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Item 7. Management’s Discussion and Analysis

2026-06-24 compared with 2025-06-25 · 186 added, 175 removed, 152 unchanged (70% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a narrative from the perspective of management relating to the financial condition, results of operations, liquidity, and other factors that may impact our financial performance.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a narrative from the perspective of management relating to the financial condition, results of operations, liquidity, capital resources, and other factors that may impact our financial performance.

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

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

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

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

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

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

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

In each 53-week 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 fiscal year ended May 2, 2026 contained operating results for 53 weeks.

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

The year-over-year comparisons in this MD&A are as of and for the fiscal years ended May 2, 2026 and April 26, 2025, unless stated otherwise.

Information pertaining to fiscal year 2024, including but not limited to, a comparison of fiscal 2025 with fiscal 2024 results of operations, liquidity, and other information, can be found in Part II, Item 7 “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations” of our Annual Report on Form 10-K for fiscal 2025 filed with the SEC on June 25, 2025 under the sections entitled “Results of Operations - Consolidated Performance Summary” and “Results of Operations - Reportable Segment Performance Summary.”

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 (showrooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses.

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

Management believes that contribution margin is useful to investors because it permits investors to view and evaluate our segment financial performance through the same lens as management.

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.

Contribution margin , which is a financial measure that is not defined under accounting principles generally accepted in the United States (“GAAP”), is 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 the “Results of Operations - Reportable Segment Performance Summary” section of this MD&A, contribution margin is reconciled to gross profit, which is the most directly comparable GAAP financial measure.

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

Management believes 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.

Daktronics designs, manufactures, and provides electronic display systems and solutions used to inform, entertain, and communicate in a variety of end markets, including sports, commercial, and transportation.

Our offerings include standard display products as well as customized digital display systems integrated with control, software, and content management capabilities.

Our product portfolio ranges from small-scale scoreboards and message displays to large, complex video display systems deployed in stadiums, arenas, commercial facilities, and other high-visibility environments.

These systems are often integrated with related technologies, including control systems, timing equipment, audio systems, and software platforms that enable customers to manage and operate display content.

We operate a vertically integrated business model that includes product design and engineering, manufacturing, installation, and ongoing support services.

This lifecycle approach allows us to support customers from initial project planning and system deployment through long-term maintenance, upgrades, and replacement cycles.

In addition to equipment sales and installation, we provide a range of services, including technical support, professional services, and software-based solutions.

These offerings support customers in operating their systems and managing content over the life of the display and contribute to recurring revenue opportunities.

Our operations include marketing and sales, engineering and development, manufacturing, project execution, and customer service, supported by a global footprint that enables us to serve customers across multiple regions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Overall, we have a unique leadership position in our target markets, which are large, growing, and enjoy resilient demand driven by our customers’ desire to improve the audience experience in sports, commercial, and transportation environments.

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

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

During fiscal 2025, we formed a the BTO, which has undertaken a comprehensive review of the Company’s business, strategy, and operations and is developing a set of strategic initiatives, enabled in part by the Company’s previously announced digital transformation, to provide even better outcomes for customers, deeper penetration of the Company’s current and adjacent market verticals, above-market growth, and more efficient delivery, fulfillment, and service.

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

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

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

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

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

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

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

We believe the audiovisual industry fundamentals of increased use of LED display systems across industries and our development of new technologies, services, and sales channels will drive long-term growth for our Company.

During fiscal 2026, we remained focused on the execution of initiatives intended to support sustainable growth, improve operating margins, and enhance returns on invested capital.

The Company’s operating roadmap, informed by multi‑year analysis and planning, is intended to support improved alignment between demand and financial performance.

Demand trends during fiscal 2026 reflected continued market adoption of digital display technologies and the breadth of Daktronics’ integrated product and service offerings, underscoring the importance of disciplined execution across our operations.

The business environment remains dynamic, with several external factors continuing to influence customer demand and operational costs.

The Company is affected by U.S.

government‑imposed tariffs on electronic components, aluminum, steel, and copper, as well as reciprocal tariffs imposed by foreign countries.

