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Item 2. Management’s Discussion and Analysis

2025-09-10 compared with 2025-03-05 · 183 added, 299 removed, 136 unchanged (78% of the section changed)

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The MD&A provides a narrative analysis explaining the reasons for material changes in the (i) financial condition of Daktronics, Inc.

and its subsidiaries (the "Company", "Daktronics", "we", "our", or "us") during the period from the most recent fiscal year-end, April 27, 2024, to and including January 25, 2025;

and its subsidiaries (the "Company", "Daktronics", "we", "our", or "us") during the period from the most recent fiscal year-end, April 26, 2025, to and including August 2, 2025;

and (ii) results of operations of the Company during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

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These statements reflect our current views with respect to future events and financial performance.

The words "may," "would," "could," "should," "will," "expect," "estimate," "anticipate," "believe," "intend," "plan," "forecast," "project," and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The words "may," "might," "would," "could," "should," "will," "expect," "estimate," "anticipate," "believe," "intend," "plan," "forecast," "project," and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any and all forecasts and projections in this document are “forward-looking statements” and are based on management’s current expectations or beliefs.

From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us.

Any or all forward-looking statements in this report and in any public statements we make could be materially different from actual results.

Any or all forward-looking statements in this Quarterly Report on Form 10-Q and in any public statements we make could be materially different from actual results.

Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements.

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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.

The 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 the Form 10-K (including the information presented therein under "Item 1A.

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 January 25, 2025 and January 27, 2024 unless otherwise stated.

The 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 26, 2025 (the “Form 10-K”) (including the information presented therein under "Item 1A.

Risk Factors" of Part I), as well as other publicly available information about the Company.

The quarter-over-quarter comparisons in this MD&A are as of and for the fiscal quarters ended August 2, 2025 and July 27, 2024 unless otherwise stated.

Non-GAAP Measures

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.

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.

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.

We offer a complete line of products, from small scoreboards and electronic displays to large multimillion-dollar video display systems as well as related control, timing, and sound systems.

We are recognized as a technical leader with the capabilities to design, market, manufacture, install, and service complete integrated systems displaying real-time data, graphics, animation, and video.

We engage in a full range of activities:

marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services, and customer service and support.

Daktronics, Inc.

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

Contribution margin is a non-GAAP financial measure utilized by management to evaluate segment profitability and guide resource allocation decisions.

It is defined as gross profit less selling expenses.

Selling expenses primarily include personnel-related costs, travel and entertainment, marketing expenditures (such as showroom operations, product demonstrations, depreciation and maintenance, conventions, and trade shows), costs associated with customer relationship management and marketing systems, bad debt expense, third-party commissions, and other related expenses.

In addition to gross profit, management considers contribution margin a meaningful metric for assessing the financial performance of individual segments.

We believe this measure provides investors with a useful view of our segment-level

performance consistent with the approach used by management.

By presenting contribution margin, we aim to enhance transparency and allow investors to better understand how we evaluate and manage our business operations.

We are recognized industry leaders in the design and manufacture of electronic scoreboards, programmable display systems, and large-screen video displays serving sporting, commercial, and transportation markets.

We serve our customers by delivering high-quality standard display products as well as custom-designed and integrated systems.

Our product portfolio ranges from small-scale scoreboards and electronic displays to large, multimillion-dollar video display systems.

These offerings are complemented by related control, timing, and sound systems.

We are widely acknowledged for our technical expertise and our ability to design, market, manufacture, install, and service comprehensive integrated solutions that display real-time data, graphics, animation, and video.

Our operations encompass a full spectrum of activities, including marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services, and customer service and support.

The Company operates on a 52- or 53-week fiscal year ending on the Saturday closest to April 30.

When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday.

Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year.

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

The nine months ended January 25, 2025 and January 27, 2024 contained operating results for 39 weeks.

Each fiscal quarter consists of 13 weeks, except in a 53-week fiscal year, where the first quarter includes 14 weeks.

The three months ended August 2, 2025, and July 27, 2024, included 14 and 13 weeks of operations, respectively.

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 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 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, while quoting activity is high, order volume timing in the near-term is more difficult to predict, making fiscal 2025 orders more difficult to predict than in fiscal 2024.

In addition, the announced tariff changes are expected to increase our input costs for imports of electronic components from China and the costs of aluminum and steel in the market.

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

We are monitoring and adjusting pricing for our products and services carefully to account for these dynamics.

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 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 their 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 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.

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 are projecting to spend between $8.0 million and $10.0 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.

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

We began the process to change our legal domicile to Delaware and enhance our governance frameworks in fiscal 2025.

On January 21, 2025, Daktronics filed a preliminary proxy with the SEC relating to a special meeting of shareholders (the "Special Meeting") to consider and vote on a proposal to change its legal domicile from South Dakota to Delaware (the "Reincorporation Proposal").

On January 31, 2025 the Holder filed a preliminary proxy statement with the SEC disclosing its intention to solicit proxies against the Reincorporation Proposal.

On February 6, 2025, one of our shareholders, Alta Fox Opportunities Fund, LP (the "Holder," and collectively with its affiliates, "Alta Fox") commenced an action in the United States District Court for the District of South Dakota, Southern Division.

For the first nine months of the quarter, $2.1 million of legal and advisor related expenses were incurred for these matters.

On March 3, 2025, the Company entered into a Cooperation Agreement with Alta Fox (the “Cooperation Agreement”).

