What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-06-25 compared with 2024-06-26 · 166 added, 130 removed, 161 unchanged (65% of the section changed)

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The MD&A should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K.

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.

Daktronics operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year.

The fiscal years ended April 26, 2025, April 27, 2024, and April 29, 2023 contained operating results for 52 weeks.

The year-over-year comparisons in this MD&A are as of and for the fiscal years ended April 26, 2025 and April 27, 2024, unless stated otherwise.

The comparison of fiscal 2023 with fiscal 2022, including the results of operations and liquidity, can be found in Item 7 section of our Annual Report on Form 10-K for fiscal 2023 filed with the SEC on July 12, 2023, which comparison is incorporated by reference herein.

The comparison of fiscal 2024 with fiscal 2023, including the results of operations and liquidity, can be found in Item 7 section of our Annual Report on Form 10-K for fiscal 2024 filed with the SEC on June 26, 2024 under the sections entitled “Results of Operations - Consolidated Performance Summary” and “Results of Operations - Reportable Segment Performance Summary,” which sections are incorporated by reference herein.

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.

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 (showrooms, 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.

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.

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 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.

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Known Trends and Uncertainties

The supply chain and operating environment continued to stabilize over the past eighteen months post-pandemic and allowed for a more efficient production and fulfillment of orders.

The expansion of use of digital display systems in the global market continues post-pandemic despite a number of factors that can impact customers committing to a system.

In addition to often being discretionary purchases, a customer's decision to purchase a system can be dependent on factors such as macroeconomic environment, interest rates levels, regulatory environments, geopolitical events, and competitive factors.

Display and control technologies and related professional services continue to advance.

During fiscal 2024, we converted pandemic-related, pent-up backlog into record levels of sales and gross profit.

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

We expect the expansion of the use of digital display systems in the global market over the coming years;

however, recent governmental regulations and orders and related geopolitical reactions and changes to or uncertainty around federal funding priorities can impact customers’ willingness to invest in digital display systems, which can impact the timing and levels of orders.

For example, announcements from the new United States presidential administration about increased and expansive import tariffs and

federal funding priorities has created near-term uncertainty about economic conditions.

In recent months, we have observed an increasing number of extended quote times, which we believe is partially attributable to these conditions.

As a result, although quoting activity was high, order volume timing was more difficult to predict, which made predicting fiscal 2025 orders more difficult than in fiscal 2024.

In March and April 2025, the Trump Administration announced a series of additional special tariffs, some of which have been temporarily paused.

The additional special tariffs in effect as of April 26, 2025 include tariffs of 10 percent on all or substantially all products imported by the Company and an additional tariff on substantially all products of Chinese origin.

In addition, in April 2025, the Trump Administration announced a series of so-called “reciprocal” tariffs on dozens of countries with which the United States has a trade deficit.

On April 9, 2025, the Trump Administration announced a 90-day pause in the implementation of these reciprocal tariffs (other than the reciprocal tariffs on China, which are discussed above).

On May 14, 2025, following negotiations with China, the Trump Administration announced a new trade agreement under which both the United States and China agreed to reduce their additional tariffs while retaining a 10 percent baseline tariff during a 90-day suspension period.

On May 28, 2025, a three-judge panel of the United States Court of International Trade (“CIT”) held that President Trump’s recent imposition of tariffs pursuant to the International Emergency Economic Powers Act (the “IEEPA”) is unlawful.

On May 29, 2025, in response to President Trump’s appeal of the CIT’s ruling, the United States Court of Appeals for the Federal Circuit issued an administrative stay of the decision while it considers President Trump’s appeal.

This development introduces further uncertainty, as the long-term direction of U.S.-China trade policy remains contingent on ongoing negotiations and future compliance with the agreement.

Competitors importing products from China will also be impacted by the Chinese tariffs.

On May 30, 2025, the Trump Administration announced an increase in tariffs on steel and aluminum imports, raising the rates from 25 percent to 50 percent.

This action was presented as part of a broader effort to support domestic industry and address national security concerns.

Following this, on June 10, 2025, a federal appeals court issued a stay on the lower court’s ruling against tariffs imposed under the IEEPA, allowing those tariffs to remain in effect while the appeal is under review.