In addition, changes to U.S.

trade policy, including the elimination of the de minimis exemption for certain low‑value shipments, continue to increase logistics and import‑related costs.

These tariffs have adversely impacted gross margins and influenced customer purchasing behavior, particularly for projects dependent on federal funding, and may continue to do so in the future.

In response, Daktronics continues to evaluate pricing strategies and sourcing plans to mitigate these effects;

however, the ultimate impact on demand and profitability remains uncertain.

On February 20, 2026, the U.S.

Supreme Court ruled that tariffs imposed by the U.S.

presidential administration under the International Emergency Economic Powers Act (“IEEPA”) exceeded presidential authority and were invalid.

Following the ruling, the administration implemented a temporary global tariff under alternative trade authorities and has indicated an intention to increase the tariff rate to as much as 15%.

The timing, duration, and final rate of these tariffs remain uncertain.

In addition, on April 20, 2026, the U.S.

Customs and Border Protection (“CBP”) opened a refund portal related to amounts previously paid under the invalidated IEEPA tariffs.

While the Company may pursue potential refunds through this process, the timing and amount of refunds, if any, are uncertain.

As of the date these financial statements were issued, no amounts related to potential refunds have been recorded in the accompanying financial statements.

The Company is evaluating available information and monitoring developments related to the ongoing litigation and CBP’s refund process.

Due to the uncertainty regarding eligibility, timing, and the final resolution of tariff refund related administrative matters, the Company is unable to reasonably estimate the likelihood, amount or timing of any potential refunds.

The global market for digital display systems continues to expand, supported by customer investments in manufacturing capacity and ongoing advancements in display and control technologies.

The industry is experiencing increased adoption of surface mount and chip‑on‑board technologies, particularly for narrow pixel pitch (“NPP”) and micro‑LED applications, as customers seek higher performance, increased efficiency, and improved reliability.

In addition, continued innovation in software, artificial intelligence, and professional services is influencing content creation, user interfaces, system monitoring, and security capabilities across digital display platforms.

Daktronics participates in target markets that are large and growing and are supported by demand from customers seeking to enhance audience experiences in sports, commercial, and transportation environments.

As these markets evolve, the Company continues to invest in capacity, systems, and resources to support execution, address customer requirements, and pursue growth opportunities;

however, the timing and extent of market adoption and demand may vary based on economic conditions, customer funding availability, and competitive dynamics.

To address evolving market conditions and competitive dynamics, we continue to focus on execution initiatives related to digital capabilities, cost structure optimization, and market expansion.

These efforts are intended to enhance operating efficiency, improve delivery and service performance, and support long‑term growth opportunities.

While these initiatives are designed to improve financial performance and capital efficiency over time, their effectiveness depends on successful execution, sustained customer demand, and the Company’s ability to manage costs, complexity, and operational change.

As a result, the timing and extent of associated benefits remain uncertain.

The Company continues to monitor and adjust its capacity and resource levels in response to market conditions.

As part of its efforts to increase manufacturing flexibility and operational agility, Daktronics is expanding its global manufacturing footprint to include a facility in Mexico.

The facility is expected to commence production in fiscal 2027.

While the Company expects the facility to support cost structure efficiency and manufacturing flexibility over time, the pace of the production ramp‑up and the extent and timing of any associated financial benefits depend on execution, staffing, and market conditions.

There may be periods in which sales levels and expense trends are not fully aligned, particularly as the Company continues to invest in operational execution, systems, and corporate governance.

These investments may exert pressure on near‑term profitability;

however, they are intended to support operating effectiveness, scalability, and long‑term value creation.

The timing and magnitude of any associated benefits remain uncertain and depend on execution and market conditions.

Despite ongoing uncertainties related to tariffs, geopolitical developments, and federal funding priorities, the fundamental drivers of demand within the audiovisual industry continue to influence customer purchasing decisions.

Increased adoption of LED‑based display systems across end markets, together with the Company’s ongoing development of technologies, services, and sales channels, may support long‑term growth opportunities.

However, actual demand and growth levels will depend on broader economic conditions, customer funding availability, and competitive dynamics.

