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Item 1. Financial Statements

2023-09-08 compared with 2023-03-13 · 258 added, 244 removed, 301 unchanged (63% of the section changed)

20 unchanged sentences

Intangibles, net 1,090 1,136

Debt issuance costs — 3,866

Investment in affiliates and other assets 27,866 27,928

1 unchanged sentence

TOTAL ASSETS $ 508,018 $ 468,104

DAKTRONICS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

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

2023 April 29,

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt $ 1,500 $ —

Accounts payable 62,449 67,522

7 unchanged sentences

Other long-term obligations 5,463 5,709

Line of Credit 23,638 —

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

Deferred income taxes 202 195

4 unchanged sentences

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

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

45,644,800 and 45,488,595 shares issued at July 29, 2023 and April 29, 2023, respectively

63,684 63,023

1 unchanged sentence

Retained earnings 122,606 103,410

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

Treasury Stock, at cost, 1,907,445 shares at July 29, 2023 and April 29, 2023, respectively

( 10,285 ) ( 10,285 )

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Three Months Ended

2023 July 30,

Net sales $ 232,531 $ 171,920

5 unchanged sentences

Product design and development 8,403 7,439

Goodwill impairment 4,576 — 4,576 —

30,931 31,313

2 unchanged sentences

Interest (expense) income, net ( 881 ) ( 60 )

Other expense, net ( 1,380 ) ( 793 ) ( 2,335 ) ( 2,613 )

Change in fair value of convertible note ( 7,260 ) —

Other expense and debt issuance costs write-off, net ( 3,979 ) ( 747 )

Income (loss) before income taxes 28,096 ( 6,326 )

10 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Three Months Ended

2023 July 30,

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

1 unchanged sentence

Cumulative translation adjustments ( 252 ) ( 642 )

Unrealized gain (loss) on available-for-sale securities, net of tax 6 ( 10 ) 6 ( 10 )

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

Unrealized gain on available-for-sale securities, net of tax 7 1

Total other comprehensive income (loss), net of tax ( 245 ) ( 641 )

Comprehensive income (loss) $ 18,951 $ ( 5,967 )

6 unchanged sentences

Balance as of April 29, 2023 $ 63,023 $ 50,259 $ 103,410 $ ( 10,285 ) $ ( 5,529 ) $ 200,878

Net loss — — ( 5,326 ) — — ( 5,326 )

Cumulative translation adjustments — — — — ( 642 ) ( 642 )

Unrealized gain (loss) on available-for-sale securities, net of tax — — — — 1 1

Share-based compensation — 511 — — — 511

Employee savings plan activity 594 — — — — 594

Balance as of July 30, 2022 62,388 48,883 91,282 ( 10,285 ) ( 5,566 ) 186,702

Net loss — — ( 12,984 ) — — ( 12,984 )

Cumulative translation adjustments — — — — ( 1,521 ) ( 1,521 )

Unrealized (loss) gain on available-for-sale securities, net of tax — — — — ( 1 ) ( 1 )

Share-based compensation — 474 — — — 474

Tax payments related to RSU issuances — ( 140 ) — — — ( 140 )

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

Net income — — 19,196 — — 19,196

Cumulative translation adjustments — — — — ( 252 ) ( 252 )

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

Unrealized gain on available-for-sale securities, net of tax — — — — 7 7

Share-based compensation — 557 — — — 557

Exercise of stock options 46 — — — — 46

Employee savings plan activity 615 — — — — 615

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

Balance as of July 29, 2023 $ 63,684 $ 50,816 $ 122,606 $ ( 10,285 ) $ ( 5,774 ) $ 221,047

See notes to condensed consolidated financial statements.

4 unchanged sentences

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive

Balance as of May 1, 2021 $ 60,575 $ 46,595 $ 96,016 $ ( 7,297 ) $ ( 2,335 ) $ 193,554

Net income — — 3,685 — — 3,685

Cumulative translation adjustments — — — — ( 373 ) ( 373 )

Share-based compensation — 518 — — — 518

Employee savings plan activity 597 — — — — 597

Treasury stock reissued — 4 — 196 — 200

Balance as of July 31, 2021 61,172 47,117 99,701 ( 7,101 ) ( 2,708 ) 198,181

Net income — — 2,374 — — 2,374

Cumulative translation adjustments — — — — ( 50 ) ( 50 )

