DAKTRONICS INC /SD/ 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, April 27, 2024, to and including July 27, 2024 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. This Quarterly Report on Form 10-Q, including the MD&A, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words "may," "would," "could," "should," "will," "expect," "estimate," "anticipate," "believe," "intend," "plan," "forecast," "project" and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any and all forecasts and projections in this document are “forward-looking statements” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us. Any or all forward-looking statements in this report and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the uncertainties related to market conditions and entry into a financing transaction; the Company’s potential need to seek additional strategic alternatives, including seeking additional debt or equity capital or other strategic transactions and/or measures; the Company’s ability to finalize or fully execute actions and steps that would be probable of mitigating the existence of any “substantial doubt” regarding the Company’s ability to continue as a going concern; the Company’s ability to increase cash flow to support the Company’s operating activities and fund its obligations and working capital needs; our ability to obtain additional financing on terms favorable to us, or at all; any future goodwill impairment charges; and the other risk factors described more fully in the Company’s Annual Report on Form 10-K for the fiscal year ended April 27, 2024 filed with the SEC, as well as other publicly available information about the Company. We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended April 27, 2024 (including the information presented therein under Risk Factors), as well as other publicly available information about our Company. The quarter-over-quarter comparisons in this MD&A are as of and for the fiscal quarters ended July 27, 2024 and July 29, 2023 unless otherwise stated. Non-GAAP Measures Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, marketing related expenses (show rooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses. In addition to gross profit, management uses contribution margin as another measure of assessing segment profitability and allocating selling 20 Table of Contents resources to each segment. Management believes that contribution margin is useful to investors because it permits investors to view and evaluate our segment financial performance through the same lens as management. Overview Daktronics, Inc. and its subsidiaries are industry leaders in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications. We serve our customers by providing high quality standard display products as well as custom-designed and integrated systems. We offer a complete line of products, from small scoreboards and electronic displays to large multimillion-dollar video display systems as well as related control, timing, and sound systems. We are recognized as a technical leader with the capabilities to design, market, manufacture, install and service complete integrated systems displaying real-time data, graphics, animation and video. We engage in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services and customer service and support. Daktronics, Inc. operates 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 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 three months ended July 27, 2024 and July 29, 2023 contained operating results for 13 weeks. Known Trends and Uncertainties During fiscal 2024, we converted pandemic related pent-up backlog into record levels of sales and gross profit. In fiscal 2025, we will be more dependent on the timing, size, and profitability profile of the orders we win to be able to generate sales and gross profit levels at similar levels. We are investing in capacity and resources to grow the business and penetrate markets. As a result, we currently expect that our order volume and operating expenses in fiscal 2025 will exceed that of fiscal 2024. While the expansion of use of digital display systems in the global market is expected, actual market increases are uncertain and a number of factors can impact a customers timing to commit to a system. We carefully evaluate the capacity and resource levels, however, there can be periods sales and expenses can be misaligned and impact our sales and profitability levels. Global investments have been made in manufacturing capacity and advancement in display and control technologies. A majority of digital displays are constructed using standard surface mount display technology. Chip on board technologies are advancing for narrow pixel pitch (NPP) applications. Micro-LED technologies (also referred to as narrow pixel pitch) are being used and advanced, especially for displays installed for short viewing distances. Advancements related to digital displays use continue related to professional services, including the use of artificial intelligence and other software which improve content creation, user interfaces, digital display monitoring systems, and security. We are adopting our manufacturing, sourcing capabilities, and product development priorities for these evolving changes in market and technology trends. Overall, we have a unique leadership position in our target markets, which are large, growing, and enjoy resilient demand driven by our customers’ desire to improve their audience experience in sports, commercial, and transportation environments. To capitalize on this position, we are focused on digital and business transformation, improving our cost structure, and further growing our markets. To accelerate these initiatives, we are projecting to spend between $8 and $10 million for transformation efforts impacting fiscal 2025 profitability. We believe the audiovisual industry fundamentals of increased use of LED display systems across industries and our development of new technologies, services, and sales channels will drive long-term growth for our Company. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED JULY 27, 2024 AND JULY 29, 2023 Product Order Backlog Backlog represents the dollar value of orders for integrated electronic display systems and related products and services which are expected to be recognized in net sales in the future. Orders are contractually binding purchase commitments from customers. Orders are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Orders and 21 Table of Contents backlog are not metrics defined by accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts. Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multi-million dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. Order fulfillment timing is dependent on customer schedules, supply chain conditions, and our capacity availability. We believe order information is useful to investors because it provides an indication of our market share and future revenues. Our product order backlog as of July 27, 2024 was $267.2 million as compared to $323.7 million as of July 29, 2023 and $316.9 million as of April 27, 2024. The decrease in backlog, to more historical levels is a result of fulfilling orders at a greater pace as supply chain conditions stabilized and production lead times improved, utilizing our increased capacity, and order pace returning to more normalized rates. We expect to fulfill the backlog as of July 27, 2024 within the next 24 months. The timing of backlog fulfillment may be impacted by project delays resulting from customer site conditions, which are outside our control. 22 Table of Contents Consolidated Performance Summary The following is an analysis of changes in key items included in the statements of operations for the three months ended July 27, 2024 and July 29, 2023: July 27, 2024 % of Net sales (1) July 29, 2023 % of Net sales (1) Dollar Change (1) Percent Change (1) Net sales $ 226,088 100.0 % $ 232,531 100.0 % $ (6,443) (2.8) % Cost of sales 166,390 73.6 161,384 69.4 5,006 3.1 Gross profit 59,698 26.4 71,147 30.6 (11,449) (16.1) Operating expenses: — — Selling 15,636 6.9 12,929 5.6 2,707 20.9 General and administrative 11,723 5.2 9,599 4.1 2,124 22.1 Product design and development 9,623 4.3 8,403 3.6 1,220 14.5 Total operating expenses 36,982 16.4 30,931 13.3 6,051 19.6 Operating income 22,716 10.0 40,216 17.3 (17,500) (43.5) Nonoperating (expense) income: Interest (expense) income, net (71) — (881) (0.4) 810 (91.9) Change in fair value of convertible note (21,590) (9.5) (7,260) (3.1) (14,330) 197.4 Other expense and debt issuance costs write-off, net (835) (0.4) (3,979) (1.7) 3,144 (79.0) Income before income taxes 220 0.1 28,096 12.1 (27,876) (99.2) Income tax expense 5,166 2.3 8,900 3.8 (3,734) (42.0) Net (loss) income $ (4,946) (2.2) % $ 19,196 8.3 % $ (24,142) (125.8) % Diluted (loss) earnings per share $ (0.11) $ 0.42 $ (0.53) (126.2) % Diluted weighted average shares outstanding 46,311 46,198 113 0.2 % Orders $ 176,170 $ 158,630 $ 17,540 11.1 % (1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided. In addition, percentages may not add in total due to rounding. Net Sales: The sales decrease was the result of comparatively lower volumes in the Commercial, High School Park and Recreation, and International business units, partially offset by order fulfillments in the Live Events and Transportation business units. During the first quarter of fiscal 2024, the operating environment and supply chain stabilized, and we were able to capitalize on our capacity investments to fulfill the overbuilt backlog and return to more normalized lead times, which led to a record net sales level. These more normalized conditions have continued since and through the fiscal first 23 Table of Contents quarter 2025. The amount of revenue recognized associated with performance obligations satisfied in prior years during the three months ended July 27, 2024 and July 29, 2023 was immaterial. Order volume growth was driven by rebounding demand in the On-Premise, Spectacular and Out‐of‐Home markets in our Commercial business unit, and solid growth in the High School Parks and Recreation and Transportation business units. These higher orders offset an order decrease in the Live Events and International business units. Variability in orders comparatively is natural in these large project business areas. Gross profit percentage decrease is partially attributable to the comparative period gross profit was generated in a unique period of record sales levels over the fixed manufacturing cost structure. Total warranty costs as a percent of sales the first quarter of fiscal 2025 remained similar compared to the same period one year ago of 2.1 percent. Selling expenses increased because of personnel related wages and benefits expense, investments