In connection with the Cooperation Agreement, among other things, Alta Fox agreed to dismiss with prejudice all claims against the Company and its directors and/or officers, including its pending litigation against the Company with the Court.

Pursuant to the Cooperation Agreement, Alta Fox also agreed to vote all shares of the Company’s common stock that it beneficially owns in favor of the Reincorporation Proposal at the Special Meeting.

The Company has agreed to pay Alta Fox $1.2 million, which will be expensed in the fourth quarter of 2025.

To conclude these matters, including the litigation, we expect that additional costs will be incurred in future reporting periods.

For further information on the Cooperation Agreement, please refer to Item 1.01 of the Current Report on Form 8-K filed with the SEC on March 3, 2025, which is incorporated herein by reference, and “Note 13.

Subsequent Events” of this Quarterly Report on Form 10-Q.

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

however, there can be periods during which sales and expenses can be misaligned and periods 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.

During fiscal 2025, we embarked on our business transformation program.

A rigorous analysis and planning phase culminated in a detailed implementation roadmap designed to support ambitious sales growth, margin expansion, and top-quartile return on invested capital targets.

Strong growth in new orders reflects continued market adoption of digital display technology and our comprehensive product and service offerings.

We anticipate further global expansion in the use of digital display systems over the coming years.

However, recent government regulations, geopolitical developments, and uncertainty around federal funding priorities may affect customer willingness to invest, influencing both the timing and volume of orders.

Recent executive orders from the U.S.

presidential administration introduced broad import tariffs on electronic components, aluminum, and steel, effective August 1, 2025.

These changes are expected to materially increase input costs and may impact gross margins.

In response, we are actively adjusting pricing strategies and sourcing plans to mitigate these impacts.

Competitors importing from China will also be affected, potentially reshaping competitive dynamics.

These developments introduce uncertainty in customer purchasing behavior and order timing, particularly for federally funded projects.

Global investments continue in manufacturing capacity and advancements in display and control technologies.

Most digital displays use standard surface mount technology, while chip-on-board technologies are advancing for narrow pixel pitch ("NPP") applications.

Micro-LED technologies, also referred to as NPP, are increasingly used for displays with short viewing distances.

Innovations in professional services technologies, including artificial intelligence and enhanced software, are improving content creation, user interfaces, monitoring systems, and security.

We rely on a complex global supply chain for raw materials and components and are adapting our manufacturing, sourcing, and product development priorities to align with evolving market and technology trends.

We maintain a unique leadership position in our target markets, which are large, growing, and supported by resilient demand from customers seeking to enhance audience experiences in sports, commercial, and transportation environments.

We are investing in capacity and resources to grow and deepen market penetration.

To capitalize on this position, we continue to focus on digital and business transformation, cost structure optimization, and market expansion.

In fiscal 2025, we established a Business Transformation Office ("BTO") to conduct a comprehensive review of our business, strategy, and operations.

The BTO is developing strategic initiatives, enabled in part by our digital transformation, to deliver improved customer outcomes, deeper market penetration, above-market growth, and more efficient delivery, fulfillment, and service.

These initiatives are structured to support our ambitious business transformation plan:

revenue growth outpacing our addressable market, operating margins of 10–12%, and returns on capital of 17–20%, consistently exceeding our cost of capital.

To accelerate these efforts, we project spending between $8.0 million and $10.0 million for transformation initiatives in fiscal 2026.

We continuously evaluate our capacity and resource levels in light of these conditions.

However, there may be periods where sales and expenses are misaligned, and times when we invest more heavily in transformation and corporate governance activities, which may affect near-term profitability.

We believe the audiovisual industry’s fundamentals, including increased adoption 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 JANUARY 25, 2025 AND JANUARY 27, 2024

COMPARISON OF THE THREE MONTHS ENDED AUGUST 2, 2025 AND JULY 27, 2024

Product Order Backlog

Backlog represents the dollar value of orders for integrated electronic display systems and related products and services which are expected to be recognized in net sales in the future.

Orders are contractually binding purchase commitments from customers.

Orders are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales.

Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received.

Orders and 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.

Management uses orders to evaluate market share and performance in the competitive environment.

Management uses backlog information for capacity and resource planning.

Order fulfillment timing is dependent on customer schedules, supply chain conditions, and our capacity availability.

We believe order information is useful to investors because it provides an indication of our market share and future revenues.

Our product order backlog as of January 25, 2025 was $273.2 million as compared to $328.3 million as of January 27, 2024 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 faster, more normalized pace as supply chain conditions have stabilized, production lead times have improved, and we have been utilizing our increased capacity.

We expect to fulfill the backlog as of January 25, 2025 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.

Backlog represents the dollar value of contractually binding customer purchase commitments for integrated electronic display systems and related products and services that are expected to be recognized as net sales in future periods.

Orders are included in backlog when we have received an executed contract and any required deposits or security, and the revenue has not yet been recognized.

Certain orders supported by binding letters of intent or contracts are excluded from backlog until all required contractual documentation and deposits are received.

Orders and backlog are not defined measures under generally accepted accounting principles in the United States (“GAAP”), and our methodology for determining these metrics may differ from that used by other companies.

Management believes that order and backlog levels provide meaningful insight into our business activity, including fluctuations due to seasonality and the timing of large-scale projects.

Orders are used to assess market share and competitive performance, while backlog informs capacity and resource planning.

The timing of order fulfillment is subject to customer schedules, supply chain conditions, and our production capacity.

We believe order information is useful to investors as an indicator of future revenue and market positioning.