RESULTS OF OPERATIONS

Consolidated Performance Summary

The following is an analysis of changes in key items included in the statements of operations for fiscal year 2025 as compared to fiscal year 2024.

The following is an analysis of changes in key items included in the statements of operations for fiscal 2026 as compared to fiscal 2025 (in thousands).

2026 % of Net sales (1)

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Change in fair value of convertible note — — (22,521) (3.0) 22,521 100.0

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

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

Other expense, net (6,144) (0.7) (17,795) (2.4) 11,651 65.5

Income (loss) before income taxes 58,334 7.0 (5,851) (0.8) 64,185 1097.0

Income tax expense 12,958 1.5 4,270 0.6 8,688 203.5

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

Net income (loss) $ 45,376 5.4 % $ (10,121) (1.3) % $ 55,497 548.3 %

Diluted earnings per share $ 0.92 $ (0.21) $ 1.13 537.6 %

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

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

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

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

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

These changes are a result of changes in contract estimates

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

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

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

Sales, orders, gross profit, and operating expenses were impacted as a result of fiscal 2026 including 53 weeks compared to the 52 weeks in fiscal 2025.

The net sales increase in fiscal 2026 was the result of higher volumes of revenue conversion across business units, primarily driven by the Commercial, Live Events, High School Park and Recreation, and International business units.

The amount of revenue recognized associated with performance obligations satisfied in prior periods during the years ended May 2, 2026 and April 26, 2025 was immaterial.

For the years ended May 2, 2026 and April 26, 2025, our operating income was negatively impacted by a net amount of 0.3 percent of over‑time revenue, or $1.1 million and $1.2 million, respectively, reflecting a consistent level of impact from changes in contract estimates across periods.

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

For the year ended May 2, 2026, these changes in estimates resulted primarily from favorable project execution of 0.4 percent of overtime revenue, or $1.6 million, reduced cost estimates, and contingencies that were relieved when conditions were resolved.

Gross unfavorable changes in contract estimates were 0.7 percent of overtime revenue, or $2.6 million, and were immaterial in fiscal 2026.

For the year ended April 26, 2025, these changes in estimates resulted primarily from favorable project execution of 0.8 percent of overtime revenue, or $2.8 million, reduced cost estimates, and contingencies that were relieved when conditions were resolved.

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

Gross unfavorable changes in contract estimates were 1.1 percent of overtime revenue, or $4.0 million, and were immaterial in fiscal 2025.

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

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

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

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

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

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

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

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

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

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

travel and entertainment;

and increased commissions to support order growth.

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

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

Management transition costs totaled $2.6 million.

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

Our focus has been to advance product features aligned with customer needs and to reduce product costs.

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

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

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

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

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

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

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

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

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

Order volume growth was driven by higher bookings in the Live Events, High School Park and Recreation, Transportation, and International business units, partially offset by reduced activity in the Commercial business unit.

Demand remained supported by continued investment in large‑scale video display systems across the professional sports, transportation, education, and international markets.

This activity included projects at major professional sports venues, continued momentum in aviation and intelligent transportation systems, increased adoption of video displays in school and community applications, and opportunities in international markets.

As a project‑based business, order volume can fluctuate based on the timing and size of individual projects.

During fiscal 2026, bookings benefited from a higher level of large-scale projects available in the marketplace.

Gross profit:

The gross profit percentage increase was driven by a combination of strategic pricing, continued operational efficiencies, and overall project mix across our business.

Total warranty expense as a percent of sales decreased to 1.3 percent for fiscal 2026 as compared to 1.6 percent during fiscal 2025 primarily due to favorable cost experience.

All expense lines increased for variable compensation and profit sharing linked to revenue and operating margins achieved in fiscal 2026 as compared to amounts achieved in fiscal 2025.

For fiscal 2026, these expenses totaled $3.5 million, including $1.5 million in cost of sales, $0.8 million in selling, $0.8 million in general and administrative, and $0.4 million in product design and development.

In fiscal 2025, the amounts achieved were immaterial.

Selling expenses increased due to increases in personnel-related wages and benefits and increased staffing levels to support future growth.