On June 12, 2025, the administration extended the 10 percent baseline “reciprocal” tariffs on most countries through July 9, 2025, and on Chinese-origin goods through August 12, 2025.

We expect that increases in tariffs will increase the Company’s cost of sales, although their timing and precise effects are unpredictable.

In particular, if the additional reciprocal tariffs go into effect, the Company will incur substantial additional increases in its cost of sales, and sales volumes into the United States would likely decline.

However, the Company is developing plans to mitigate the impact of these tariffs, as well as possible operational changes that could result in a change in the country of origin for certain of the Company’s products.

Specifically, we are monitoring and adjusting pricing for our products and services carefully to account for these unpredictable dynamics.

For more information about the impact of tariffs on the Company’s results of operations and financial condition, please see “Part I – Item 1A.

Risk Factors - Geopolitical issues, conflicts, governmental actions, including the imposition of tariffs, changes in laws, regulations, and policies, and other global events could adversely affect our results of operations and financial condition” in this Form 10-K.

We have made global investments in manufacturing capacity and the advancement in display and control technologies.

A majority of digital displays are constructed using standard surface mount display technology.

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

Global investments have been made to advance these technologies and to increase manufacturing capacity.

The use of artificial intelligence and other software advances continues to improve content creation and digital display monitoring systems.

Inflation in parts supply, labor, and other resources continued to stabilize during fiscal 2024.

Over the past decade, the cost to produce digital solutions has declined, which has caused a decline of digital solution pricing.

We must sell more products to generate the same or a greater level of net sales as in previous fiscal years.

Competitors' offerings, actions and reactions can vary and change over time or in certain customer situations.

Projects with multimillion-dollar revenue potential attract competition, and competitors can use marketing or other tactics to win business.

Chip on board technologies are advancing for narrow pixel pitch (“NPP”) applications.

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.

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 the audience experience in sports, commercial, and transportation environments.

We are investing in capacity and resources to grow the business and penetrate markets.

In addition, to capitalize on this position, we are focused on digital and business transformation, improving our cost structure, and further growing our markets.

During fiscal 2025, we formed a the 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.

These initiatives, overseen by the BTO, were designed and structured to support our ambitious targets to grow revenue faster than our addressable market, expand operating margins to 10-12 percent, and generate returns on capital in the 17-20 percent range consistently above the Company’s cost of capital (the “Business Transformation Plan”).

To accelerate these initiatives, we spent approximately $6.8 million for transformation efforts in fiscal 2025.

As our business has grown and become more complex, we have come to recognize the importance of evolving our corporate governance structure and how sound governance practices can facilitate better execution of our strategic commercial goals.

Delaware is the legal domicile for most large, publicly traded companies, and its corporate law is well understood, clear, and predictable and provides strong stockholder rights and protections.

On April 17, 2025, in an effort to further our Business Transformation Plan and for other strategic reasons, we changed our legal domicile from South Dakota to Delaware.

We carefully evaluate our capacity and resource levels to the conditions identified;

however, there can be periods during which sales and expenses can be misaligned and periods in which we invest more in transformational and corporate governance activities, all impacting our profitability levels in the near-term.

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.

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Product design and development 38,860 5.1 35,742 4.4 3,118 8.7

Goodwill impairment — — 4,576 0.6 (4,576) (100.0)

Total operating expenses 162,369 21.5 135,328 16.5 27,041 20.0

Operating income 33,118 4.4 87,115 10.6 (53,997) (62.0)

Nonoperating (expense) income:

Interest (expense) income, net (3,418) (0.4) (920) (0.1) (2,498) 271.5

Nonoperating income (expense):

Interest income (expense), net 1,347 0.2 (3,418) (0.4) 4,765 (139.4)

Change in fair value of convertible note (22,521) (3.0) (16,550) (2.0) (5,971) (36.1)

Other expense and debt issuance costs write-off, net (17,795) (2.4) (13,096) (1.6) (4,699) 35.9

Income before income taxes 54,051 6.6 13,257 1.8 40,794 307.7

(Loss) income before income taxes (5,851) (0.8) 54,051 6.6 (59,902) (110.8)

Income tax expense 4,270 0.6 19,430 2.4 (15,160) (78.0)

Net income $ 34,621 4.2 % $ 6,802 0.9 % $ 27,819 409.0 %

Net (loss) income $ (10,121) (1.3) % $ 34,621 4.2 % $ (44,742) (129.2) %

Diluted earnings per share $ (0.21) $ 0.74 $ (0.95) (128.4) %

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

The stable operating environment and supply chain combined with our past investments in capacity resulted in a more efficient fulfillment process and a return to market expected lead times.

