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Item 2. Management’s Discussion and Analysis

2024-12-04 compared with 2024-09-04 · 228 added, 109 removed, 191 unchanged (64% of the section changed)

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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.

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 October 26, 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.

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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.

Important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts and orders, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, increased regulation, 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.

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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.

Risk Factors" of Part I), 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 October 26, 2024 and October 28, 2023 unless otherwise stated.

Non-GAAP Measures

Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses.

Contribution margin is a non-GAAP measure we use 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

resources to each segment.

In addition to gross profit, management uses contribution margin as another measure of assessing segment profitability and allocating

selling 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.

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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.

The six months ended October 26, 2024 and October 28, 2023 contained operating results for 26 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.

In fiscal 2025 and beyond, we are more dependent on the timing, size, and profitability profile of the orders we win to be able to generate sales and gross profit 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.

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 customers' timing to commit to a system.

We carefully evaluate our capacity and resource levels;

however, there can be periods during which sales and expenses can be misaligned and impact our profitability levels.

Global investments have been made in manufacturing capacity and the 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.

Micro-LED technologies (also referred to as NPP) are being used and advanced, especially for displays installed for short viewing distances.

Advancements continue in technologies related to digital displays used in professional services, including the use of artificial intelligence and other software which improve content creation, user interfaces, digital display monitoring systems, and security.

We rely on a complex supply chain for raw material and component imports and the global distribution of our products.

Governmental regulation changes, including recent announcements from the new US presidential administration about increased and expansive import tariffs and other geopolitical reactions could impact our costs and change the competitive landscape.

We continue to monitor the evolving plans.

We are adopting our manufacturing, sourcing capabilities, and product development priorities for these evolving changes in market and technology trends.

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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.

To accelerate these initiatives, we are projecting to spend between $8 and $10 million for transformation efforts in fiscal 2025.

In addition, we formed a Business Transformation Office (BTO), which has undertaken a comprehensive review of the Company’s business, strategy and operations and is developing a set of strategic initiatives, enabled in part by the Company’s previously announced digital transformation, to provide even better outcomes for customers, deeper penetration of the Company's current and adjacent market verticals, above-market growth, and more efficient delivery, fulfillment, and service.

The goal of these initiatives is to grow revenue faster than the Company’s addressable market, expand operating margins, and generate returns on capital in the mid-to-high-teens and consistently above the Company’s cost of capital.

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

COMPARISON OF THE THREE MONTHS ENDED OCTOBER 26, 2024 AND OCTOBER 28, 2023

Product Order Backlog

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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.

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.

Orders and backlog are not metrics defined by generally accepted accounting principles 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.

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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.

Our product order backlog as of October 26, 2024 was $236.0 million as compared to $306.9 million as of October 28, 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 have stabilized and production lead times have improved, we have been utilizing our increased capacity, and our order pace has returned to more normalized rates.

We expect to fulfill the backlog as of October 26, 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.

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)

The following is an analysis of changes in key items included in the statements of operations for the three months ended October 26, 2024 and October 28, 2023:

October 26, 2024 % of Net sales (1)

October 28, 2023 % of Net sales (1)

Dollar Change (1)

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Income tax expense 3,777 1.8 3,992 2.0 (215) (5.4)

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) %

Net income $ 21,406 10.3 % $ 2,165 1.1 % $ 19,241 888.7 %

Diluted earnings per share $ 0.22 $ 0.05 $ 0.17 340.0 %

Diluted weighted average shares outstanding 51,715 46,705 5,010 10.7 %

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In addition, percentages may not add in total due to rounding.

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

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.

The sales increase in the second quarter of fiscal 2025 compared to the same period in fiscal 2024 was the result of comparatively higher volumes in the Live Events and Transportation business units offset by lower sales levels in the International business unit.

Sales in our Commercial and High School Park Recreation business units were relatively flat.