Share-based compensation — 494 — — — 494

Exercise of stock options 3 — — — — 3

Tax payments related to RSU issuances — ( 199 ) — — — ( 199 )

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

Balance as of April 30, 2022 $ 61,794 $ 48,372 $ 96,608 $ ( 10,285 ) $ ( 4,925 ) $ 191,564

Net loss — — ( 5,326 ) — — ( 5,326 )

2 unchanged sentences

Share-based compensation — 511 — — — 511

Exercise of stock options 5 — — — — 5

Employee savings plan activity 594 — — — — 594

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

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

Balance as of July 30, 2022 $ 62,388 $ 48,883 $ 91,282 $ ( 10,285 ) $ ( 5,566 ) $ 186,702

See notes to condensed consolidated financial statements .

3 unchanged sentences

(in thousands)

Nine Months Ended

2023 January 29,

Three Months Ended

2023 July 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income $ ( 14,597 ) $ 1,709

Adjustments to reconcile net (loss) income to net cash used in operating activities:

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

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 4,669 4,025

Gain on sale of property, equipment and other assets ( 588 ) ( 737 )

Loss (gain) on sale of property, equipment and other assets 11 ( 361 )

Share-based compensation 557 511

2 unchanged sentences

Deferred income taxes, net 12 12

Goodwill impairment 4,576 —

Non-cash impairment changes 442 —

Change in fair value of convertible note 7,260 —

Debt issuance costs write-off 3,353 —

Change in operating assets and liabilities ( 16,875 ) ( 22,743 )

Net cash used in operating activities ( 9,487 ) ( 25,464 )

Net cash provided by (used in) operating activities 19,250 ( 22,815 )

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Proceeds from sales of property, equipment and other assets 27 365

Purchases of marketable securities — ( 4,045 )

Proceeds from sales or maturities of marketable securities — 999

5 unchanged sentences

Principal payments on long-term obligations ( 102 ) —

Payments for common shares repurchased — ( 3,000 )

Debt issuance cost ( 5,838 ) —

Proceed from exercise of stock options 46 —

Tax payments related to RSU issuances ( 140 ) ( 199 )

Net cash provided by (used in) financing activities 23,498 ( 3,391 )

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

EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 240 ) 80

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 7,278 ) ( 48,683 )

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 29,660 ( 8,979 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

6 unchanged sentences

Supplemental schedule of non-cash investing and financing activities:

Demonstration equipment transferred to inventory $ — $ 53

Purchases of property and equipment included in accounts payable 839 3,326

5 unchanged sentences

Daktronics, Inc.

and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are an industry leader in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.

and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are industry leaders in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions affecting the reported amounts therein.

Estimates used in the preparation of the unaudited consolidated financial statements include, among others, revenue recognition, future warranty expenses, the fair value of long-term debt, the fair value of investments in affiliates, income tax expenses, and stock-based compensation.

Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

8 unchanged sentences

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

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

The three months ended July 29, 2023 and July 30, 2022 contained operating results for 13 weeks.

Cash and cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statements of cash flows.

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

2023 January 29,

Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees and letters of credit outstanding under a previous credit agreement.

2023 July 30,

Cash and cash equivalents $ 45,775 $ 8,279

1 unchanged sentence

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 54,350 $ 9,029

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

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

These accounts are impacted by changes in foreign currency rates.

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

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

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

Liquidity and Going Concern

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Refer to "Note 7.

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

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

Variable Interest Entities

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

Variable Interest Entities:

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

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

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

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

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

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

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

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

quantitative factors including, but not limited to:

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

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

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

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

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

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

Changes in consolidation status are applied prospectively.

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

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

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

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

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

Of our $ 45,775 in cash and cash equivalent balances as of July 29, 2023, $ 36,426 were denominated in United States dollars, of which $ 941 were held by our foreign subsidiaries.

As of July 29, 2023, we had an additional $ 9,349 in cash balances denominated in foreign currencies, of which $ 8,513 were maintained in accounts of our foreign subsidiaries.

Recent Accounting Pronouncements

1 unchanged sentence

Accounting Standards Adopted

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

In July 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718) :

A mendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock” (“ASU 2023-03”).

This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Bulletin ("SAB") number 120.

ASU 2023-03 does not provide any new guidance, so there is no transition or effective date.

ASU 2023-03 did not have a material impact on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

ASU 2020-06 simplified the accounting for certain financial instruments with characteristics of liabilities and equity.