in staffing to support future growth; travel and entertainment; and marketing, conventions and advertising. General and administrative increased because of personnel related wages and benefits for increased staffing levels, increased professional fees, and increased expenses for technology resources for our digital transformation strategies. Product design and development increased primarily due to personnel-related expenses and for increased staffing levels. Our focus has been to advance product features aligned with customer needs and to reduce product costs. We focused these efforts on both standard product and control offerings and in new emerging areas, including microLED products and new control capabilities. Interest (expense) income, net decrease was the result of higher cash levels invested in interest-bearing investment accounts offsetting interest expense on similar debt levels. Change in fair value of Convertible Note results from accounting for the convertible note (the "Convertible Note") we issued to Alta Fox Opportunities Fund, LP during fiscal 2024, under the fair value option. The fair value change was primarily caused by the increase in value of the embedded features of the Convertible Note, as our stock price has increased since April 27, 2024. Other expense and debt issuance costs write-off, net: During fiscal 2024, we expensed $3.4 million of debt issuance costs related to the Convertible Note issuance. Income tax expense: Our effective tax rate for the first quarter of fiscal 2025 was skewed due to the impact of the fair value adjustment to the Convertible Note in proportion to the period's small pre-tax income. The effective tax rate was 31.7 percent for the first quarter of fiscal 2024. Both periods' income before taxes included the impacts of the change in the Convertible Note fair value adjustment. These changes are not deductible or taxable, which impacts the effective tax rate. Reportable Segment Performance Summary The following table shows information regarding our reportable segment financial performance of contribution margin reconciled to GAAP operating income for the three months ended July 27, 2024 and July 29, 2023: 24 Table of Contents Three Months Ended July 27, 2024 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 34,199 $ 108,608 $ 48,006 $ 22,490 $ 12,785 $ 226,088 Cost of sales 26,604 77.8 % 82,580 76.0 % 30,690 63.9 % 14,741 65.5 % 11,775 92.1 % 166,390 73.6 % Gross profit 7,595 22.2 26,028 24.0 17,316 36.1 7,749 34.5 1,010 7.9 59,698 26.4 Selling 4,384 12.8 2,888 2.7 4,086 8.5 1,399 6.2 2,879 22.5 15,636 6.9 Contribution margin 3,211 9.4 23,140 21.3 13,230 27.6 6,350 28.2 (1,869) (14.6) 44,062 19.5 General and administrative — — — — — — — — — — 11,723 5.2 Product design and development — — — — — — — — — — 9,623 4.3 Operating income (loss) $ 3,211 9.4 % $ 23,140 21.3 % $ 13,230 27.6 % $ 6,350 28.2 % $ (1,869) (14.6) % $ 22,716 10.0 % Orders $ 42,122 $ 50,899 $ 46,447 $ 22,759 $ 13,943 $ 176,170 Three Months Ended July 29, 2023 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 46,883 $ 91,999 $ 56,234 $ 21,369 $ 16,046 $ 232,531 Cost of sales 34,114 72.8 % 64,059 69.6 % 35,409 63.0 % 14,280 66.8 % 13,522 84.3 % 161,384 69.4 % Gross profit 12,769 27.2 27,940 30.4 20,825 37.0 7,089 33.2 2,524 15.7 71,147 30.6 Selling 4,048 8.6 2,525 2.7 3,362 6.0 899 4.2 2,095 13.1 12,929 5.6 Contribution margin 8,721 18.6 25,415 27.6 17,463 31.1 6,190 29.0 429 2.7 58,218 25.0 General and administrative — — — — — — — — — — 9,599 4.1 Product design and development — — — — — — — — — — 8,403 3.6 Operating income (loss) $ 8,721 18.6 % $ 25,415 27.6 % $ 17,463 31.1 % $ 6,190 29.0 % $ 429 2.7 % $ 40,216 17.3 % Orders $ 32,434 $ 52,203 $ 35,739 $ 18,985 $ 19,269 $ 158,630 Net Dollar and % Change Commercial Percent Change (1) Live Events Percent Change (1) High School Park and Recreation Percent Change (1) Transportation Percent Change (1) International Percent Change (1) Total Percent Change (1) Net sales $ (12,684) (27.1) % $ 16,609 18.1 % $ (8,228) (14.6) % $ 1,121 5.2 % $ (3,261) (20.3) % $ (6,443) (2.8) % Cost of sales (7,510) (22.0) 18,521 28.9 (4,719) (13.3) 461 3.2 (1,747) (12.9) 5,006 3.1 Gross profit (5,174) (40.5) (1,912) (6.8) (3,509) (16.8) 660 9.3 (1,514) (60.0) (11,449) (16.1) Selling 336 8.3 363 14.4 724 21.5 500 55.6 784 37.4 2,707 20.9 Contribution (5,510) (63.2) (2,275) (9.0) (4,233) (24.2) 160 2.6 (2,298) (535.7) (14,156) (24.3) General and administrative — — — — — — — — — — 2,124 22.1 Product design and development — — — — — — — — — — 1,220 14.5 Operating income (loss) $ (5,510) (63.2) % $ (2,275) (9.0) % $ (4,233) (24.2) % $ 160 2.6 % $ (2,298) (535.7) % $ (17,500) (43.5) % Orders $ 9,688 29.9 % $ (1,304) (2.5) % $ 10,708 30.0 % $ 3,774 19.9 % $ (5,326) (27.6) % $ 17,540 11.1 % (1) Amounts are calculated on unrounded numbers and therefore may not recalculate using the rounded numbers provided. In addition, percentages may not add in total due to rounding. In the first quarter, both sales and gross profit levels declined comparatively because of the change in operating environments over the two periods. During the first quarter of fiscal 2024, there were fewer supply chain and operational disruptions paired with our investments to increase capacity allowed for improved operational efficiency and fulfillment of the built-up backlog. We returned to delivering at normalized lead times resulting