This sales mix difference is the result of variability of orders described below and because during fiscal 2024, the operating environment and supply chain stabilized.

We were able to capitalize on our capacity investments to fulfill the overbuilt

backlog and return to more normalized lead times, especially in the High School Park and Recreation market.

These more normalized conditions have continued since and through the fiscal second quarter of 2025.

The amount of revenue recognized associated with performance obligations satisfied in prior years during the three months ended October 26, 2024 and October 28, 2023 was immaterial.

Order volume decline in the second quarter of fiscal 2025 compared to the same period in fiscal 2024 was primarily due to an order decrease in the Live Events, Transportation, and International business units.

Variability in orders comparatively is natural in these large project business areas and during the time of year for sports projects.

These declines were offset by large project bookings in the Spectacular niche and increases in the Out-of-Home niche and High School Parks and Recreation business unit.

Digital billboard orders increased as a result of marketing efforts to independent billboard operators and the timing of a bulk order from a national Out-of-Home advertising company.

The increase in order bookings in the High School Parks and Recreation business unit is attributable to sales of more higher selling priced video products versus fixed digit scoreboards.

Gross profit as a percentage of net sales decreased slightly to 26.8 percent for the second quarter of fiscal 2025 as compared to 27.2 percent for the same period a year ago.

Total warranty expense as a percentage of sales decreased to 1.7 percent for the second quarter of fiscal 2025 as compared to 2.2 percent for same period from a year ago.

Selling expenses in the second quarter of fiscal 2025 remained relatively flat compared to the same period last year.

General and administrative expenses increased in the second quarter of fiscal 2025 compared to the same period in fiscal 2024 because of higher personnel related wages and benefits for increased staffing levels, increased professional fees, and increased expenses for technology resources related to digital transformation strategies.

In addition, during the second quarter of fiscal 2025, the Company incurred $3.3 million of consultant related expenses associated with the previously announced strategic and digital transformation initiatives.

Product design and development expenses increased in the second quarter of fiscal 2025 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.

We focused these efforts on both standard product and control offerings and in new emerging areas, including micro-LED products and new control capabilities.

Interest (expense) income, net expenses increased in the second quarter of fiscal 2025 primarily due to interest income earned on cash balances.

Change in fair value of Convertible Note results from accounting for the convertible note (the "Convertible Note") dated May 11, 2023 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 decrease in value of the embedded features of the Convertible Note, as our stock price has decreased since July 27, 2024.

Other expense and debt issuance costs write-off, net were relatively flat compared to the same period last year.

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.

For the three months ended October 26, 2024, our effective tax rate was 15.0 percent compared to an effective tax rate of 64.8 percent for the three months ended October 28, 2023.

The lower tax rate is due to the reduction of the Convertible Note fair value adjustment to expense in proportion to the period's increase in pre-tax income, whereas the tax rate was higher in the prior period due to an increase in the fair value adjustment in proportion to the pre-tax income during the quarter.

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:

Three Months Ended July 27, 2024

Three Months Ended October 26, 2024

Commercial Percent of net sales (1)

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Product design and development — — — — — — — — — — 9,839 4.7

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 %

Operating income $ 6,584 15.2 % $ 12,677 16.4 % $ 13,803 28.7 % $ 7,270 33.8 % $ 825 4.5 % $ 15,770 7.6 %

Orders $ 44,548 $ 70,524 $ 35,838 $ 12,222 $ 14,458 $ 177,590

Three Months Ended July 29, 2023

Three Months Ended October 28, 2023

Commercial Percent of net sales (1)

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Product design and development — — — — — — — — — — 9,221 4.6

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 %

Operating income $ 2,403 5.7 % $ 16,572 24.3 % $ 12,746 26.0 % $ 5,752 28.4 % $ 2,073 10.6 % $ 19,436 9.7 %

Orders $ 34,209 $ 79,016 $ 32,800 $ 21,500 $ 16,168 $ 183,693

Net Dollar and % Change

Three Months Ended Net Dollar and % Change

Commercial Percent Change (1)