General and administrative:

General and administrative expenses decreased primarily due to lower professional fees and other costs as fiscal 2025 included elevated expenses related to investor engagement, corporate governance activities, and transformation initiatives.

These decreases were partially offset by ongoing investments in information technology and support functions.

Product design and development:

Product design and development expenses increased primarily due to higher personnel-related costs associated with increased staffing levels, as well as continued investments in advanced technologies and engineering services.

During the year, we continued to invest in advancing our product capabilities to address evolving customer requirements and to improve product cost efficiency.

Development efforts were focused on both standard product and control offerings, as well as ongoing initiatives in emerging technologies, including micro‑LED products and enhanced control system capabilities.

Interest income (expense), net:

Interest income increased primarily due to higher cash levels invested in interest-bearing accounts offsetting interest expense.

During fiscal 2025, the interest expense included interest on the Convertible Note, which was settled during fiscal 2025.

Change in fair value of Convertible Note:

The change in fair value of the Convertible Note line item results from accounting for 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, net:

Net other expense decreased in fiscal 2026, primarily reflecting a $3.8 million provision for losses on loans to an equity method affiliate, compared to a $15.5 million provision recorded for losses associated with a different affiliate in fiscal 2025.

Income tax expense:

Income tax expense changed as a result of accounting for the Convertible Note .

O ur effective tax rate for fiscal 2026 was 22.2 percent.

Our effective tax rate for fiscal 2025 was negative 73.0 percent.

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

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

Our effective tax rate for fiscal 2024 was 35.9 percent.

The effective income tax rate for fiscal 2024 was prima

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

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

In fiscal 2026, there were no further impacts of fair value adjustments on the Convertible Note and our effective tax rate has normalized closer to the U.S.

statutory rate.

See “Note 13.

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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 fiscal years ended April 26, 2025 and April 27, 2024:

Non-GAAP Reconciliations:

Fiscal Year 2026

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Product design and development — — — — — — — — — — 43,458 5.2

Operating income (loss) $ 21,611 13.8 % $ 51,692 17.7 % $ 42,037 25.3 % $ 23,634 29.2 % $ (3,498) (5.7) % $ 33,118 4.4 %

Operating income $ 33,867 18.7 % $ 63,691 19.8 % $ 43,304 23.6 % $ 17,669 23.0 % $ 5,660 7.4 % $ 60,848 7.3 %

Orders $ 172,089 $ 336,012 $ 188,245 $ 89,467 $ 75,022 $ 860,835

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

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

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

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

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

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

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

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

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

Contribution margin increased in fiscal 2026 compared to fiscal 2025 in the Commercial, Live Events, High School Park and Recreation, and International business units, offset by reduced contribution margin in the Transportation business unit.

Overall, gross profit increased in fiscal 2026 compared to fiscal 2025, primarily driven by improved performance across most business units.

The increase reflects favorable sales mix, higher sales volume in key end markets, and the continued

benefits of pricing actions and operational improvements implemented over the past several periods, partially offset by lower gross profit in the Transportation business unit.

Gross profit improvements were supported by ongoing efforts to align manufacturing capacity with demand, stabilize input costs, and enhance operational efficiency.

Additionally, fewer supply chain and operational disruptions contributed to improved execution on project work.

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

Gross unfavorable changes in contract estimates were 0.7 percent of overtime revenue, or $2.6 million, and were immaterial in fiscal 2026.

For the year ended April 26, 2025, operating income was positively impacted by a net amount of 1.0 percent of overtime revenue, or $4.1 million.

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

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

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

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

Gross unfavorable changes in contract estimates were 1.1 percent of overtime revenue, or $4.1 million, and were immaterial.

For fiscal 2026, the Live Events business unit had the largest gross positive impact of $0.9 million and $1.7 million gross negative impact, which represented 0.3 percent and 0.7 percent of overtime revenue sales in Live Events, respectively.

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

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

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

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

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

The increase in net sales was primarily driven by the execution of orders in Spectacular LED video display projects, On‑Premise digital signage, and OOH digital billboard applications.

Order bookings decreased compared to the prior year, primarily reflecting the timing and size of project awards, as fiscal 2025 included a higher level of large project activity in the Commercial business unit.