This ASU (1) simplified the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt:

Debt with Conversion and Other Options , that required entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock;

(2) revised the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification;

and (3) revised the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share ("EPS") for convertible instruments by using the if-converted method.

In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

For SEC filers, excluding smaller reporting companies, ASU 2020-06 was effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years.

Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020.

For all other entities, ASU 2020-06 was effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

In the first quarter of fiscal 2024, we adopted ASU 2020-06.

Upon adoption, we prospectively utilized the if-converted method to calculate the dilutive impact of our convertible note issued on May 11, 2023 (the "Convertible Note").

Financing Agreements" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information on the Convertible Note.

Accounting Standards Not Yet Adopted

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

There are no significant ASU's issued that the Company has not yet adopted as of July 29, 2023

Investments in Affiliates

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;

We evaluated the nature of our investment in affiliates of Xdisplay TM , 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 variable interest entity (VIE), and based on management's analysis, we determined that Daktronics is not the primary beneficiary;

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

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

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

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

The aggregate amount of our investments accounted for under the equity method was $ 10,804 and $ 11,934 as of July 29, 2023 and April 29, 2023, respectively.

Our proportional share of the respective affiliates' earnings or losses is included in the "Other expense and debt issuance costs write-off, net" line item in our condensed consolidated statements of operations.

For the three months ended July 29, 2023, our share of the losses of our affiliates was $ 690 as compared to $ 890 for the three months ended July 30, 2022.

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

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

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

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

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

54.5 percent in Miortech.

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

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

The total of these related party transactions for the three months ended July 29, 2023 and July 30, 2022 was $ 78 and $ 0 , respectively, which is included in the "Product design and development" line item in our condensed consolidated statements of operations, and

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

During the three months ended July 29, 2023, we invested $ 750 in convertible notes and $ 436 in promissory notes (collectively, "Notes") of our affiliates, which is included in the "Investment in affiliates and other assets" line item in our condensed consolidated balance sheets.

During the three months ended July 29, 2023, we did not convert any Notes to stock ownership.

Our ownership in Miortech was 55.9 percent and in Xdisplay TM was 16.4 percent as of July 29, 2023.

The total amount of Notes as of July 29, 2023 was $ 9,993 and is included in the "Investments in affiliates and other assets" line item in our condensed consolidated balance sheets.

The Notes balance combined with the investment in affiliates balance totaled $ 20,797 and $ 24,414 as of July 29, 2023 and July 30, 2022, respectively.

Earnings Per Share ("EPS")

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

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

For the three months ended January 28, 2023

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

Dilution associated with stock compensation plans — 61 —

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

For the three months ended January 29, 2022

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

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

For the nine months ended January 28, 2023

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

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

For the nine months ended January 29, 2022

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

In the first quarter of fiscal 2024, we adopted ASU 2020-06.

Upon adoption, we prospectively utilized the if-converted method to calculate the dilutive impact of our convertible note issued on May 11, 2023 (the "Convertible Note").

Financing Agreements" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information on the Convertible Note.

Under the if-converted method, the Convertible Note is assumed to be converted into common stock at the beginning of the reporting period, and the resulting shares are included in the denominator of the calculation.

In addition, interest charges, net of any income tax effects, are added back to the numerator of the calculation.

The following is a reconciliation of the net income (loss) and common share amounts used in the calculation of basic and diluted EPS for the three months ended July 29, 2023 and July 30, 2022:

Three Months Ended

2023 July 30,

Earnings per share - basic

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

Weighted average shares outstanding 45,645 45,097

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

Earnings per share - diluted

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

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

Weighted average common shares outstanding 45,645 45,097

Dilution associated with stock compensation plans 553 —

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

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

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

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

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

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

Revenue Recognition

Disaggregation of revenue

In accordance with Accounting Standards Codification ("ASC") 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition.

We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.