As of August 2, 2025, our product order backlog was $360.3 million, compared to $267.2 million as of July 27, 2024, and $341.6 million as of April 26, 2025.

The increase in backlog reflects a higher volume of order bookings, driven by continued market adoption and demand for digital display technologies.

We expect to fulfill the backlog as of August 2, 2025, within the next 24 months.

However, fulfillment timing may be impacted by project delays due to customer site conditions, which are outside of 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 January 25, 2025 and January 27, 2024:

January 25, 2025 % of Net sales (1)

January 27, 2024 % 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 August 2, 2025 and July 27, 2024:

August 2, 2025 % of Net sales (1)

July 27, 2024 % of Net sales (1)

Dollar Change (1)

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Total operating expenses 41,800 19.1 36,982 16.4 4,818 13.0

Operating (loss) income (3,628) (2.4) 8,036 4.7 (11,664) (145.1)

Nonoperating (expense) income:

Operating income 23,272 10.6 22,716 10.0 556 2.4

Nonoperating income (expense):

Interest income (expense), net 893 0.4 (71) — 964 (1357.7)

Change in fair value of convertible note — — (21,590) (9.5) 21,590 (100.0)

Other expense and debt issuance costs write-off, net (613) (0.4) (1,000) (0.6) 387 (38.7)

(Loss) income before income taxes (17,816) (11.9) 12,631 7.4 (30,447) (241.0)

Income tax (benefit) expense (660) (0.4) 1,889 1.1 (2,549) (134.9)

Net (loss) income $ (17,156) (11.5) % $ 10,742 6.3 % $ (27,898) (259.7) %

Other expense, net (1,942) (0.9) (835) (0.4) (1,107) 132.6

Income before income taxes 22,223 10.1 220 0.1 22,003 10001.4

Income tax expense 5,753 2.6 5,166 2.3 587 11.4

Net income (loss) $ 16,470 7.5 % $ (4,946) (2.2) % $ 21,416 (433.0) %

Diluted earnings per share $ 0.33 $ (0.11) $ 0.44 (400.0) %

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

The sales decrease in the third quarter of fiscal 2025 compared to the same period in fiscal 2024 was the result primarily of lower volumes in the Live Events business unit, partially offset by increased sales in the Commercial and International business units.

Sales in our High School Park and Recreation and Transportation business units were

relatively flat.

The amount of recognized revenue associated with performance obligations satisfied in prior years during the three months ended January 25, 2025 and January 27, 2024 was immaterial.

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

Variability in orders comparatively is typical 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 International and Commercial business units.

Gross profit as a percentage of net sales increased slightly to 24.6 percent for the third quarter of fiscal 2025 as compared to 24.5 percent for the same period a year ago.

Total warranty expense as a percentage of sales decreased to 0.9 percent for the third quarter of fiscal 2025 as compared to 1.9 percent for the same period from a year ago.

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

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

During the third quarter of fiscal 2025, additional professional fees included consultant, legal, and advisory related expenses associated with business transformation initiatives and corporate governance matters, which totaled $4.8 million.

Product design and development expenses increased in the third 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 micro-LED products and new control capabilities.

Interest income (expense), net expenses increased in the third quarter of fiscal 2025 primarily due to higher cash levels invested in interest-bearing accounts offsetting interest expense.

Sales, orders, gross profit, and operating expenses were impacted as a result of the first quarter of fiscal 2026 including 14 weeks compared to the more common 13 weeks.

The first quarter of fiscal 2025 contained 13 weeks.

The sales decrease in the first quarter of fiscal 2026 compared to the same period in fiscal 2025 was the result primarily of lower volumes in the Live Events and Transportation business units, partially offset by increased sales in the Commercial, High School Park and Recreation, and International business units.

The amount of recognized revenue associated with performance obligations satisfied in prior years during the three months ended August 2, 2025 and July 27, 2024 was immaterial.

Order volume increased in the first quarter of fiscal 2026 compared to the same period in fiscal 2025 primarily due to order growth in the Live Events, High School Park and Recreation, and International business units.

Live Events had large order bookings related to two Major League Baseball stadiums and one National Hockey League arena.

High School Park and

Recreation had a record quarter for orders primarily as a result of continued adoption of video in schools.

International continued to grow primarily due to orders in the Middle East and Australia.

Order bookings in the Commercial and Transportation business units remained relatively flat.

Large project bookings can cause comparability differences to the seasonally lower quarters.

Gross profit as a percentage of net sales increased to 29.7 percent for the first quarter of fiscal 2026 as compared to 26.4 percent for the same period a year ago.

The increase was driven by a combination of strategic pricing, operational efficiencies, and favorable project mix across business units.

Total warranty expense as a percentage of sales decreased to 1.2 percent for the first quarter of fiscal 2026 as compared to 2.1 percent for the same period from a year ago primarily driven by lower significant and unusual warranty costs.

Selling expenses in the first quarter of fiscal 2026 remained relatively flat compared to the same period last year.

General and administrative expenses increased in the first quarter of fiscal 2026 compared to the same period in fiscal 2025 primarily due to the additional week in the current reporting period.

Product design and development expenses in the first quarter of fiscal 2026 remained relatively flat compared to the same period last year.

Interest income (expense), net in the first quarter of fiscal 2026 increased compared to interest expense in the same period one year ago primarily due to higher cash levels invested in interest-bearing accounts.

During the first quarter of fiscal 2025, the interest expense included interest on the convertible note, which was settled during fiscal 2025.