These conditions and strong order levels resulted in the growth of net sales.

These conditions are in contrast to the fiscal year 2023 operating environment where we

faced manufacturing material supply and labor shortages which extended lead times and delayed the conversion of orders into sales.

For the years ended April 27, 2024 and April 29, 2023, our operating income was positively impacted by a net amount of 1.0% and 0.3% of overtime revenue or $4.1 million and $1.2 million, respectively, as a result of changes in contract estimates related to projects in progress at the beginning of the respective period.

These changes in estimates resulted primarily from favorable project execution of 1.5% of overtime revenue or $6.5 million, reduced cost estimates and contingencies that were relieved when conditions were resolved.

Gross unfavorable changes in contract estimates were 0.6% of overtime revenue or $2.4 million and immaterial for the years ended April 27, 2024 and April 29, 2023, respectively.

Nature of Business and Summary of Significant Accounting Policies" for more information regarding revenue recognition.

Order volume growth is attributable to a stable macroeconomic environment in North America, to the continued use and market adoption of digital display technology, and to our success in capturing existing and new customers orders for larger project-based sports and transportation business.

The net sales decrease in fiscal 2025 was the result of lower volumes in each business unit, primarily driven by the Live Events business unit due to order timing and buildable backlog.

The amount of revenue recognized associated with performance obligations satisfied in prior periods during the years ended April 26, 2025 and April 27, 2024 was immaterial.

For the year ended April 26, 2025, our operating income was negatively impacted by a net amount of 0.3 percent of overtime revenue, or $1.2 million.

For the year ended April 27, 2024, our operating income was positively impacted by a net amount of 1.0 percent of overtime revenue, or $4.1 million.

These changes are a result of changes in contract estimates

related to projects in progress at the beginning of the respective period.

These changes in estimates resulted primarily from favorable project execution of 0.8 percent of overtime revenue, or $2.8 million, reduced cost estimates, and contingencies that were relieved when conditions were resolved.

Gross unfavorable changes in contract estimates were 1.1 percent of overtime revenue, or $4.0 million, and immaterial for the year ended April 26, 2025.

For the year ended April 27, 2024, these changes in estimates resulted primarily from favorable project execution of 1.5 percent of overtime revenue, or $6.5 million, reduced cost estimates, and contingencies that were relieved when conditions were resolved.

Gross unfavorable changes in contract estimates in fiscal 2024 were 0.6 percent of overtime revenue, or $2.4 million.

Nature of Business and Summary of Significant Accounting Policies” of the Notes to our Consolidated Financial Statements included in this Form 10-K for more information regarding revenue recognition.

Order volume growth is attributable to the continued use and market adoption of digital display technology and to our success in capturing existing and new customer orders in the Spectacular and Out‐of‐Home markets in our Commercial business unit.

Additionally, there has been solid growth in the High School Parks and Recreation business unit due to continued expansion of video displays, as well as growth attributable to higher demand seen in the International business unit.

As we are a project-based business, large-sized project orders can impact levels of orders.

During fiscal 2024, fewer large sized projects were booked to orders in Commercial and International because there were fewer large projects available in the market place.

Gross profit percentage increase is attributable to past strategic pricing actions, the record sales volume over our fixed manufacturing cost structure, stabilization of input costs, and fewer supply chain and operational disruptions during fiscal 2024 as compared to fiscal 2023.

Factors impacting gross profit in fiscal 2023 included ongoing supply chain disruptions and inflationary challenges in materials, freight and personnel related costs.

Total warranty expense as a percent of sales increased to 2.3 percent for fiscal 2024 as compared to 2.1 percent during fiscal 2023.

All expense lines increased for variable compensation and profit sharing linked to operating margins achieved in fiscal year 2024 as compared to amounts achieved in fiscal year 2023.