The following table presents our disaggregation of revenue by segments:

Three Months Ended January 28, 2023

Commercial Live Events High School

Park and Recreation

Transportation International Total

Type of performance obligation

Unique configuration $ 9,929 $ 53,437 $ 3,380 $ 11,446 $ 8,138 $ 86,330

Limited configuration 35,864 7,858 23,865 5,328 11,040 83,955

Service and other 4,174 6,453 1,067 804 2,192 14,690

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

Timing of revenue recognition

Goods/services transferred at a point in time $ 36,746 $ 10,125 $ 22,716 $ 5,571 $ 11,861 $ 87,019

Goods/services transferred over time 13,221 57,623 5,596 12,007 9,509 97,956

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

Nine Months Ended January 28, 2023

Commercial Live Events High School

Park and Recreation

Transportation International Total

Type of performance obligation

Unique configuration $ 20,198 $ 148,467 $ 17,828 $ 35,330 $ 20,762 $ 242,585

Limited configuration 94,408 26,013 85,123 15,969 36,826 258,339

Service and other 12,526 18,890 3,176 2,498 6,320 43,410

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

Timing of revenue recognition

Goods/services transferred at a point in time $ 97,381 $ 31,029 $ 80,935 $ 16,702 $ 38,756 $ 264,803

Goods/services transferred over time 29,751 162,341 25,192 37,095 25,152 279,531

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

Three Months Ended January 29, 2022

Three Months Ended July 29, 2023

Commercial Live Events High School

10 unchanged sentences

$ 46,883 $ 91,999 $ 56,234 $ 21,369 $ 16,046 $ 232,531

Nine Months Ended January 29, 2022

Three Months Ended July 30, 2022

Commercial Live Events High School

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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.

Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to

accounts receivable when they are billed according to the contract terms.

Contract liabilities represent amounts billed to the customers in excess of revenue recognized to date.

5 unchanged sentences

Contract liabilities - noncurrent 14,541 13,096 1,445 11.0

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

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

The changes in our contract assets and contract liabilities from April 29, 2023 to July 29, 2023 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets.

We had no impairments of contract assets for the three months ended July 29, 2023.

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

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Foreign currency translation and other ( 1,044 )

Balance as of January 28, 2023 $ 29,131

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

Balance as of July 29, 2023 $ 30,727

Contracts in progress identified as loss contracts as of July 29, 2023 and as of April 29, 2023 were immaterial.

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

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

During the three months ended July 29, 2023, we recognized revenue of $ 59,506 related to our contract liabilities as of April 29, 2023.

Remaining performance obligations

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

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

As of July 29, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations was $ 386,622 .

Remaining performance obligations related to product and service agreements as of July 29, 2023 were $ 323,725 and $ 62,897 , respectively.

We expect approximately $ 320,898 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter.

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Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations, and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate.

The amount of revenue recognized associated with performance obligations satisfied in prior years during the three months ended July 29, 2023 and July 30, 2022 was immaterial.

Segment Reporting

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

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Three Months Ended

2023 July 30,

Commercial $ 46,883 $ 40,118

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Product design and development 8,403 7,439

Goodwill impairment 4,576 — 4,576 —

30,931 31,313

2 unchanged sentences

Interest (expense) income, net ( 881 ) ( 60 )

Other expense, net ( 1,380 ) ( 793 ) ( 2,335 ) ( 2,613 )

Change in fair value of convertible note ( 7,260 ) —

Other expense and debt issuance costs write-off, net ( 3,979 ) ( 747 )

Income (loss) before income taxes $ 28,096 $ ( 6,326 )

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International 566 545

Unallocated corporate depreciation 634 677 1,943 2,056

Unallocated corporate depreciation and amortization 818 647

$ 4,669 $ 4,025

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

Three Months Ended Nine Months Ended

2023 January 29,

2022 January 28,

2023 January 29,

Three Months Ended

2023 July 30,

United States $ 214,593 $ 149,438

6 unchanged sentences

$ 72,080 $ 72,147

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

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.

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

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

Live Events Commercial Transportation International Total

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

Commercial Transportation Total

Balance as of April 29, 2023 $ 3,198 $ 41 $ 3,239

Foreign currency translation 72 21 93

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

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

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

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

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

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

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

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

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

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

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

Financing Agreements

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

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

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

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

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

As of January 28, 2023, we had $ 616 of bank guarantees or other financial instruments for display installations issued by another bank and secured by a restricted cash deposit.

Long-term debt consists of the following:

2023 April 29,

ABL credit facility $ — $ —

Prior line of credit — 17,750

Mortgage 15,000 —

Convertible note 25,000 —

Long-term debt, gross 40,000 17,750

Debt issuance costs ( 4,338 ) —

Change in fair value of convertible note 7,260 —

Current portion ( 1,500 ) —

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

Credit Agreements

On May 11, 2023, we closed on a $ 75,000 senior credit facility (the "Credit Facility").