Gross profit as a percentage of sales increased due to a more favorable mix of projects, including a higher proportion of Spectaculars, as well as improved leverage of fixed costs on higher sales volume.

Selling expenses remained relatively consistent year-over-year.

Live Events :

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

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

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

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

The increase in net sales was driven by a higher buildable backlog resulting from strong order activity in prior periods and continued execution on large-scale projects.

Order bookings increased year over year, reflecting strong demand for large venue projects, including activity in professional sports venues such as Major League Baseball, as well as the timing and size of project awards typical in this business.

Gross profit as a percentage of sales increased, primarily due to higher sales volume and a more favorable mix of projects, which improved absorption of fixed costs.

Selling expenses increased primarily due to personnel-related wage and benefit costs associated with investments in staffing to support future growth.

High School Park and Recreation :

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

Order bookings increased as a result of the trends for schools increasingly using video solutions, which are larger dollar-sized transactions than traditional scoreboard projects.

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

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

The increase in net sales was primarily driven by higher project execution and continued demand for video display systems.

Order bookings increased as a result of continued industry trends toward schools adopting video display solutions, which generally involve higher-value projects compared to more traditional product offerings.

Gross profit increased in dollars but decreased as a percentage of sales, primarily reflecting higher sales volume partially offset by a less favorable mix of projects and cost pressures on certain programs.

Selling expenses increased primarily due to personnel-related wage and benefit costs associated with investments in staffing to support future growth.

Transportation :

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

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

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

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

The decrease in net sales was primarily driven by lower backlog available for execution compared to the prior year, reflecting the timing of order bookings in earlier periods.

Order bookings increased year over year, reflecting continued demand, particularly in the airport and intelligent transportation systems (ITS) markets, as well as the timing of project awards.

Gross profit as a percentage of sales decreased, primarily due to a less favorable project mix, added tariff-related costs, and competitive pricing pressures, which resulted in higher cost of goods sold as a percentage of sales.

Selling expenses increased primarily due to personnel-related wage and benefit costs associated with investments in staffing to support future growth.

International :

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

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

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

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

The increase in net sales was primarily driven by higher project execution during the period, reflecting the timing of backlog conversion compared to the prior year.

Order bookings increased, reflecting improved demand across various international markets.

Gross profit increased due to higher sales volume and improved absorption of fixed costs.

Selling expenses increased in dollars, primarily due to higher personnel-related costs and increased sales activity, but decreased as a percentage of sales due to higher revenue volume.

LIQUIDITY AND CAPITAL RESOURCES

(in thousands) April 26, 2025 April 27, 2024 Dollar Change

(in thousands) May 2, 2026 April 26, 2025 Dollar Change

Net cash (used in) provided by:

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Net cash provided by operating activities:

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

The $49.2 million in cash provided by operating activities for fiscal 2026 was the result of business profitability, partially offset by changes in operating assets and liabilities.

Cash provided by operating activities decreased compared to fiscal 2025, reflecting higher working capital usage in fiscal 2026.

Changes in operating assets and liabilities were primarily driven by increases in accounts receivable and contract assets associated with project activity, as well as continued investment in inventory, partially offset by increases in accounts payable.

In the prior year, operating cash flows benefited from more favorable working capital movements.

Net cash used in investing activities:

Net cash used in investing activities primarily reflects capital expenditures and loans to affiliates.

During fiscal 2026 and fiscal 2025, purchases of property and equipment totaled $14.9 million and $19.5 million, respectively, and investments in affiliates were $5.4 million and $4.6 million, respectively.

Net cash provided by financing activities:

Net cash used in financing activities:

Net cash used in financing activities primarily reflects share repurchase activity and debt-related payments.

During fiscal 2026, financing cash outflow included $25.6 million for payments for shares repurchased and $2.9 million for payments on notes payable, partially offset by a cash inflow of $1.8 million received for the exercise of stock options.

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

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

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

Debt and Cash

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

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

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

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

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

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

We believe cash flow from operations, existing lines of credit, and access to debt and capital markets will be sufficient to meet our current liquidity needs.

