DAKTRONICS INC /SD/ 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The MD&A provides a narrative analysis explaining the reasons for material changes in the (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 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. This Quarterly Report on Form 10-Q, including the MD&A, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words "may," "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 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. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts and orders, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, increased regulation, the imposition of tariffs, trade wars, and the other risk factors described more fully in the Company’s Annual Report on Form 10-K for the fiscal year ended April 26, 2025 (the "Form 10-K") filed with the Securities and Exchange Commission ("SEC"), as well as other publicly available information about the Company. We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 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 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 22 Table of Contents 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. Overview 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. 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 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. 23 Table of Contents 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 AUGUST 2, 2025 AND JULY 27, 2024 Product Order Backlog 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. 24 Table of Contents Consolidated Performance Summary The following is an analysis of changes in key items included in the statements of operations for the three months ended August 2, 2025 and July 27, 2024: August 2, 2025 % of Net sales (1) July 27, 2024 % of Net sales (1) Dollar Change (1) Percent Change (1) Net sales $ 218,972 100.0 % $ 226,088 100.0 % $ (7,116) (3.1) % Cost of sales 153,900 70.3 166,390 73.6 (12,490) (7.5) Gross profit 65,072 29.7 59,698 26.4 5,374 9.0 Operating expenses: Selling 16,834 7.7 15,636 6.9 1,198 7.7 General and administrative 14,295 6.5 11,723 5.2 2,572 21.9 Product design and development 10,671 4.9 9,623 4.3 1,048 10.9 Total operating expenses 41,800 19.1 36,982 16.4 4,818 13.0 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, 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) % Diluted weighted average shares outstanding 49,736 46,311 $ 3,425 7.4 % Orders $ 238,543 $ 176,170 $ 62,373 35.4 % (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. 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. Net Sales: 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 25 Table of Contents 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 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 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. 26 Table of Contents Reportable Segment Performance Summary 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: 27 Table of Contents Three Months Ended August 2, 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 $ 46,167 $ 79,800 $ 59,347 $ 16,575 $ 17,083 $ 218,972 Cost of sales 32,517 70.4 % 59,614 74.7 % 37,406 63.0 % 11,419 68.9 % 12,944 75.8 % 153,900 70.3 % Gross profit 13,650 29.6 20,186 25.3 21,941 37.0 5,156 31.1 4,139 24.2 65,072 29.7 Selling 4,738 10.3 3,208 4.0 4,629 7.8 1,593 9.6 2,666 15.6 16,834 7.7 Contribution margin 8,912 19.3 16,978 21.3 17,312 29.2 3,563 21.5 1,473 8.6 48,238 22.0 General and administrative — — — — — — — — — — 14,295 6.5 Product design and development — — — — — — — — — — 10,671 4.9 Operating income $ 8,912 19.3 % $ 16,978 21.3 % $ 17,312 29.2 % $ 3,563 21.5 % $ 1,473 8.6 % $ 23,272 10.6 % Orders $ 44,223 $ 92,219 $ 63,254 $ 21,909 $ 16,938 $ 238,543 Three Months Ended July 27, 2024 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 34,199 $ 108,608 $ 48,006 $ 22,490 $ 12,785 $ 226,088 Cost of sales 26,604 77.8 % 82,580 76.0 % 30,690 63.9 % 14,741 65.5 % 11,775 92.1 % 166,390 73.6 % Gross profit 7,595 22.2 26,028 24.0 17,316 36.1 7,749 34.5 1,010 7.9 59,698 26.4 Selling 4,384 12.8 2,889 2.7 4,087 8.5 1,399 6.2 2,877 22.5 15,636 6.9 Contribution margin 3,211 9.4 23,139 21.3 13,229 27.6 6,350 28.2 (1,867) (14.6) 44,062 19.5 General and administrative — — — — — — — — — — 11,723 5.2 Product design and development — — — — — — — — — — 9,623 4.3 Operating income $ 3,211 9.4 % $ 23,139 21.3 % $ 13,229 27.6 % $ 6,350 28.2 % $ (1,867) (14.6) % $ 22,716 10.0 % Orders $ 42,122 $ 50,899 $ 46,447 $ 22,759 $ 13,943 $ 176,170 Three Months Ended Net Dollar and % Change Commercial Percent Change (1) Live Events Percent Change (1) High School Park and Recreation Percent Change (1) Transportation Percent Change (1) International Percent Change (1) Total Percent Change (1) Net sales $ 11,968 35.0 % $ (28,808) (26.5) % $ 11,341 23.6 % $ (5,915) (26.3) % $ 4,298 33.6 % $ (7,116) (3.1) % Cost of sales 5,913 22.2 (22,966) (27.8) 6,716 21.9 (3,322) (22.5) 1,169 9.9 (12,490) (7.5) Gross profit 6,055 79.7 (5,842) (22.4) 4,625 26.7 (2,593) (33.5) 3,129 309.8 5,374 9.0 Selling 354 8.1 319 11.0 542 13.3 194 13.9 (211) (7.3) 1,198 7.7 Contribution 5,701 177.5 (6,161) (26.6) 4,083 30.9 (2,787) (43.9) 3,340 (178.9) 4,176 9.5 General and administrative — — — — — — — — — — 2,572 21.9 Product design and development — — — — — — — — — — 1,048 10.9 Operating income $ 5,701 177.5 % $ (6,161) (26.6) % $ 4,083 30.9 % $ (2,787) (43.9) % $ 3,340 (178.9) % $ 556 2.4 % Orders $ 2,101 5.0 % $ 41,320 81.2 % $ 16,807 36.2 % $ (850) (3.7) % $ 2,995 21.5 % $ 62,373 35.4 % (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. 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. 28 Table of Contents 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: Commercial: 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 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. Live Events: 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 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 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 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 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 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 Three Months Ended (in thousands) August 2, 2025 July 27, 2024 Dollar Change Net cash provided by (used in): Operating activities $ 26,097 $ 19,481 $ 6,616 Investing activities (5,620) (5,969) 349 Financing activities (11,128) 2,062 (13,190) Effect of exchange rate changes on cash — (64) 64 Net increase in cash, cash equivalents and restricted cash $ 9,349 $ 15,510 $ (6,161) Net cash provided by operating activities: 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 29 Table of Contents 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 August 2, 2025 July 27, 2024 (Increase) decrease: Accounts receivable $ (32,055) $ (15,076) Long-term receivables 241 316 Inventories (3,512) 3,153 Contract assets (682) 1,709 Prepaid expenses and other current assets (4,971) (37) Income tax receivables 2,768 339 Investment in affiliates and other assets (3,884) (1) Increase (decrease): Accounts payable 25,839 5,336 Contract liabilities 14,417 7,304 Accrued expenses 3,606 (2,174) Warranty obligations (257) (132) Long-term warranty obligations 690 1,079 Income taxes payable 225 (4,267) Long-term marketing obligations and other payables (737) (1,314) $ 1,688 $ (3,765) Net cash used in investing activities: 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: 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 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 30 Table of Contents 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 $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 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 31 Table of Contents 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 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. Significant Accounting Policies and Estimates We describe our significant accounting policies in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in 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 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 For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 three months of fiscal 2026.