The Credit Facility consists of a $ 60,000 asset-based revolving credit facility (the "ABL") maturing on May 11.

2026, secured by first priority lien on the Company's assets and which is subject to certain factors which can impact our borrowing capacity, and a $ 15,000 delayed draw loan (the "Delayed Draw Loan") secured by a first priority mortgage on our Brookings, South Dakota real estate (the "Mortgage").

The ABL and Delayed Draw Loan are evidenced by a Credit Agreement dated as of May 11, 2023 (the "Credit Agreement") between the Company and JPMorgan Chase Bank, N.A., as the lender.

On May 11, 2023 the Company paid all amounts outstanding on the prior credit agreement and this prior credit agreement was terminated as of this date.

No gain or loss was recognized upon termination and the Company incurred no early termination penalties in connection with such termination.

Under the ABL, certain factors can impact our borrowing capacity.

As of July 29, 2023, our borrowing capacity was $ 47,596 , and there were no borrowings outstanding and $ 1,460 used to secure letters of credit outstanding.

The interest rate on the ABL is set on a sliding scale based on the trailing 12 month fixed charge coverage and ranges from 2.5 percent to 3.5 percent over the standard overnight financing rate (SOFR).

The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the Pledge and Security Agreement dated as of May 11, 2023 by and among the Company, Daktronics Installation, Inc.

and JPMorgan Chase Bank, N.A.

The $ 15,000 Delayed Draw Loan was funded on July 7, 2023 and is secured the Mortgage on the Company's Brookings, South Dakota real estate.

It amortizes over 10 years and has monthly payments of $ 125 .

The Delayed Draw Loan is subject to the terms of the Credit Agreement and matures on May 11, 2026.

The interest rate on the Delayed Draw Loan is set on a sliding scale based on the trailing 12 month fixed charge coverage ratio and ranges between 1.0 percent and 2.0 percent over the Commercial Bank Floating Rate (CBFR).

Convertible Note

On May 11, 2023, we issued $ 25,000 in aggregate principal amount evidenced by the secured Convertible Note due May 11, 2027.

The Convertible Note holder has a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank N.A., and the holder of the Convertible Note.

Conversion Features

• The Convertible Note allows the Investor and any of the Investor’s permitted transferees, donees, pledgees, assignees or successors-in-interest (collectively, the “Selling Shareholders”) to convert all or any portion of the principal amount of the Convertible Note, together with any accrued and unpaid interest and any other unpaid amounts, including late charges, if any (together, the “Conversion Amount”), into shares of the Company’s common stock at an initial conversion price of $ 6.31 per share, subject to adjustment in accordance with the terms of the Convertible Note (the “Conversion Price”).

• The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions set forth in the Convertible Note, pursuant to which it can cause all or any portion of the outstanding and unpaid Conversion Amount to be converted into shares of common stock at the Conversion Price.

Additionally, if the Company fails other than by reason of a failure by the Holder to comply with its obligations, the Holder is permitted to cash payments from the Company until the Conversion Failure is cured.

Redemption Features

• If the Company were to have an Event of Default, as defined by the Convertible Note, then the Holder may require the Company to redeem all or any portion of the Note.

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

Interest is payable in either (i) cash or (ii) in a combination of cash interest and capitalized interest at the option of the Company;

provided, however, that at least fifty percent (50%) of the interest paid on each interest date must be paid as cash interest.

The Convertible Note accrues interest quarterly at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is paid in kind.

Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent.

The annual rate of 9.0 percent was used to calculate the interest accrued as of July 29, 2023.

We elected the fair value option to account for the Convertible Note as described in "Note 10.

Fair Value Measurement" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information.

The financial liability was initially measured at its issue-date fair value and is subsequently remeasured at fair value on a recurring basis at each reporting period date.

We have elected to present the fair value and the accrued interest component separately in the income statement.

Therefore, interest will be recognized and accrued separately in interest expense, with changes in fair value of the Note presented in the "Change in fair value of convertible note" line item in our condensed consolidated statements of operations.

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

Liability Component

(in thousands)

As of May 11, 2023 $ 25,000

Redemption of convertible promissory note —

Fair Value Change Recognized 7,260

As of July 29, 2023 $ 32,260

The estimated fair value of the Convertible Note upon issuance date May 11, 2023 and as of July 29, 2023 was computed using a Binomial Lattice Model which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement.