On November 26, 2025, we entered into a new $71.5 million senior credit facility (the “New Credit Facility”) pursuant to a Credit Agreement (the “New Credit Agreement”).

The New Credit Facility consists of a cash flow‑backed revolving line of credit (the “Revolver”) and a term loan that is not collateralized by real estate (the “New Term Loan”).

We believe the New Credit Facility enhances financial flexibility in managing our operations and capital structure by extending maturities and providing committed liquidity.

As of May 2, 2026, there were no advances under the New Term Loan, and the balance of letters of credit outstanding under the Revolver was approximately $1.9 million.

As of May 2, 2026, we had $131.6 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 New 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 April 26, 2025, and we expect to remain in compliance with those

covenants for at least the next 12 months.

Our primary sources of cash and sources of funds for our operations are cash flows from operations, current cash and cash equivalents, investments in our affiliates, and borrowings under the New Credit Facility.

We were in compliance with all debt covenants under the New Credit Agreement as of May 2, 2026, 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 8.

Financing Agreements” and “Note 18.

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

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

Working Capital

Working capital was $209.4 million and $209.7 million as of April 26, 2025 and April 27, 2024, respectively.

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

These changes can have a significant impact on the amount of net cash provided by or used in

operating activities largely due to the timing of payments for inventory and subcontractors and receipts from our customers.

Working capital was $254.3 million and $209.4 million as of May 2, 2026 and April 26, 2025, respectively.

The increase in working capital was primarily driven by higher levels of accounts receivable, contract assets, and inventories, reflecting increased project activity and timing of customer billings, partially offset by an increase in accounts payable.

Changes in working capital can be impacted by fluctuations in inventories, accounts payable, accounts receivable, and contract assets and liabilities, which are influenced 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 $6.8 million of retainage on long-term contracts included in receivables and contract assets as of April 26, 2025, which we expect to collect within one year.

We had $6.8 million of retainage on long-term contracts included in receivables and contract assets as of May 2, 2026, which we expect to collect within one year.

Other Liquidity and Capital Uses

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

Our long-term capital allocation strategy is to prioritize funding operations and investments in areas that support strategy execution including growth and operational excellence, while maintaining reasonable liquidity and leverage ratios that reflect a prudent and compliant capital structure in light of the cyclicality of our business, and the reduction of debt.

We expect to invest in value-accretive inorganic opportunities, and then return excess cash over time to stockholders through dividends or share repurchases.

During fiscal year 2026, we did repurchase shares of common stock, and we did not pay a dividend.

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

We are projecting total capital expenditures to be approximately $22 million for fiscal 2026.

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

We project total capital expenditures to be approximately $26.6 million for fiscal 2027.

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, to advance our enterprise performance planning capabilities, and to improve and automate quoting and sales processes.

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

We are committed to invest an additional $0.4 million in fiscal 2026 in our current affiliates.

We may make additional investments beyond our commitments.

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 to improve and automate quoting and sales processes.

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

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

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

As of April 26, 2025, we had $57.8 million of bonded work outstanding.

As of May 2, 2026, we had $49.0 million of bonded work outstanding.

CRITICAL ACCOUNTING ESTIMATES

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

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

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

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

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

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

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

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

Our critical accounting estimates are based on historical experience, our interpretation of GAAP, current laws and regulations, and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources.

Actual results may differ from these estimates.

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

The cost-to-cost input method measures costs

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

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

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

Costs to perform the contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve.

Costs to perform a contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve.

Direct costs include materials and components;

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

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

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

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

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Although prior estimates have been materially correct, estimates for warranty liabilities can change based on actual versus estimated defect rates over the lifetime of the warranty coverage, a difference in actual to estimated costs to conduct repairs for the components and related labor needed, and other site related actual to estimated cost changes.

As of April 26, 2025 and April 27, 2024, we had approximately $35.8 million and $37.9 million accrued for these warranty obligations, respectively.

As of May 2, 2026 and April 26, 2025, we had approximately $36.8 million and $35.8 million accrued for these warranty obligations, respectively.

Due to the difficulty in estimating probable costs related to certain warranty obligations, there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis