended April 29, 2023 April 30, 2022 May 1, 2021 Demonstration equipment transferred to inventory $ — $ 53 $ 56 Purchases of property and equipment included in accounts payable 1,057 4,177 667 Contributions of common stock under the ESPP 1,207 1,211 565 Debt Issuance costs 2,875 — — 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 67 Table of Contents 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 as of April 29, 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. Fair Value Measurements Level 1 Level 2 Level 3 Total Balance as of April 29, 2023: Cash and cash equivalents $ 23,982 $ — $ — $ 23,982 Restricted cash 708 — — 708 Available-for-sale securities: US Government Sponsored entities — 534 — 534 Derivatives - liability position — ( 579 ) — ( 579 ) $ 24,690 $ ( 45 ) $ — $ 24,645 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 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 during fiscal year 2023. 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. 68 Table of Contents 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. 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. See "Note 1. Nature of Business and Summary of Significant Accounting Policies" for further details of impairment loss of $ 4,473 for our investment in Miortech. 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 United States 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 29, 2023 and April 30, 2022, 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. The foreign currency exchange contracts in aggregated notional amounts in place to exchange United States dollars as of April 29, 2023 and April 30, 2022 were as follows: April 29, 2023 April 30, 2022 United States Dollars Foreign Currency United States Dollars Foreign Currency Foreign Currency Exchange Forward Contracts: United States Dollars/Canadian Dollars — — 942 1,189 United States Dollars/British Pounds — — 1,774 1,345 United States Dollars/Euros 7,758 7,513 8,575 7,513 As of April 29, 2023, there was an asset and liability of $ 0 and $ 579 , respectively, and, as of April 30, 2022, there was an asset and liability of $ 934 and $ 311 , 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 29, 2023, all contracts mature within six 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 69 Table of Contents remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies . Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals. For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss 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 29, 2023 and April 30, 2022 consisted of the following: April 29, 2023 April 30, 2022 Beginning accrued warranty obligations $ 28,878 $ 25,960 Warranties issued during the period 13,429 9,748 Settlements made during the period ( 11,044 ) ( 7,503 ) Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations 1,278 673 Ending accrued warranty obligations $ 32,541 $ 28,878 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 29, 2023, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $ 7,783 , $ 616 and $ 56,374 , 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 29, 2023, 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 29, 2023, we were obligated under the following unconditional purchase commitments: Fiscal years ending Amount 2024 $ 4,908 2025 2,374 2026 194 2027 50 2028 38 $ 7,564 Note 17 . Subsequent Events On May 11, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A.. The Credit Agreement provides for a $ 60,000 senior secured asset-based revolving credit facility ("ABL") maturing on May 11, 2026 and a delayed draw loan (the "Mortgage") term loan commitment. Under the ABL, certain factors can impact our borrowing capacity. As of May 11, 2023, our borrowing capacity was $ 47,459 , and there were no borrowings outstanding. The interest rate on the senior credit facility is set on a sliding scale 70 Table of Contents based on the trailing twelve-month fixed charge coverage and ranges from 2.5 percent to 3.5 percent over the standard overnight financing rate (SOFR). The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the JPMorgan Pledge and Security Agreement dated as of May 11, 2023 by and between the Company and JPMorgan Chase Bank, N.A. (the “JPMorgan Security Agreement”). The $ 15,000 delayed draw on the Mortgage closed on July 7, 2023, is secured by a mortgage on the Company's Brookings, South Dakota real estate, amortizes over 10 years and is payable monthly. The Mortgage is subject to the terms of the Credit Agreement and matures on May 11, 2026. The Mortgage interest rate is set on a sliding scale based on the trailing twelve month fixed charge coverage ratio and ranges between 3.5 percent to 4.5 percent. On May 11, 2023, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with Alta Fox Opportunities Fund, LP (the “Investor”) under which the Company agreed to sell and issue to the Investor its senior secured convertible note (the “Convertible Note”) in exchange for the payment by the Investor to the Company of $ 25,000 . The Convertible Notes allow the Investor to convert shares of the Company’s common stock, subject to certain conditions and limitations, at the initial conversion price of $ 6.31 per share, subject to adjustments in accordance with the terms of the Convertible Note. The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions. The Convertible Note incurs interest at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is capitalized. Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent. Under the Pledge and Security Agreement dated as of May 11, 2023 between the Company and the Investor (the “Alta Fox Security Agreement”), the Convertible Note is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank, N.A., and the Investor (the “Intercreditor Agreement”). The Convertible Note has a maturity date of May 11, 2027 (the “Maturity Date”). On the Maturity Date, the Company must pay to the Investor an amount in cash representing all outstanding principal, any accrued and unpaid interest, and any accrued and unpaid late charges on such principal and interest. Effective on May 11, 2023, in connection with the Company’s entry into the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file with the SEC by the dates set forth in the Registration Rights Agreement a registration statement covering the resale of the shares of common stock issuable upon conversion of the Convertible Note. Pursuant to the Registration Rights Agreement, the Company is required to use reasonable best efforts to have such registration statement declared effective by the SEC by the dates set forth in the Registration Rights Agreement. If the registration statement is not filed with the SEC or declared effective by the SEC on a timely basis, certain penalties would be applicable to the Company. The Credit Agreement and the Convertible Note require a fixed charged coverage ratio of greater than 1.1 and include other customary non-financial covenants. In fiscal year 2023, we incurred $ 3,866 in debt issuance costs, which is included in the "Debt issuance costs" line item in our consolidated balance sheet. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.