For fiscal 2024, these expenses totaled $6.5 million, including $3.1 million in cost of sales, $1.2 million in selling, $1.4 million in general and administrative, and $0.8 million in product design and development.

In fiscal 2023, the amounts achieved were immaterial.

Selling expense s were relatively flat.

Personnel related wages and benefits expense increases were offset by less bad debt charges and third party commission related costs.

General and administrative increased for additional personnel wage and benefits and increased staffing levels for our digital transformation strategies, offset by lower professional fees.

Product design and development increased primarily due to personnel-related expenses and increased staffing levels.

During fiscal 2025, fewer large-sized projects were booked to orders in the Live Events and Transportation business units because there were fewer large projects available in the market place.

Gross profit percentage decrease is attributable to sales mix differences between periods and a lower sales volume during fiscal 2025 as compared to fiscal 2024.

Total warranty expense as a percent of sales decreased to 1.6 percent for fiscal 2025 as compared to 2.3 percent during fiscal 2024 primarily due to higher warranty expense in the Live Events and Transportation business in fiscal 2024 that did not occur in fiscal 2025.

In fiscal 2025, the amounts achieved for variable compensation and profit sharing linked to operating margins were immaterial.

In fiscal 2024, the amounts achieved totaled $6.5 million, consisting of $3.1 million in cost of sales, $1.2 million in selling, $1.4 million in general and administrative, and $0.8 million in product design and development.

Selling expense s increased due to higher personnel related wages and benefits expenses to retain employees;

travel and entertainment;

and increased commissions to support order growth.

General and administrative increased due to staffing levels for digital transformation strategies and increased professional fees as well as an increase in personnel costs related to management transition costs.

During fiscal 2025, additional professional fees included consultant, legal, and advisory related expenses associated with business transformation initiatives and corporate governance matters, which totaled $13.9 million.

Management transition costs totaled $2.6 million.

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 increase was the result of the May 2023 closing on the Convertible Note and asset-based and mortgage financings at higher borrowed values and interest rates than the utilization of our previous line of credit during fiscal 2023 .

Change in fair value of Convertible Note results from accounting for the Convertible Note we issued 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 note as the stock price has increased since inception of the note.

Other expense and debt issuance costs write-off, net is primarily comprised of $10.1 million of losses and impairments recorded for equity method affiliates, and expensing of $3.4 million of debt issuance costs related to the Convertible Note.

Income tax expense increased due to the year-over-year increase in Income before income taxes.

O ur effective tax rate for fiscal 2024 was 35.9 percent.

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 income (expense), net increased primarily due to higher cash levels invested in interest-bearing accounts offsetting interest expense.

Change in fair value of Convertible Note results from accounting for the convertible note in the original principal amount of $25.0 million dated May 11, 2023 issued to Alta Fox Opportunities Fund L.P.

(the “Convertible Note”) under the fair value option.

The fair value change was primarily caused by force conversion of the entire Convertible Note in the third and fourth quarter of fiscal 2025 .

All amounts due under the Convertible Note were paid or satisfied in fiscal 2025.

Other expense and debt issuance costs write-off, net for fiscal 2025 as compared to the same period one year ago was primarily due to the provision for losses on loans to equity method affiliates of $15.5 million, compared to expensing $3.4 million of debt issuance costs related to the Convertible Note issuance and $6.4 million for impairments recorded for equity method affiliates in fiscal 2024 .

Income tax expense de creased due to the year-over-year decrease in Income before income taxes.

O ur effective tax rate for fiscal 2025 was negative 73.0 percent.

The effective income tax rate for fiscal 2025 was primarily impacted due to the Convertible Note fair value adjustment to expense that is not deductible for tax purposes.

Additional other items impacting the rate were valuation allowances on equity investments, state taxes, as well as prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits.

Additional other items impacting the rate were valuation allowances on equity investments, state taxes, and a write down of deferred taxes related to debt issuance costs on the conversion of the Convertible Note.

Our effective tax rate for fiscal 2024 was 35.9 percent.

The effective income tax rate for fiscal 2023 was impacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the tax rate is higher

than in the United States, as well as a prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits.