in record sales and gross profit levels for 25 Table of Contents the first quarter of fiscal 2024. These more normalized conditions have continued since and through the fiscal first quarter of 2025. Commercial: On-Premise digital signage sales were similar to last year, however, we fulfilled fewer larger sized Spectacular LED video display projects and digital billboards, causing a decline in sales. There were fewer large sized projects in the market as compared to prior years. Gross profit as a percentage of sales declined because of the factors noted above. Selling expenses remained relatively flat in dollars; however, increased as percent of sales primarily because of personnel related wages and benefit costs for investments in staffing to support future growth. Order bookings remained strong in On-Premise digital signage. Digital billboard order bookings increased as a result in our marketing efforts to independent billboard operators. Live Events: The increase in net sales was driven by fulfilling order backlog for upgrades in sports-related facilities, primarily in colleges and universities. Gross profit as a percentage of sales decline is partially attributable to the comparative period gross profit was generated in a unique period of record sales levels over the fixed manufacturing cost structure. Selling expenses remained relatively flat as a percent of sales and increased in dollar amounts primarily because of increases in personnel related wages and benefits. Order bookings remained relatively flat. High School Park and Recreation: During fiscal 2024, we returned to normalized lead times which led to higher sales in that period as compared to fiscal 2025's more normalized levels. Gross profit as a percentage of sales declined because of the factors noted above. Selling expenses increased primarily because of personnel related wages and benefit costs for investments in staffing to support future growth. Order bookings increased as a result of the trends for schools to use video solutions which are larger dollar-sized transactions than traditional scoreboard projects. Transportation: The increase in net sales was driven by fulfilling orders in backlog and continued order bookings, especially in large intelligent transportation system projects. Gross profit as a percentage of sales increased as a result of a change in product mix. Selling expenses increased primarily because of personnel related wages and benefit costs for investments in staffing to support future growth. Order bookings vary because of large project booking timing. During the first quarter of fiscal 2025, we booked a large transit agency project. International: The decrease in net sales was driven by lower backlog and lower orders. Global geopolitical events and related macroeconomic trends have driven down the amount of market activity for digital display systems and large-sized projects causing the decrease in orders. Gross margin decreased primarily because of underutilized factory capacity. Even with efforts to decrease selling and other operational costs, our International business unit operated at a negative $1.9 million contribution margin. Order bookings vary because of large project booking timing and have been impacted by general economic conditions. LIQUIDITY AND CAPITAL RESOURCES Three Months Ended (in thousands) July 27, 2024 July 29, 2023 Dollar Change Net cash provided by (used in): Operating activities $ 19,481 $ 19,250 $ 231 Investing activities (5,969) (5,706) (263) Financing activities 2,062 16,356 (14,294) Effect of exchange rate changes on cash (64) (240) 176 Net increase in cash, cash equivalents and restricted cash $ 15,510 $ 29,660 $ (14,150) Net cash provided by operating activities: The generation of $19.5 million of cash provided by operating activities was the result of positive operating income offset by the use of cash for the net growth in operating assets and liabilities. During the quarter, cash was consumed as accounts receivable grew related to seasonally higher demand, the payment of income taxes, and payments of fiscal 2024's profit sharing and variable compensation earned. These cash uses were offset by our continued focus on lowering inventory levels through purchasing management and enhancing parts planning and by managing supplier payment terms through accounts payable. 26 Table of Contents The changes in net operating assets and liabilities consisted of the following: Three Months Ended July 27, 2024 July 29, 2023 (Increase) decrease: Accounts receivable $ (15,076) $ (15,437) Long-term receivables 316 369 Inventories 3,153 4,419 Contract assets 1,709 (3,693) Prepaid expenses and other current assets (37) (179) Income tax receivables 339 322 Investment in affiliates and other assets (1) 23 Increase (decrease): Accounts payable 5,336 (5,958) Contract liabilities 7,304 (881) Accrued expenses (2,174) (554) Warranty obligations (132) 1,415 Long-term warranty obligations 1,079 612 Income taxes payable (4,267) 2,786 Long-term marketing obligations and other payables (1,314) (119) $ (3,765) $ (16,875) Net cash used in investing activities: During the first quarter of fiscal 2025 and fiscal 2024, purchase of property and equipment totaled $5.1 million and $4.5 million, respectively, and investments in affiliates were $0.9 million and $1.2 million, respectively. Net cash provided by financing activities: During the fiscal 2025 