We determined the fair value by using the following key assumptions in the Binomial Lattice Model:

Risk-Free Rate (Annual) 4.34 %

Implied Yield 18.54 %

Volatility (Annual) 55.00 %

Dividend Yield (Annual) — %

The Credit Agreement and the Convertible Note require a fixed charge coverage ratio of greater than 1.1 and include other customary non-financial covenants.

As of July 29, 2023, we were in compliance with our financial covenants under the Credit Agreement and the Convertible Note.

Debt Issuance Costs

Debt issuance costs incurred and capitalized are amortized on a straight-line basis over the term of the associated debt agreement.

If early principal payments or conversions occur, a proportional amount of unamortized debt issuance costs is expensed.

As part of these financings, we capitalized $ 8,019 in debt issuance costs.

During the first quarter, due to the Convertible Note being accounted for at fair value, we expensed $ 3,353 of the related debt issuance costs which is included in the "Other expense and debt issuance costs write-off, net" line item in our condensed consolidated statements of operations.

During the first quarter, we have amortized $ 328 of debt issuance costs.

The remaining debt issuance costs of $ 4,338 is being amortized over the four-year term of the Credit Facility agreement.

Fair Value and Future Maturities

As of July 29, 2023 and April 29, 2023, the fair value of long-term debt, gross was $ 47,260 and $ 17,750 , respectively.

The fair value of the Convertible Notes was $ 32,260 as of July 29, 2023.

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

Fiscal years ending Amount

Remainder of 2024 $ 1,125

2029 and beyond —

Total senior secured notes and convertible notes $ 40,000

As of July 29, 2023, we had $ 6,114 of bank guarantees or other financial instruments for display installations issued by other banks and secured by restricted cash deposits.

If we are unable to meet the terms of the arrangement, the bank would subrogate its loss by drawing on the secured cash deposit.

2 unchanged sentences

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.

For unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss will be incurred.

We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for our financial statements to not be misleading.

We do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies.

Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.

For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss 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.

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

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

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

District Court for the Southern District of New York.

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

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

We believe the likelihood of loss is remote.

Accordingly, no accrual has been made.

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

Changes in our warranty obligation for the three months ended July 29, 2023 consisted of the following:

Beginning accrued warranty obligations $ 32,541

5 unchanged sentences

We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts.

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

As of July 29, 2023, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $ 1,460 , $ 6,114 and $ 40,394 , respectively.

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

These performance guarantees have various terms but are generally one year.

These performance guarantees have various terms but generally have a term of one year.

We enter into written agreements with our customers, and those agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss.

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

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

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

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income (or loss) for the year, projections of the proportion of income (or loss) earned and taxed in foreign jurisdictions, and permanent and temporary differences and the likelihood of recovering deferred tax assets, then adjusted for any discrete items.

The accounting estimates used to compute the provision for income taxes may change as new events occur, assumptions change, or additional information is obtained.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As of July 29, 2023, we were not aware of any material indemnification claims.

Our effective tax rate for the three months ended July 29, 2023 was a tax rate of 31.7 percent, as compared to an effective tax rate of 15.8 percent for the three months ended July 30, 2022.

The higher tax rate is caused by the fair value adjustment to income that is not taxable.

We operate both domestically and internationally and, as of July 29, 2023, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely.

Additionally, as of July 29, 2023, we had $ 521 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

Fair Value Measurement

The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at January 28, 2023 and April 30, 2022 according to the valuation techniques we used to determine their fair values.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of July 29, 2023 and April 29, 2023 according to the valuation techniques we used to determine their fair values.

There have been no transfers of assets or liabilities among the fair value hierarchies presented.

1 unchanged sentence

Level 1 Level 2 Level 3 Total

Balance as of January 28, 2023

Balance as of July 29, 2023

Cash and cash equivalents $ 45,775 $ — $ — $ 45,775

Restricted cash 8,575 — — 8,575

Convertible Note Payable — — 32,260 32,260

Available-for-sale securities:

6 unchanged sentences

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 — ( 579 ) — ( 579 )

$ 24,690 $ ( 45 ) $ — $ 24,645

There have been no changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2022.

We elected to value the Convertible Note at fair value in accordance with ASC 825-10-15-4(a) because of the embedded derivatives contained in the note.