The effective income tax rate for fiscal 2024 was prima

rily impacted due to the fair value adjustment to the Convertible Note that is not deductible for tax purposes.

Additional other items impacting the rate were valuation allowances on equity investments, state taxes, and a prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits.

See “Note 12.

Income Taxes" for further information.

Income Taxes” of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information.

Reportable Segment Performance Summary

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General and administrative — — — — — — — — — — 63,498 8.4

Goodwill impairment — — — — — — — — — — — —

Product design and development — — — — — — — — — — 38,860 5.1

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General and administrative — — — — — — — — — — 42,632 5.2

Goodwill impairment — — 2,281 0.8 — — — — 2,295 2.7 4,576 0.6

Product design and development — — — — — — — — — — 35,742 4.4

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Selling (319) (1.8) 11 0.1 1,482 10.4 1,277 30.9 605 6.0 3,056 5.4

Contribution 2,783 19.8 45,978 117.8 15,467 56.0 5,993 37.7 567 (30.5) 70,789 74.8

Contribution margin 4,803 28.6 (33,301) (39.2) (1,051) (2.4) 1,740 7.9 (2,203) 170.1 (30,013) (18.1)

General and administrative — — — — — — — — — — 20,866 48.9

Goodwill impairment — — (2,281) (100.0) — — — — (2,295) (100.0) (4,576) (100.0)

Product design and development — — — — — — — — — — 3,118 8.7

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

All segments' improved contribution margin is mostly attributable to improved gross profit as a percentage of sales.

Gross profit improved due to past strategic pricing actions, stabilization of input costs, and the record sales volume over our fixed manufacturing cost structure aided by fewer supply chain and operational disruptions during fiscal 2024 as compared to fiscal 2023.

Fewer supply chain and operational disruptions paired with our investments to increase capacity allowed for improved operational efficiency and fulfillment of beginning year backlog and new orders to result in increased sales.

During fiscal year 2024, we returned to market expected lead times.

Contribution margin decreased in fiscal 2025 compared to fiscal 2024 in the Live Events, High School Park and Recreation, and International business units, offset by improved contribution margin in the Commercial and Transportation business units.

Overall, gross profit decreased in fiscal 2025 compared to fiscal 2024, and was primarily attributable to sales mix differences between periods and a lower sales volume in the Live Events and International business units.

Gross profit improvements in the Commercial and Transportation business units are attributable to strategic pricing actions,

closely matching manufacturing capacity to demand, and stabilization of input costs.

Fewer supply chain and operational disruptions paired with our investments to increase capacity allowed for improved operational efficiency.

We regularly adjust our sales and marketing activities and staffing levels to achieve current and expected future sales levels.

Gross unfavorable changes in contract estimates were 0.6% of overtime revenue or $2.4 million and immaterial for the years ended April 27, 2024 and April 29, 2023, respectively.

Live Events business unit had the largest dollar impact of $4.5 million and $0.9 million gross negative impacts, there were 1.7% and 0.3% of overtime revenue sales in Live Events.

The remaining business units had immaterial gross positive and gross negative changes.

Nature of Business and Summary of Significant Accounting Policies" for more information regarding revenue recognition.

The decrease in net sales and orders was driven by volatility in order bookings of larger sized Spectacular LED video displays projects, there were fewer projects in the market as compared to prior years, and a contraction in digital billboards deployed by our OOH customers.

Gross profit as a percentage of sales improved 2.9 points for the factors noted above.

Selling expenses remained relatively flat in dollars and increased as a percentage of sales because of the change in sales volume.

For the year ended April 26, 2025, our operating income was negatively impacted by a net amount of 0.3 percent of overtime revenue, or $1.2 million.

For the year ended April 27, 2024, our operating income was positively impacted by a net amount of 1.0 percent of overtime revenue, or $4.1 million.

These changes are a result of changes in contract estimates related to projects in progress at the beginning of the respective period.

Gross unfavorable changes in contract estimates were 1.1 percent of overtime revenue, or $4.1 million, and were immaterial for the year ended April 26, 2025.

For the year ended April 27, 2024, these changes in estimates resulted primarily from favorable project execution of 1.5% of overtime revenue, or $6.5 million, reduced cost estimates, and contingencies that were relieved when conditions were resolved.