Change in fair value of Convertible Note results from accounting for the senior secured convertible note dated May 11, 2023 we issued to Alta Fox Opportunities Fund, LP during fiscal 2024 (the "Convertible Note") under the fair value option.

The fair value changed of the note increased due primarily due to the stock price increase and its effect on the valuation of the embedded features of the Convertible Note.

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

All amounts due under the Convertible Note were settled in fiscal 2025.

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

Income tax expense:

For the three months ended January 25, 2025, our effective tax rate was 3.7 percent compared to an effective tax rate of 15.0 percent for the three months ended January 27, 2024.

The lower tax rate is due to the tax effect of the increase of the Convertible Note fair value adjustment to expense that is not deductible for tax purposes reduced by the tax effect of the period's decrease in pre-tax income, whereas the tax rate was higher in the prior period due to a decrease in the fair value adjustment in proportion to the increase in pre-tax income during the quarter.

For the three months ended August 2, 2025, our effective tax rate was 25.9 percent compared to an effective tax rate that was skewed for the three months ended July 27, 2024 due to the impact of the fair value adjustment to the Convertible Note in proportion to the nominal pre-tax income.

The lower tax rate is due to having no further impacts of fair value adjustments on convertible notes for the three months ended August 2, 2025.

Net income (loss):

For the three months ended August 2, 2025, our earnings per diluted share was $0.33 compared to a loss per diluted share of $0.11 in the same period last year.

The net loss in the three months ended July 27, 2024 included a $21.6 million change in the valuation of the Convertible Note.

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 January 25, 2025 and January 27, 2024:

Three Months Ended January 25, 2025

The following table presents financial performance information for our reportable segments, including a reconciliation of contribution margin, a non-GAAP measure, to GAAP operating income for the three months ended August 2, 2025 and July 27, 2024:

Three Months Ended August 2, 2025

Commercial Percent of net sales (1)

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Orders $ 44,223 $ 92,219 $ 63,254 $ 21,909 $ 16,938 $ 238,543

Three Months Ended January 27, 2024

Three Months Ended July 27, 2024

Commercial Percent of net sales (1)

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

In the third quarter of fiscal 2025, total net sales and gross profit percentage declined due to the cumulative effects of the following:

The increase in net sales in the third quarter of fiscal 2025 compared to the same period one year ago was driven by fulfilling orders in our digital billboards niche and Spectacular LED video display projects.

Sales, orders, gross profit, and general and administrative expenses were impacted as a result of the first quarter of fiscal 2026 including 14 weeks compared to the more common 13 weeks.

The first quarter of fiscal 2025 contained 13 weeks.

During the first quarter of fiscal 2026, total net sales declined while gross profit as a percentage of net sales increased, reflecting the cumulative impact of the following factors:

The increase in net sales in the first quarter of fiscal 2026 compared to the same period one year ago was primarily driven by fulfilling orders in our digital billboards niche and Spectacular LED video display projects.

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 and higher sales volume over relatively fixed cost structure.

Selling expense decreased as a percentage of sales primarily because of the increase in sales volume during the quarter.

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.

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 decrease in net sales in the third quarter of fiscal 2025 was due to the absence of the fulfillment of a large project, which we had in the same quarter a year ago and because of order volume declines and the differences in expected timing to fulfill current backlog compared to last year's scheduling.

The decline in gross profit as a percentage of sales in the quarter is attributable to lower sales volume over relatively fixed cost structure.

Selling expense decreased quarter over quarter;

however, selling expense as a percentage of sales increased due to the lower sales volume.

Gross profit as a percentage of sales increased due to a shift in mix to products with higher margins and higher sales volume over a relatively fixed cost structure.

Selling expense remained relatively flat.

The slight increase in order bookings was primarily driven by increased digital billboard order bookings during the quarter 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 decrease in net sales in the first quarter of fiscal 2026 was due to the absence of the fulfillment of a large project, which we had in the same quarter a year ago and because of order volume declines and the differences in expected timing to fulfill current backlog compared to last year's scheduling.

The decline in gross profit as a percentage of sales in the quarter is attributable to lower sales volume over a relatively fixed cost structure.

Selling expense remained relatively flat.

Order bookings vary because of large project booking impacts and seasonal sports impacts.

During the third quarter of fiscal 2025, we booked a large NFL stadium project but had lower orders for baseball facilities.

During the first quarter of fiscal 2026, orders increased due to a mix of mid-sized project wins, including major stadiums, and strong demand across repeat customers and new accounts.

High School Park and Recreation:

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

Gross profit as a percentage of sales increased due to a more cost-effective video offering in addition to efficient use of manufacturing expenses.

Selling expenses increased primarily because of personnel related wages.

Order bookings were down slightly to the prior year.

Sales increased during the first quarter of fiscal 2026 compared to the same period one year ago, primarily driven by stronger demand for video display systems and continued momentum in school and community markets.

Gross profit as a percentage of sales increased due to a more cost-effective video offering and price increases related to value selling, in addition to the efficient use of manufacturing expenses.

Selling expenses remained relatively flat.

Order bookings increased due to stronger demand for video display systems across school and community markets, supported by simplified offerings, expanded sales channels, and growing interest in interactive content solutions.

Transportation:

Sales decreased slightly during the third quarter of fiscal 2025 compared to the same period one year ago due to lower order bookings which reduced the level of backlog available to build.