first quarter, financing cash included the $3.1 million received for the exercise of stock options, partially offset by payments on notes payable. Fiscal 2024 first quarter cash inflow resulted from closing on the $25.0 million Convertible Note financing and the $15.0 million mortgage financing to add liquidity to the Company. These inflows were offset by the payoff of our previous credit line of $17.8 million, expending $5.8 million of debt issuance costs, and principal payments made on the mortgage loan described below. Debt and cash We maintain a $60.0 million asset-based revolving credit facility ("ABL") with a maturity date of May 11, 2026 subject to customary covenants and conditions. As of July 27, 2024, we had no borrowings against the ABL and $5.3 million used to secure letters of credit outstanding. We also have a loan of $13.5 million secured by a first priority mortgage lien on our Brookings, South Dakota real estate and $25.0 million evidenced by the Convertible Note secured by a second priority lien on the assets securing the ABL facility and a first priority lien on substantially all the other assets of the Company, excluding all real property. As of July 27, 2024, we had $96.8 million in cash and cash equivalents and $38.6 million in borrowing capacity under our ABL. We believe cash flow from operations, existing lines of credit, and access to debt and capital markets will be sufficient to meet our current liquidity needs, and we have committed liquidity and cash reserves in excess of our anticipated funding requirements. Our cash and cash equivalent balances consist of high-quality, short-term money market instruments. Working Capital Working capital was $230.5 million and $209.7 million as of July 27, 2024 and April 27, 2024, respectively. The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, and contract assets and 27 Table of Contents liabilities, are impacted by the sports market and construction seasonality. These changes can have a significant impact on the amount of net cash provided by or used in operating activities largely due to the timing of payments for inventory and subcontractors and receipts from our customers. On multimillion-dollar orders, the time between order acceptance and project completion may extend up to or exceed 12 months depending on the amount of custom work and a customer’s delivery needs. We use cash to purchase inventory and services at the beginning of these orders and often receive down payments or progress payments on these orders to balance cash flows. We had $12.3 million of retainage on long-term contracts included in receivables and contract assets as of July 27, 2024 which we expect to collect within one year. Other Liquidity and Capital Uses Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain a reasonable liquidity and leverage ratio that reflects a prudent and compliant capital structure in light of the cyclically of business, reduce debt, and then, as allowed under any restrictive debt covenants, return excess cash over time to shareholders through dividends and share repurchases. Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting to spend between $8 and $10 million for these transformation efforts and our total capital expenditures to be approximately $27 million for fiscal 2025. Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product production and expanded capacity and increased automation of processes; investments in quality and reliability equipment and demonstration and showroom assets; and continued information infrastructure investments. In addition to capital expenditures, we plan to make additional investments in our general and administration expenses to execute our broad digital transformation strategies to modernize our service systems for field service automation, to advance our enterprise performance planning capabilities, and to improve and automate quoting and sales processes. We also evaluate and may make strategic investments in new technologies or in our affiliates or acquire companies aligned with our business strategy. We are committed to invest an additional $0.5 million in fiscal 2025 in our current affiliates. We may make additional investments beyond our commitments. We are sometimes required to obtain performance bonds for display installations, and we have an aggregate of $190.0 million bonding line available through surety companies. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. As of July 27, 2024, we had $15.7 million of bonded work outstanding. Contractual Obligations and Commercial Commitments There have been no material changes in our contractual obligations since the end of fiscal 2024. See our Annual Report on Form 10-K for the fiscal year ended April 27, 2024 for additional information regarding our contractual obligations and commercial commitments. Significant Accounting Policies and Estimates We describe our significant accounting policies in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 27, 2024. We discuss our critical accounting estimates in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended April 27, 2024. New Accounting Pronouncements For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements. 28 Table of Contents Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 27, 2024. There have been no other material changes in our exposure to these risks during the first three months of fiscal 2025.