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Product design and development — — — — — — — — — — 618 6.7

Operating income $ 4,181 174.0 % $ (3,895) (23.5) % $ 1,057 8.3 % $ 1,518 26.4 % $ (1,248) (60.2) % $ (3,666) (18.9) %

Orders $ 10,339 30.2 % $ (8,492) (10.7) % $ 3,038 9.3 % $ (9,278) (43.2) % $ (1,710) (10.6) % $ (6,103) (3.3) %

(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 second quarter of fiscal 2025, sales increased and gross profit percentage declined slightly due to the following:

Sales were relatively flat during second quarter of fiscal 2025 compared to the same period one year ago.

The slight increase was driven by fulfilling orders in our digital billboards niche.

Spectacular LED video display projects and

On-Premise digital signage sales were similar to last year.

Gross profit as a percentage of sales increased due to a shift in mix to products with higher margins.

Selling expenses remained relatively flat in dollars but decreased as percent of sales primarily because of leveraging flat selling capacity over increased revenue.

The increase in order bookings in our Spectacular niche was attributable to LED video display project orders with governmental and multi-use commercial and retail facilities during the second quarter of fiscal 2025.

Digital billboard order bookings during the quarter increased as a result of marketing efforts to independent billboard operators and the timing of a bulk order from a national Out-of-Home advertising company.

The increase in net sales in the second quarter of fiscal 2025 was driven by fulfilling order backlog for upgrades in sports-related facilities, primarily in colleges and universities.

The decline in gross profit as a percentage of sales in the quarter is partially attributable to sales mix differences between periods.

Selling expenses decreased as a percent of sales and decreased in dollar amounts primarily because of a reduction in bad debt expense.

Order bookings vary because of large project booking timing.

High School Park and Recreation:

Sales were relatively flat during second quarter of fiscal 2025 compared to the same period one year ago.

Gross profit as a percentage of sales increased due to the market shift to more video projects, in addition to a more cost-effective video offering.

Selling expenses increased primarily because of personnel related wages and benefit costs for investments in staffing to support future growth.

Order bookings increase is attributable to more sales of video scoreboards versus fixed digit scoreboards.

Transportation:

Sales were relatively flat during the second quarter of fiscal 2025 compared to the same period one year ago.

Gross profit as a percentage of sales increased as a result of a change in product mix and the recognition of a $1.0 million project related insurance reimbursement.

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 the timing of large project bookings which have inherent volatility.

International:

The decrease in net sales in the second quarter of fiscal 2025 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.

Order bookings vary because of large project booking timing and have been impacted by general economic conditions.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX MONTHS ENDED OCTOBER 26, 2024 AND OCTOBER 28, 2023

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for the six months ended October 26, 2024 and October 28, 2023:

October 26, 2024 % of Net sales (1)

October 28, 2023 % of Net sales (1)

Dollar Change (1)

Percent Change (1)

Net sales $ 434,419 100.0 % $ 431,900 100.0 % $ 2,519 0.6 %

Cost of sales 318,858 153.1 306,554 153.8 12,304 4.0

Gross profit 115,561 55.5 125,346 62.9 (9,785) (7.8)

Operating expenses:

Selling 30,340 14.6 27,582 13.8 2,758 10.0

General and administrative 27,273 13.1 20,488 10.3 6,785 33.1

Product design and development 19,462 9.3 17,624 8.8 1,838 10.4

Total operating expenses 77,075 17.7 65,694 15.2 11,381 17.3

Operating income 38,486 18.5 59,652 29.9 (21,166) (35.5)

Nonoperating (expense) income:

Interest (expense) income, net 202 0.1 (2,207) (1.1) 2,409 (109.2)

Change in fair value of convertible note (11,286) (5.4) (17,910) (9.0) 6,624 (37.0)