Gross profit as a percentage of sales increased due to a change in product mix and a warranty estimate reduction.

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.

Sales decreased during the first quarter of fiscal 2026 compared to the same period one year ago primarily due to lower order bookings which reduced the level of backlog available to build.

Gross profit as a percentage of sales decreased due to lower sales volume and a shift in project mix, over a fixed cost structure, which resulted in higher cost of goods sold as a percentage of sales.

Selling expenses remained relatively flat.

Order bookings decreased slightly compared to the prior year, reflecting variability in customer purchasing schedules and the timing of infrastructure investments.

International:

The increase in net sales in the third quarter of fiscal 2025 was driven by higher backlog and higher orders.

The increase in net sales in the first quarter of fiscal 2026 was primarily driven by higher backlog and higher orders.

Gross profit as a percentage of sales increased as a result of a higher sales volume.

Selling expense remained relatively flat in the third quarter of fiscal 2025 compared to the same period in the prior year.

The increase in order bookings is primarily driven by successful bookings in Europe and Middle East to out of home niche customers.

RESULTS OF OPERATIONS

COMPARISON OF THE NINE MONTHS ENDED JANUARY 25, 2025 AND JANUARY 27, 2024

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for the nine months ended January 25, 2025 and January 27, 2024:

January 25, 2025 % of Net sales (1)

January 27, 2024 % of Net sales (1)

Dollar Change (1)

Percent Change (1)

Net sales $ 583,926 100.0 % $ 602,203 100.0 % $ (18,277) (3.0) %

Cost of sales 431,584 73.9 435,139 72.3 (3,555) (0.8)

Gross profit 152,342 26.1 167,064 27.7 (14,722) (8.8)

Operating expenses:

Selling 44,811 7.7 41,840 6.9 2,971 7.1

General and administrative 43,771 7.5 31,077 5.2 12,694 40.8

Product design and development 28,902 4.9 26,459 4.4 2,443 9.2

Total operating expenses 117,484 20.1 99,376 16.5 18,108 18.2

Operating (loss) income 34,858 6.0 67,688 11.2 (32,830) (48.5)

Nonoperating (expense) income:

Interest income (expense), net 710 0.1 (2,952) (0.5) 3,662 (124.1)

Change in fair value of convertible note (25,369) (4.3) (11,570) (1.9) (13,799) 119.3

Other expense and debt issuance costs write-off, net (2,612) (0.4) (6,282) (1.0) 3,670 (58.4)

(Loss) income before income taxes 7,587 1.3 46,884 7.8 (39,297) (83.8)

Income tax (benefit) expense 8,283 1.4 14,781 2.5 (6,498) (44.0)

Net (loss) income $ (696) (0.1) % $ 32,103 5.3 % $ (32,799) (102.2) %

Diluted earnings per share $ (0.01) $ 0.69 $ (0.70) (101.4) %

Diluted weighted average shares outstanding 46,944 46,608 336 0.7 %

Orders $ 540,664 $ 534,386 $ 6,278 1.2 %

(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 decrease in the first nine months of fiscal 2025 was the result of lower volumes in the Commercial, High School Parks and Recreation, and International business units offset by higher sales levels in the Transportation business unit.

The net sales for the Live Events business unit remained relatively flat in the first nine months of fiscal 2025

compared to the same period a year prior.

The amount of revenue recognized associated with performance obligations satisfied in prior years during the nine months ended January 25, 2025 and January 27, 2024 was immaterial.

Order volume growth was driven by rebounding demand in the Spectacular and Out‐of‐Home markets in our Commercial business unit and solid growth in the High School Parks and Recreation and International business units.

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

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

Gross profit as a percentage of sales decreased in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024 partially because of sales mix differences between periods.

Total warranty expense as a percent of sales decreased slightly to 1.6 percent for the first nine months of fiscal 2025 as compared to 2.1 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 nine months of fiscal 2025 because of personnel related wages and benefits for increased staffing levels primarily for our digital transformation strategies and increased professional fees.

During the first nine months of fiscal 2025, additional professional fees included consultant, legal, and advisory related expenses associated with business transformation initiatives and corporate governance matters, which totaled $9.0 million.

Product design and development expenses increased in the first nine months of fiscal 2025 compared to the same period a year ago 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 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, under the fair value option.

The fair value change was primarily caused by the two principal tranches that were force converted during the third quarter as well as an increase in value of the embedded features of the remaining portion 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 nine months of fiscal 2025 as compared to the same period one year ago was primarily due to expensing $3.4 million of debt issuance costs related to the Convertible Note issuance in fiscal 2024.

Income tax expense:

For the nine months ended January 25, 2025, we recorded an effective tax rate of 109.2 percent, as compared to 31.5 percent for the nine months ended January 27, 2024.