The fair value of the Convertible Note was estimated using a binomial lattice model.

Binomial lattice allows for the examination of the value to a holder and understanding the investment decision that would occur at each node.

The fair value of the Convertible Note entered into during the first quarter of fiscal 2024 was classified as Level 3 because it does not have readily determinable or observable inputs for the valuation.

There have been no other changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2023.

For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 29, 2023 for the methods and assumptions used to estimate the fair value of each class of financial instrument.

Related Party Transactions

The Board has adopted a written policy and procedures with respect to related party transactions, which the Audit Committee oversees.

Under the policy, a "related party transaction" is generally defined as a transaction, arrangement, or relationship in which the Company was, is or will be a participant;

the amount involved exceeds $ 120 ;

and in which any "related person" had, has or will have a direct or indirect material interest.

The policy generally defines a "related person" as a Director, executive officer or beneficial owner of more than five percent of any class of our voting securities and any immediate family member of any of the foregoing persons.

The Audit Committee reviews and, if appropriate, approves related party transactions, including certain transactions which are deemed to be pre-approved under the policy.

On an annual basis, the Audit Committee reviews any previously approved related party transaction that is ongoing.

As reported in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” of Form 10-K, effective on May 11, 2023, the Company entered into the Securities Purchase Agreement with Alta Fox Opportunities Fund, LP (the “Investor”).

Under the Securities Purchase Agreement, the Company sold and issued to the Investor the Convertible Note in exchange for the payment by the Investor to the Company of $ 25,000 .

As of May 11, 2023, and based on Amendment No.

3 to the Schedule 13D filed

by the Investor and its affiliates named therein on May 15, 2023 with the SEC, the Investor and its affiliates beneficially owned 4,768 shares of common stock of the Company, representing 9.99 percent of the Company’s common stock, causing the Investor to be a “related party” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933.

The Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Investor and the Company, and the Registration Rights Agreement were approved in advance of their execution by the Company’s Strategy and Financing Review Committee, the members of which include all members of the Company’s Audit Committee.

Since May 11, 2023 the largest aggregate amount outstanding under the Convertible Note was $ 25,475 , consisting of $ 25,000 of principal and $ 475 of interest;

a total of $ 25,475 outstanding;

and, since May 11, 2023;

no payments of principal or interest had been made on the amounts due under the Convertible Note.

The description of the Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Investor and the Company, the Registration Rights Agreement, and their respective terms set forth in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” was hereby incorporated by reference into this Item 13 of the form 10-K.

In addition, the Company is a party to the Standstill and Voting Agreement dated as of March 19, 2023 with Alta Fox Management, LLC and Connor Haley (the “Standstill Agreement”).

The Standstill Agreement is filed as Exhibit 10.13 to Form 10-K.

As described in Amendment No.

3 (“Amendment No.

3”) to the Schedule 13D filed by the Investor and its affiliates named therein on June 9, 2023 with the SEC and based on other information provided by the Investor, the following persons may be deemed to be beneficial owners of the shares of the Company’s common stock owned by the Investor:

Alta Fox GenPar, LP, as the general partner of Alta Fox Opportunities Fund, LP;

Alta Fox Equity, LLC, as the general partner of Alta Fox GenPar, LP;

Alta Fox Capital Management, LLC, as the investment manager of Alta Fox Opportunities Fund, LP;

Connor Haley, as the sole owner, member and manager of each of Alta Fox Capital Management, LLC and Alta Fox Equity LLC.

On June 7, 2023, the Company received from the Investor written notice of a decrease in the “Percentage Cap” (as such term is defined in the Convertible Note) from 9.99 percent to 4.99 percent which decrease became effective immediately upon the Company’s receipt of such written notice.

The Percentage Cap generally represents the maximum percentage of shares of the Company’s common stock the Investor may own.

Based on Amendment No.

3, the Investor and its affiliates identified in Amendment No.

3 owned 2,293 shares of common stock on June 9, 2023, representing 4.99 percent of the common stock of the Company, meaning the Investor and its affiliates are no longer “related parties” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933.

During the first quarter of fiscal 2024, the Company and South Dakota Board of Regents entered into a contract for video display systems for Dakota State University.

The amount of the contract was $ 150 .

A member of the Company's Board of Directors is the President of Dakota State University.

See Note 2 for further details of related party transactions with our Investments in affiliates.

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

What changed 10-Q

Item 1. Financial Statements