Other expense and debt issuance costs write-off, net (1,999) (1.0) (5,282) (2.6) 3,283 (62.2)

Income before income taxes 25,403 12.2 34,253 17.2 (8,850) (25.8)

Income tax expense 8,943 4.3 12,892 6.5 (3,949) (30.6)

Net income $ 16,460 7.9 % $ 21,361 10.7 % $ (4,901) (22.9) %

Diluted earnings per share $ 0.35 $ 0.46 $ (0.11) (23.9) %

Diluted weighted average shares outstanding 47,507 46,454 1,053 2.3 %

Orders $ 353,760 $ 342,323 $ 11,437 3.3 %

(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.

The net sales increase in the first six months of fiscal 2025 was the result of comparatively higher volumes in the Live Events and Transportation business units offset by lower sales levels in the Commercial, High School Park and Recreation, and International business units.

The amount of revenue recognized associated with performance obligations satisfied in prior years during the six months ended October 26, 2024 and October 28, 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 business unit.

These higher orders offset an order decrease in the Live Events, Transportation, and International business units.

Variability in orders comparatively is natural in these large project business areas.

Gross profit as a percentage of sales decreased in the first six months of fiscal 2025 partially because of sales mix differences between periods.

Total warranty expense as a percent of sales decreased to 1.9 percent for the first six months of fiscal 2025 as compared to 2.2 percent for same period from a year ago.

Selling expenses increased because of increases in personnel related wages and benefits expenses for increased staffing levels to support future growth;

travel and entertainment;

and marketing, conventions and advertising.

General and administrative expenses increased in the first six months of fiscal 2025 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.

In addition, during the first six months of fiscal 2025, the Company incurred $4.3 million of consultant related expenses associated with the previously announced strategic and digital transformation initiatives.

Product design and development expenses increased in the first six months of fiscal 2025 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 micro-LED products and new control capabilities.

Interest (expense) income, net increased primarily due to interest income earned on cash balances.

Change in fair value of Convertible Note results from accounting for 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:

The change in Other expense and debt issuance costs write-off, net for the first six months of fiscal 2025 as compared to the same period one year ago was primarily due to losses recorded for our equity method affiliates and foreign currency volatility.

In addition, during fiscal 2024, we expensed $3.4 million of debt issuance costs related to the Convertible Note issuance.

Income tax expense:

For the six months ended October 26, 2024, we recorded an effective tax rate of 35.2 percent, as compared to 37.6 percent for the six months ended October 28, 2023.

Both periods' income before taxes included the impacts of the change in Convertible Note fair value adjustment to expense which is not deductible and is the primary driver of the effective tax rate for both periods.

Reportable Segment Performance Summary

The following table shows information regarding our contribution margin reconciled to GAAP operating income of our reportable segments for the six months ended October 26, 2024 and October 28, 2023:

Six Months Ended October 26, 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 $ 77,638 $ 185,815 $ 96,077 $ 43,968 $ 30,921 $ 434,419

Cost of sales 58,905 75.9 % 144,817 77.9 % 60,957 63.4 % 27,547 62.7 % 26,632 86.1 % 318,858 73.4 %

Gross profit 18,733 24.1 40,998 22.1 35,120 36.6 16,421 37.3 4,289 13.9 115,561 26.6

Selling 8,938 11.5 5,181 2.8 8,087 8.4 2,801 6.4 5,333 17.2 30,340 7.0

Contribution margin 9,795 12.6 35,817 19.3 27,033 28.1 13,620 31.0 (1,044) (3.4) 85,221 19.6

General and administrative — — — — — — — — — — 27,273 6.3

Product design and development — — — — — — — — — — 19,462 4.5

Operating income (loss) $ 9,795 12.6 % $ 35,817 19.3 % $ 27,033 28.1 % $ 13,620 31.0 % $ (1,044) (3.4) % $ 38,486 8.9 %

Orders $ 86,670 $ 121,423 $ 82,285 $ 34,981 $ 28,401 $ 353,760

Six Months Ended October 28, 2023

Net sales $ 89,336 $ 160,209 $ 105,176 $ 41,612 $ 35,567 $ 431,900

Cost of sales 69,336 77.6 % 113,035 70.6 % 67,931 64.6 % 27,743 66.7 % 28,509 80.2 % 306,554 71.0 %

Gross profit 20,000 22.4 47,174 29.4 37,245 35.4 13,869 33.3 7,058 19.8 125,346 29.0

Selling 8,876 9.9 5,187 3.2 7,036 6.7 1,927 4.6 4,556 12.8 27,582 6.4

Contribution margin 11,124 12.5 41,987 26.2 30,209 28.7 11,942 28.7 2,502 7.0 97,764 22.6

General and administrative — — — — — — — — — — 20,488 4.7

Product design and development — — — — — — — — — — 17,624 4.1

Operating income $ 11,124 12.5 % $ 41,987 26.2 % $ 30,209 28.7 % $ 11,942 28.7 % $ 2,502 7.0 % $ 59,652 13.8 %

Orders $ 66,643 $ 131,219 $ 68,539 $ 40,485 $ 35,437 $ 342,323

Six Months Ended 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 $ (11,698) (13.1) % $ 25,606 16.0 % $ (9,099) (8.7) % $ 2,356 5.7 % $ (4,646) (13.1) % $ 2,519 0.6 %

Cost of sales (10,431) (15.0) 31,782 28.1 (6,974) (10.3) (196) (0.7) (1,877) (6.6) 12,304 4.0

Gross profit (1,267) (6.3) (6,176) (13.1) (2,125) (5.7) 2,552 18.4 (2,769) (39.2) (9,785) (7.8)

Selling 62 0.7 (6) (0.1) 1,051 14.9 874 45.4 777 17.1 2,758 10.0

Contribution (1,329) (11.9) (6,170) (14.7) (3,176) (10.5) 1,678 14.1 (3,546) (141.7) (12,543) (12.8)

General and administrative — — — — — — — — — — 6,785 33.1

Product design and development — — — — — — — — — — 1,838 10.4

Operating income (loss) $ (1,329) (11.9) % $ (6,170) (14.7) % $ (3,176) (10.5) % $ 1,678 14.1 % $ (3,546) (141.7) % $ (21,166) (35.5) %

Orders $ 20,027 30.1 % $ (9,796) (7.5) % $ 13,746 20.1 % $ (5,504) (13.6) % $ (7,036) (19.9) % $ 11,437 3.3 %

(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

the first quarter of fiscal 2024.

These more normalized conditions have continued since and through the fiscal first quarter of 2025.

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.

In the first six months of fiscal 2025, sales were relatively flat, and gross profit levels declined because of the change in operating environments over the two periods.

On-Premise digital signage sales and digital billboards for the first six months of fiscal 2025 were similar to the same period last year;

however, we fulfilled fewer larger sized Spectacular LED video display projects in the first six months of fiscal 2025, causing a decline in sales.

In the first six months of fiscal 2025, there were fewer large sized projects in the market as compared to prior years.

Gross profit as a percentage of sales increased due to the market shift to more surface mount technology message centers and Spectaculars.

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.

however, they increased as percent of sales.

Order bookings increased in our Spectacular LED video display projects.

Digital billboard order bookings increased as a result in our marketing efforts to independent billboard operators.

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.

The increase in net sales for the first six months of fiscal 2025 was driven by fulfilling the order backlog for upgrades in sports-related facilities, primarily in colleges and universities.

The decline in gross profit as a percentage of sales is partially attributable to the sales mix differences between periods.

Selling expenses remained relatively flat in dollar amounts and decreased as a percent of sales.

Order bookings decreased due to the variability of large project booking timing.

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.

During fiscal 2024, we returned to normalized lead times, which led to higher sales in the first six months of fiscal 2024 as compared to fiscal 2025's more normalized levels.

Gross profit as a percentage of sales increased due to the market shift to more video projects in addition to a more cost-effective video offering.

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.

Order bookings increased as a result of the trends for schools increasingly using 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.

The increase in net sales during the first six months of fiscal 2025 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 and the recognition of $1.0 million project related insurance reimbursement.

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.

The timing of large projects is uncertain which causes variability in large project order bookings.

International:

The decrease in net sales was driven by lower backlog and lower orders.

The decrease in net sales in the first six months of fiscal 2025 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.

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LIQUIDITY AND CAPITAL RESOURCES

Three Months Ended

(in thousands) July 27,

2024 July 29,

Six Months Ended

(in thousands) October 26,

2024 October 28,

2023 Dollar Change

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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.

The changes in net operating assets and liabilities consisted of the following:

Three Months Ended

2024 July 29,

The $62.8 million of cash provided by operating activities during the first six months of fiscal 2025 was the result of changes in net operating asset and liabilities.

During the first six months of fiscal 2025, cash increased due to accounts receivable collection, reduction in inventory, and decreases in contract assets.

The changes in net operating assets and liabilities for the six months ended October 26, 2024 and October 28, 2023 consisted of the following:

Six Months Ended

2024 October 28,

(Increase) decrease:

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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.

During the first six months of fiscal 2025 and fiscal 2024, purchases of property and equipment totaled $10.5 million and $9.2 million, respectively, and investments in affiliates were $2.0 million and $2.9 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.

During the first six months of fiscal 2025, financing cash inflow included the $4.2 million received for the exercise of stock options, partially offset by payments on notes payable.

Cash inflow from the first six months of fiscal 2024 resulted from closing on the $25.0 million Convertible Note financing and the $15.0 million mortgage financing to add liquidity to the Company in the first quarter of fiscal 2024.

These inflows were offset by the payoff of our previous credit line of $18.1 million, expending $6.5 million of debt issuance costs, and principal payments made on the mortgage loan described below.

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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.

As of October 26, 2024, we had no borrowings against the ABL and $5.4 million used to secure letters of credit outstanding.

We also have a loan of $13.1 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.

On November 11, 2024, the Company issued notice to the holder ("Holder") to force the conversion of $7.0 million of the principal balance on December 3, 2024 of the Convertible Note at the conversion price of $6.31 per share into 1.1 million common shares.

We will issue the shares upon the Holder’s indicating the ability to take delivery of the shares under the maximum ownership provisions of the Convertible Note.

In addition, on November 25, 2024, the Company received from the Holder a written notice to increase the Percentage Cap to 14.99 percent.

This increase from the in-effect 3.00 percent maximum ownership takes effect 61 days after receipt of notice.

The Company intends to convert the remainder of the Convertible Note over the next several months in tranches of up to $7.0 million in face value every 30 days, as practical and as provided for in the Convertible Note.

As of October 26, 2024, we had $134.4 million in cash and cash equivalents and $40.8 million in borrowing capacity under our ABL.

We believe cash flow from operations, existing line 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

liabilities, are impacted by the sports market and construction seasonality.

Working capital was $242.7 million and $209.7 million as of October 26, 2024 and April 27, 2024, respectively.

The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, and contract assets and 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.

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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.

We had $8.7 million of retainage on long-term contracts included in receivables and contract assets as of October 26, 2024, which we expect to collect within one year.

Other Liquidity and Capital Uses

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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.

We are projecting to spend between $8 and $10 million for these transformation efforts and for 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;

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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.

As of October 26, 2024, we had $17.6 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.

During the first six months of fiscal 2025, there have been no material changes in our contractual obligations.

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.

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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.

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.

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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.

Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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.

There have been no other material changes in our exposure to these risks during the first six months of fiscal 2025.

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 2. Management’s Discussion and Analysis