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 nine months ended January 25, 2025 and January 27, 2024:

Nine Months Ended January 25, 2025

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 $ 115,614 $ 231,887 $ 125,444 $ 62,757 $ 48,224 $ 583,926

Cost of sales 87,795 75.9 % 182,095 78.5 % 81,032 64.6 % 39,410 62.8 % 41,252 85.5 % 431,584 73.9 %

Gross profit 27,819 24.1 49,792 21.5 44,412 35.4 23,347 37.2 6,972 14.5 152,342 26.1

Selling 12,808 11.1 8,172 3.5 11,932 9.5 4,080 6.5 7,819 16.2 44,811 7.7

Contribution margin 15,011 13.0 41,620 17.9 32,480 25.9 19,267 30.7 (847) (1.8) 107,531 18.4

General and administrative — — — — — — — — — — 43,771 7.5

Product design and development — — — — — — — — — — 28,902 4.9

Operating income (loss) $ 15,011 13.0 % $ 41,620 17.9 % $ 32,480 25.9 % $ 19,267 30.7 % $ (847) (1.8) % $ 34,858 6.0 %

Orders $ 127,653 $ 199,555 $ 116,834 $ 48,819 $ 47,803 $ 540,664

Nine Months Ended January 27, 2024

Net sales $ 122,628 $ 233,602 $ 133,940 $ 61,217 $ 50,816 $ 602,203

Cost of sales 97,082 79.2 % 165,326 70.8 % 88,666 66.2 % 41,168 67.2 % 42,897 84.4 % 435,139 72.3 %

Gross profit 25,546 20.8 68,276 29.2 45,274 33.8 20,049 32.8 7,919 15.6 167,064 27.7

Selling 12,948 10.6 8,302 3.6 10,550 7.9 2,905 4.7 7,135 14.0 41,840 6.9

Contribution margin 12,598 10.3 59,974 25.7 34,724 25.9 17,144 28.0 784 1.5 125,224 20.8

General and administrative — — — — — — — — — — 31,077 5.2

Product design and development — — — — — — — — — — 26,459 4.4

Operating income $ 12,598 10.3 % $ 59,974 25.7 % $ 34,724 25.9 % $ 17,144 28.0 % $ 784 1.5 % $ 67,688 11.2 %

Orders $ 101,167 $ 226,436 $ 103,924 $ 59,409 $ 43,450 $ 534,386

Nine 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 $ (7,014) (5.7) % $ (1,715) (0.7) % $ (8,496) (6.3) % $ 1,540 2.5 % $ (2,592) (5.1) % $ (18,277) (3.0) %

Cost of sales (9,287) (9.6) 16,769 10.1 (7,634) (8.6) (1,758) (4.3) (1,645) (3.8) (3,555) (0.8)

Gross profit 2,273 8.9 (18,484) (27.1) (862) (1.9) 3,298 16.4 (947) (12.0) (14,722) (8.8)

Selling (140) (1.1) (130) (1.6) 1,382 13.1 1,175 40.4 684 9.6 2,971 7.1

Contribution margin 2,413 19.2 (18,354) (30.6) (2,244) (6.5) 2,123 12.4 (1,631) (208.0) (17,693) (14.1)

General and administrative — — — — — — — — — — 12,694 40.8

Product design and development — — — — — — — — — — 2,443 9.2

Operating income (loss) $ 2,413 19.2 % $ (18,354) (30.6) % $ (2,244) (6.5) % $ 2,123 12.4 % $ (1,631) (208.0) % $ (32,830) (48.5) %

Orders $ 26,486 26.2 % $ (26,881) (11.9) % $ 12,910 12.4 % $ (10,590) (17.8) % $ 4,353 10.0 % $ 6,278 1.2 %

(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 nine months of fiscal 2025, sales were slightly lower and gross profit levels declined because of the change in operating environments over the two periods.

Sales were down in the first nine months of fiscal 2025 primarily because we fulfilled fewer larger sized video display projects offset by increases in sales in the out of home segment.

Larger projects cause inherent volatility in comparison and sales and orders because of the unique nature of each customer's timing and project needs.

There were fewer large sized projects in the market and ordered early this year as compared to prior years, causing the change in sales volumes.

Sales increases related to the out of home area follows the reasons for the increase in orders.

Gross profit as a percentage of sales increased due to improved fulfillment costs and pricing strategies.

Selling expenses remained relatively flat in dollars.

Order bookings increased in the out of home areas as result in our marketing efforts to independent billboard operators and increased demand and availability of large sized video display projects.

The decrease in net sales for the first nine months of fiscal 2025 was driven by timing of large projects and customer delivery schedules for these orders in the third quarter of fiscal 2025.

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.

The change in orders was impacted by the timing of large contract orders which cause inherent lumpiness and volatility in comparisons.

High School Park and Recreation:

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

Gross profit as a percentage of sales increased due to the market shift to more video projects and better utilization of manufacturing department expenses.

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

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 during the first nine 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, the recognition of a $1.0 million project related insurance reimbursement, and a reduction in warranty reserves.

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

Available orders in the market are smaller this year and uncertainty around federal funding has caused orders to decline.

International:

The decrease in net sales in the first nine months of fiscal 2025 was driven by timing of conversion of orders due to lower backlog in the prior period.

Gross profit decreased primarily because of lower sales volume over relatively fixed cost structure.

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

We are seeing higher demand in International markets that were previously impacted by inflationary environment and geopolitical events which has driven the increase in orders.

Selling expense remained relatively flat in the first quarter of fiscal 2026 compared to the same period in the prior year.

The increase in order bookings is primarily driven by successful bookings in the Middle East due to a large stadium project and the continued execution of global expansion strategies.

LIQUIDITY AND CAPITAL RESOURCES

Nine Months Ended

(in thousands) January 25,

2025 January 27,

Three Months Ended

(in thousands) August 2,

2025 July 27,

2024 Dollar Change

6 unchanged sentences

Net cash provided by operating activities:

The $74.8 million of cash provided by operating activities during the first nine months of fiscal 2025 was the result of business profitability (adjusting operating loss for non-cash expenses, primarily depreciation and amortization and loan fair value charges) and net positive changes in operating asset and liabilities

primarily due the receivable and contract asset collections and our initiatives to lower inventory offset by payments of accounts payable and income taxes.