Gross unfavorable changes in contract estimates were 0.6 percent of overtime revenue, or $2.4 million.

For fiscal 2025, the Live Events business unit had the largest gross positive impact of $1.8 million and $3.0 million gross negative impact, which represented 0.8 percent and 1.3 percent of overtime revenue sales in Live Events, respectively.

For fiscal 2024, the Live Events business unit had the largest gross positive impact of $4.5 million and $0.9 million gross negative impact, which represented 1.7 percent and 0.3 percent of overtime revenue sales in Live Events, respectively.

For both fiscal 2025 and fiscal 2024, the remaining business units had immaterial gross positive and gross negative changes.

Nature of Business and Summary of Significant Accounting Policies” of the Notes to our Consolidated Financial Statements included in this Form 10-K and “Critical Accounting Estimates” under “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K for more information regarding revenue recognition.

The decrease in net sales was driven by volatility in order bookings of larger-sized Spectacular LED video display projects, and there were fewer projects in the market as compared to prior years.

Order bookings increased due to the continued market adoption of digital display technology.

Gross profit as a percentage of sales improved 3.6 points due to a shift in mix to products with higher margins and sales volume over relatively fixed cost structures.

Selling expenses remained relatively flat in dollars and as a percent year over year.

Live Events :

The increase in net sales was driven by fulfilling pent-up order backlog and returning to market acceptable lead times for new order bookings.

Order bookings increased because of an active market of upgrades in sports-related facilities, primarily in colleges and universities.

Gross profit as a percentage of sales improved a total of 11.1 points primarily due to the pricing strategies and volume increases attributable to the stabilization factors cited above and the net favorable estimate changes for overtime revenue recognition of 1.1 points, offset by a 1.0 points or $3.3 million warranty charge to resolve a discrete product issue.

Selling expenses increased primarily for personnel related costs yet declined as a percent of sales.

In fiscal 2023, we recorded a goodwill impairment of $2.3 million impacting operating income, with no such impact in fiscal 2024.

The decrease in net sales was due to a lower buildable backlog, with declines in the NFL and NBA niches.

Order bookings decreased due to the variability in the timing of contract orders, which is natural in large-project business areas.

Gross profit as a percentage of sales declined 6.9 points primarily attributable to the sales volume and sales mix differences between periods.

Selling expenses remained flat in dollars while increasing 0.6 points due to a lower sales volume.

High School Park and Recreation :

The increase in net sales was driven by fulfilling pent-up orders in backlog and similar market demand for video related products in High Schools.

Video projects are a larger dollar-sized transaction than traditional scoreboard products.

Segment contribution margin profitability was primarily driven by the gross profit factors described above, offset by selling expense increases for personnel-related expenses.

The decrease in net sales was driven by converting the high level of backlog related to supply chain disruptions from the first quarter of fiscal 2024 compared to the more normal level backlog at the beginning of fiscal 2025.

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.

Gross profit remained relatively flat in dollars and as a percent year over year.

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

Transportation :

The increase in net sales was driven by fulfilling orders in backlog and continued buildable order bookings, especially in large intelligent transportation system projects.

Gross profit as a percentage of sales increased 3.1 points primarily for strategic pricing actions.

Selling expense increases were for personnel-related expenses.

Segment contribution margin improvements were primarily driven by gross profit factors described above, offset by $1.7 million warranty charges to resolve a discrete product issue.

The decrease in net sales was driven by lower order bookings which reduced the level of backlog available to build.

Order bookings declined due to a smaller spread in the market and uncertainty around federal funding.

Gross profit as a percentage of sales increased 5.3 points primarily due to adjustments related to Vanguard® control system reserves in fiscal 2024 that did not repeat in fiscal 2025.

Selling expenses increased primarily because of personnel related wages and benefits costs.

International :

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

Global geopolitical events have driven down the amount of market activity for digital display systems and large-sized projects causing the decrease in orders.

Gross margin increased 2.4 points primarily due to strategic pricing actions.

Even with efforts to lower selling and other operational costs, International operated at a negative $1.3 million contribution margin.

In fiscal 2023, we recorded a goodwill impairment of $2.3 million impacting operating income, with no such impact in fiscal 2024.

The slight decrease in net sales was driven by timing of conversion of orders due to lower backlog compared to one year ago.

The increase in order bookings is due to a higher demand in the EMEALA region (Europe, the Middle East, Africa, and Latin America).

Gross profit decreased 2.5 points primarily due to lower sales volume over relatively fixed cost structure.

Even with efforts to lower selling and other operational costs, our International business unit operated at a negative contribution margin.

LIQUIDITY AND CAPITAL RESOURCES

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Effect of exchange rate changes on cash (653) (69) (584)

Net increase in cash, cash equivalents and restricted cash $ 56,988 $ 6,682 $ 50,306

Net increase (decrease) in cash, cash equivalents and restricted cash $ 45,829 $ 56,988 $ (11,159)

Net cash provided by operating activities:

The $63.2 million in cash provided by operating activities was the result of improved profitability offset by the net growth in operating assets and liabilities.

Increases in contract assets, accounts receivable and decreases in customer deposits and contract liabilities use of cash were offset by reductions in inventory.

The $97.7 million in cash provided by operating activities for fiscal 2025 was the result of business profitability and net positive changes in operating asset and liabilities primarily due to the receivable and contract asset collections and our initiatives to lower inventory offset by payments of accounts payable and income taxes.

Net cash used in investing activities:

During fiscal 2024, purchases of property and equipment totaled $17.0 million and investments in and advances to affiliates were $5.1 million.

This compared to $25.4 million and $4.3 million in fiscal 2023, respectively.

Fiscal 2023 purchases were higher because of initiatives to upgrade existing or purchase new manufacturing equipment for capacity and automation.

Net cash provided by financing activities during fiscal 2024 resulted from closing on a $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 $7.2 million of debt issuance costs, and principal payments made on the mortgage.

During fiscal 2025 and fiscal 2024, purchases of property and equipment totaled $19.5 million and $17.0 million, respectively, and investments in affiliates were $4.6 million and $5.1 million, respectively.

Net cash provided by financing activities:

During fiscal 2025, financing cash outflow included $29.5 million for payments for shares repurchased and $2.1 million for payments on notes payable, partially offset by a cash inflow of $5.2 million received for the exercise of stock options.

During fiscal 2024, cash inflow resulting from the closing on the $25.0 million Convertible Note financing, which had no outstanding balance as of April 26, 2025, and the $15.0 million mortgage financing in the first quarter of fiscal 2024.

These inflows were partially offset by the payoff of our previous credit line of $17.8 million, expending $7.2 million of debt issuance costs, and principal payments made on the mortgage financing.

Debt and Cash

We maintain the $60.0 million ABL maturing on May 11, 2027 subject to customary covenants and conditions.

As of April 27, 2024, our total borrowing capacity was $39.5 million, there were no borrowings outstanding, and there was $5.3 million used to secure letters of credit outstanding, leaving $34.2 million available to borrow.

The Credit Facility is secured by first priority lien on the Company's assets and is subject to certain factors that can impact our borrowing capacity.

We have a mortgage of $13.9 million secured by a first priority lien on our Brookings, South Dakota real estate and matures on May 11, 2026.

We also have a convertible note in the original principal amount of $25.0 million due May 11, 2027 (the "Convertible Note") is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all the other assets of the Company, excluding all real property.

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

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

As of April 27, 2024, we had $81.3 million in cash and cash equivalents and $34.2 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.

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

As of April 27, 2024, we were in compliance with our financial covenants under the Credit Agreement and the Convertible Note.

The Credit Facility consists of the ABL, which is a $60.0 million asset-based revolving credit facility, and the $15.0 million Delayed Draw Loan.

The ABL is subject to the Credit Agreement and the Pledge and Security Agreement, each of which contains customary covenants and conditions.

On June 10, 2025, we entered into the Fourth Amendment, which permits the Company to secure Letters of Credit with terms that expire after the Credit Agreement’s scheduled maturity day of May 11, 2026 under certain conditions.

As of April 26, 2025, we had no borrowings against the ABL and $36.3 million of borrowing capacity on the ABL after $3.4 million used to secure Letters of Credit outstanding.

As of April 26, 2025, we had an outstanding principal balance of $12.4 million on a loan which is secured by a first priority mortgage on our Brookings, South Dakota real estate.