The changes in net operating assets and liabilities for the nine months ended January 25, 2025 and January 27, 2024 consisted of the following:

Nine Months Ended

2025 January 27,

The $26.1 million of cash provided by operating activities during the first three months of fiscal 2026 was up from the $19.5 million in the same period of fiscal 2025.

This increase was primarily driven by improved business profitability, with net income of $16.5 million in fiscal 2026 compared to a net loss of $4.9 million in fiscal 2025.

Non-cash adjustments, including depreciation and amortization, stock-based compensation, and provisions for doubtful accounts, remained relatively consistent year-over-year.

A significant contributor to the increase was a

favorable shift in operating assets and liabilities, which added $1.7 million in fiscal 2026 versus a $3.8 million use of cash in fiscal 2025.

These improvements were supported by strong collections on receivables and contract assets, as well as inventory reduction efforts, partially offset by payments on accounts payable and income taxes.

The changes in net operating assets and liabilities for the three months ended August 2, 2025 and July 27, 2024 consisted of the following:

Three Months Ended

2025 July 27,

(Increase) decrease:

16 unchanged sentences

Net cash used in investing activities:

During the first nine months of fiscal 2025 and fiscal 2024, purchases of property and equipment totaled $14.7 million and $13.6 million, respectively, and investments in affiliates were $3.3 million and $4.1 million, respectively.

During the first quarter of fiscal 2026, net cash used in investing activities totaled $5.6 million, primarily driven by $4.3 million in purchases of property and equipment and $1.5 million in net loans to affiliates.

In comparison, the same period in fiscal 2025 saw $5.1 million in property and equipment purchases and $0.9 million in affiliate investments.

Net cash (used in) provided by financing activities:

During the first nine months of fiscal 2025, financing cash outflow included $9.0 million for payments for shares repurchased and $1.7 million for payments on notes payable, partially offset by cash inflow of $5.1 million received for the exercise of stock options.

Cash inflow from the first nine months of fiscal 2024 resulted from closing on the $25.0 million Convertible Note financing, which had an outstanding balance of $11.1 million as of January 25, 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 $18.5 million, expending $6.8 million of debt issuance costs, and principal payments made on the mortgage financing.

In the first three months of fiscal 2026, financing activities resulted in a net cash outflow of $11.1 million, which included $10.7 million for repurchased shares and $0.5 million in payments on notes payable.

These were partially offset by $0.1 million in proceeds from stock option exercises.

In comparison, the first quarter of fiscal 2025 reflected a net inflow of $2.1 million, primarily driven by $3.1 million in proceeds from the exercise of stock options.

These inflows were partially offset by $1.0 million in payments on notes payable and principal payments on long-term obligations.

Debt and Cash

We maintain a $60.0 million asset-based revolving credit facility with a maturity date of May 11, 2026 ("ABL") that is subject to customary covenants and conditions.

As of January 25, 2025, we had $33.4 million borrowing capacity on the ABL after $3.5 million used to secure letters of credit outstanding.

We had no borrowings against the ABL.

As of January 25, 2025, the outstanding principal balance of $12.8 million on a loan which is secured by a first priority mortgage on our Brookings, South Dakota real estate.

The outstanding principal balance under the Convertible Note was $11.1 million.

The Convertible Note is 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.

The Company continued to execute on its intentions to convert the remainder of the Convertible Note during the third quarter and subsequent to the end of the quarter.

The details of these transactions include:

On January 10, 2025, the Company issued notice to the Holder, to force the conversion of the third tranche of $7.0 million of the principal and interest balance on February 3, 2025 of the Convertible Note at the conversion price of $6.31 per share into 1.1 million shares of the Company's common stock.

On February 10, 2025, the Company issued notice to the Holder to force the

conversion of the fourth and final tranche of $4.3 million on March 4, 2025, the remaining principal and interest balance of the Convertible Note.

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.

As of January 25, 2025, we had $132.2 million in cash and cash equivalents.

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.

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

On May 11, 2023, the Company entered into a $75.0 million senior credit facility (the “Credit Facility”) pursuant to a Credit Agreement dated as of May 11, 2023 (as amended, restated, modified, or supplemented from time to time, the “Credit Agreement”), between and among the Company, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), the Lenders (as defined in the Credit Agreement), and the other Loan Parties (as defined in the Credit Agreement).

The Credit Facility consists of the $60.0 million asset-based revolving credit facility, maturing on May 11, 2026 (the “ABL”), and the $15.0 million delayed draw term loan (the “Delayed Draw Loan”), which are secured by a first-priority mortgage (the “Mortgage”) on the Company’s real estate located in Brookings, South Dakota and a first-priority lien on the Company’s assets pursuant to a Pledge and Security Agreement dated as of May 11, 2023 (the “Pledge and Security agreement”) between and among the Company, Daktronics Installation, Inc., and Administrative Agent.

The ABL and the Delayed Draw Loan are subject to the Credit Agreement.

The Credit Agreement, the Mortgage, and the Pledge and Security Agreement contain customary covenants and conditions.

On June 10, 2025, we entered into a Consent and Amendment No.

4 to Credit Agreement, effective as of June 6, 2025 (the “Fourth Amendment”), which permits the

Company to secure Letters of Credit (as defined in the Credit Agreement) with terms that expire after the Credit Agreement’s scheduled maturity day of May 11, 2026 under certain conditions.

As of August 2, 2025, we had no borrowings against the ABL and $41.5 million of borrowing capacity on the ABL after $2.5 million used to secure Letters of Credit outstanding.

No borrowings were made under the ABL during the period ended August 2, 2025.

As of August 2, 2025, we had an outstanding principal balance of $11.9 million on the Delayed Draw Loan.

As of August 2, 2025, we had $136.9 million in cash and cash equivalents.

W e believe that our cash flow from operating activities, together with existing cash and cash equivalents and availability under the Credit Facility, will be sufficient to fund our working capital, capital expenditures, debt service, stock repurchases, and other financial requirements for at least the next 12 months.

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

We were in compliance with all debt covenants as of August 2, 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 Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Working Capital

Working capital was $232.0 million and $209.7 million as of January 25, 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.

On multimillion-dollar orders, the time between order acceptance and project completion may extend up to or exceed 12 months depending on the amount of custom work and a customer’s delivery needs.

We use cash to purchase inventory and services at the beginning of these orders and often receive down payments or progress payments on these orders to balance cash flows.

We had $8.9 million of retainage on long-term contracts included in receivables and contract assets as of January 25, 2025, which we expect to collect within one year.

Working capital was $221.8 million as of August 2, 2025, and $209.4 million as of April 26, 2025, reflecting a $12.4 million increase over the quarter.

This change was primarily impacted by fluctuations in key components such as accounts receivable, which increased by $31.5 million, and accounts payable, which increased by $18.3 million.

Inventory grew slightly by $3.6 million, while contract assets remained relatively stable.

These shifts are influenced by the seasonality of the sports market and construction cycles, which affect the timing of cash flows.

Specifically, payments for inventory and subcontractors often precede customer receipts, especially on large-scale, customized orders.

These projects can span over 12 months, depending on complexity and delivery schedules.

To manage cash flow, the Company typically uses upfront cash for materials and services and offsets this with down payments or progress payments from customers.

As of August 2, 2025, the Company had $5.1 million in retainage on long-term contracts included in receivables and contract assets, which is expected to be collected within one year.

Other Liquidity and Capital Uses

Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain a reasonable liquidity and leverage ratio that reflects a prudent and compliant capital structure in light of the cyclically of business, reduce debt, and then, as allowed under any restrictive debt covenants, return excess cash over time to shareholders through dividends and share repurchases.

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

We are projecting to spend between $8.0 million to $10.0 million for transformation efforts during fiscal 2025.

Our total capital expenditures are expected to be approximately $20.7 million for fiscal 2025.

Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product production and expanded capacity and increased automation of processes;

investments in quality and reliability equipment and demonstration and showroom assets;

and continued information infrastructure investments.

In addition to capital expenditures, we plan to make additional investments in our general and administrative expenses to execute our broad digital transformation strategies to modernize our service systems for field service automation, advance our enterprise performance planning capabilities, and improve and automate quoting and sales processes.

We also evaluate and may make strategic investments in new technologies or in our affiliates or acquire companies aligned with our business strategy.

We are committed to invest an additional $1.5 million in fiscal 2025 in our current affiliates.

We may make additional investments beyond our commitments.

We are sometimes required to obtain performance bonds for display installations, and we have an aggregate of $190.0 million bonding line available through surety companies.

If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics.

As of January 25, 2025, we had $20.4 million of bonded work outstanding.

Our long-term capital allocation strategy prioritizes funding operations and growth investments, maintaining prudent liquidity and leverage ratios that reflect the cyclical nature of our business, reducing debt, and returning excess cash to stockholders through dividends and share repurchases.

During the first quarter of fiscal 2026 and the first quarter of fiscal 2025, we repurchased shares of the Company’s common stock, par value $0.00001 per share, but did not issue dividends.

Our strategies for business growth and profitability improvement rely on capital expenditures and strategic investments.

We project total capital expenditures of approximately $20.7 million for fiscal 2026.

These expenditures will support the acquisition of manufacturing equipment for new or enhanced product lines, expanded production capacity, and increased process automation.

Additional investments will target quality and reliability testing equipment, demonstration and showroom assets, and continued upgrades to our information infrastructure.

Beyond capital expenditures, we plan to invest in general and administrative functions to support our digital transformation initiatives.

These include modernizing field service automation systems, enhancing enterprise performance planning, and streamlining quoting and sales processes.

We also evaluate strategic investments in new technologies, affiliates, or potential acquisitions aligned with our business strategy.

For fiscal 2026, future investments in our current affiliates are being reviewed on a quarterly basis by our Board.

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 August 2, 2025, we had $57.8 million of bonded work outstanding.

Contractual Obligations and Commercial Commitments

During the first nine months of fiscal 2025, there were no material changes in our contractual obligations.

During the first three months of fiscal 2026, there were no material changes in our contractual obligations.

See the Form 10-K for additional information regarding our contractual obligations and commercial commitments.

1 unchanged sentence

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 the Form 10-K.

We discuss our critical accounting estimates in "Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended April 27, 2024.

Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K.

There have been no material changes to the significant accounting policies and critical accounting estimates identified in the Form 10-K during the first three months of fiscal 2026.

New Accounting Pronouncements

3 unchanged sentences

We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in the Form 10-K.

There have been no material changes in our exposure to the market risks identified in the Form 10-K during the first nine months of fiscal 2025.

There have been no material changes in our exposure to the market risks identified in the Form 10-K during the first three months of fiscal 2026.

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