As of April 26, 2025, we had $127.5 million in cash and cash equivalents.

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.

Our cash equivalent balances consist of high-quality, short-term money market instruments.

We were in compliance with all debt covenants as of April 26, 2025, and we expect to remain in compliance with those

covenants for at least the next 12 months.

For additional information on financing agreements, see “Note 7.

Financing Agreements" of the Notes to our Consolidated Financial Statements included in this Form 10-K.

Financing Agreements” and “Note 18.

Subsequent Events” of the Notes to our Consolidated Financial Statements included in this Form 10-K.

Working Capital

Working capital was $209.4 million and $209.7 million as of April 26, 2025 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.

This remained relatively flat year over year, but we note changes in working capital can be impacted by changes in inventory, accounts payable, accounts receivable, and contract assets and liabilities, which 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.

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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 return excess cash over time to shareholders through dividends and share repurchases.

During fiscal year 2024, we did not repurchase shares of common stock, and we did not pay a dividend.

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 cyclicality of business, reduce debt, and then return excess cash over time to stockholders through dividends and share repurchases.

During fiscal year 2025, we did repurchase shares of common stock, and we did not pay a dividend.

Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments.

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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.

In addition to capital expenditures, we plan to make additional investments in our general and administrative 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.

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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.

We are sometimes required to obtain performance bonds for display installations, and we have a $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 April 26, 2025, we had $57.8 million of bonded work outstanding.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

CRITICAL ACCOUNTING ESTIMATES

Our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

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Although our significant accounting policies are described in “Note 1.

Nature of Business and Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included in this Form 10-K, the following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.

A critical accounting policy is defined as a policy that is both very important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments.

We regularly review our critical accounting policies and evaluate them based on these factors.

We believe the estimation process for uniquely configured contracts and warranties are most material and critical.

These areas contain estimates with a reasonable likelihood to change, and those changes could have a material impact on our financial condition and reported results of operations.

The estimation processes for these areas are also difficult and subjective and use complex judgments.

Our critical accounting estimates are based on historical experience;

on our interpretation of GAAP, current laws and regulations;

Nature of Business and Summary of Significant Accounting Policies” of the Notes to our Consolidated Financial Statements included in this Form 10-K, the following discussion is intended to identify and describe those accounting estimates made in accordance with GAAP that involve a significant level of uncertainty at the time the estimate was made and where changes in the estimates have had, or are reasonably likely to have, a material impact on our financial condition or results of operations.

We believe the estimation process for uniquely configured contracts and warranties are material and critical.

These areas contain estimates with a reasonable likelihood to change, and those changes could have a material impact on our financial condition and results of operations.

The estimation processes for these areas are also difficult, subjective, and use complex judgments.

Our critical accounting estimates are based on historical experience, our interpretation of GAAP, current laws and regulations;

and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources.

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Revenue recognition on uniquely configured contracts.

Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost-to-cost input method by comparing cumulative costs incurred to the total estimated

costs and applying that percentage of completion to the transaction price to recognize revenue.

Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost-to-cost input method by comparing cumulative costs incurred to the total estimated costs and applying that percentage of completion to the transaction price to recognize revenue.

Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed, including a reasonable profit margin.

The cost-to-cost input method measures costs incurred to date compared to estimated total costs for each contract.

The cost-to-cost input method measures costs

incurred to date compared to estimated total costs for each contract.

This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer.

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Indirect costs include allocated charges for such items as facilities and equipment depreciation and general overhead.

Provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated.

Provisions of estimated losses on uncompleted contracts are made in the period in which such losses are capable of being estimated.

We may have multiple performance obligations in these types of contracts;

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In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to our customer is to provide significant integration services and incorporate individual goods and services into a combined output or system.

Often times the system is customized or significantly modified to the customer's desired configurations and location, and the interrelated goods and services provide utility to the customer as a package.

Often times the system is customized or significantly modified to the customer’s desired configuration and location, and the interrelated goods and services provide utility to the customer as a package.

Nature of Business and Summary of Significant Accounting Policies” of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on our revenue recognition policies.

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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-K

Item 7. Management’s Discussion and Analysis