Item 1A. Risk Factors
Item 1A. RISK FACTORS
Investing in our common stock involves risk and our future results may be affected by a number of factors over which we have little or no control. You should carefully consider the risks and uncertainties described below, together with all of the other information set forth in this Form 10-K and documents incorporated by reference herein, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes, before making a decision to invest in our common stock. The discussion in this Item 1A contains forward-looking statements discussed above.
The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, operating results, and financial condition could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Macroeconomic Risks
Changes in trade policies and the imposition of tariffs, have affected, and may continue to affect, our results of operations and financial condition.
During fiscal 2025 and fiscal 2026, our business, operations, and financial results were impacted by changes in United States import tariff policies and the resulting responses from other countries. Our complex manufacturing processes in the United States, which generate approximately 80 percent of our manufactured output, rely on components and inputs sourced from over 40 countries. China has historically been a significant source of semiconductor-related components, including LEDs, printed circuit boards, and other integrated circuits. In addition, certain jurisdictions, including Canada, have imposed or may impose retaliatory tariffs on United States-origin goods, increasing the cost of exporting our products into those markets. United States tariff rates on these imports have ranged from approximately 10 percent to significantly higher levels, with certain proposed or applied rates substantially exceeding these levels.
While certain U.S. tariffs have been struck down by the courts, the United States has subsequently announced additional new tariffs on virtually all nonexempt imports, and the U.S. tariff rate remains elevated. Shifts in tariffs, trade agreements, import and export restrictions, trade sanctions, sector-specific trade barriers, and other governmental trade actions, whether enacted by the United States or other countries, especially those instituted in significant markets or markets where our significant customers or suppliers are located, and the associated uncertainty of long-term trade policies, could impact our sales volume, sales price, and production and other costs.
Changes in trade policies may also cause disruptions to material sourcing and availability, global supply chains and logistics, and access to end markets. Additionally, changes in U.S. trade policy and associated responses from trading partners may create shifts in global market dynamics, disrupt the long-term planning process for governments and private
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enterprises, and result in continued global financial market volatility. The impact of these changes in trade policies and the resulting trade and market uncertainty could have a negative impact on our results of operations.
Following the invalidation of certain tariff actions, the Company has submitted, and will continue to submit, tariff recovery claims through the U.S. Customs and Border Protection (“CBP”) Commercial Accounting Program and Enforcement process seeking a refund of tariffs paid pursuant to the International Emergency Economic Powers Act (“IEEPA”). The amount, timing, and realization of any refund or credit remains uncertain and subject to CBP review.
In addition to direct tariff costs, our suppliers have incurred tariff-related costs in their own supply chains and the uncertainty of the tariff landscape continues to make these tariff-related costs volatile. Many of our supplies have passed these tariff-related costs to us and these costs may increase in the future. Alternative suppliers may charge higher prices or may not have sufficient capacity or reliability, which could further increase our costs or disrupt supply.
While we seek to mitigate these impacts through pricing actions, changes in manufacturing locations, supplier diversification, and product redesign, we may not be able to fully offset increased costs or implement such changes on a timely basis. Tariffs and trade policies are expected to continue to evolve, and the United States, other countries, and international trade bodies may institute new tariffs or more restrictive trade policies or remedies. As a result, we may face additional uncertainties and adverse impacts on our business, financial condition, and results of operations.
In addition, competitors may benefit from manufacturing or sourcing strategies, including near-shoring or alternative supply chain structures, or may qualify for tariff exemptions or more favorable trade treatment that are not available to us, which could place us at a competitive disadvantage.
Impacts on our business include, but are not limited to: (i) increased raw material and component costs due to tariffs or supply constraints; (ii) disruptions in the availability of components; (iii) challenges in planning and optimizing our global supply chain, leading to increased operating costs and reduced profitability; (iv) delays or reductions in customer orders due to economic uncertainty or tariff-related pricing impacts; and (v) the need to increase prices, which may reduce demand or adversely affect our competitive position.
Global conflicts could adversely impact our business and financial results.
Geopolitical tensions or conflicts in regions where we conduct business, including the Middle East, may result in delays in customer decision-making, project timing, or order activity, and could reduce or disrupt demand in affected markets. To date, we have not experienced material disruptions from certain regional conflicts; however, ongoing uncertainty may negatively impact customer demand, project timing, or execution in these regions in future periods, and may also restrain shipping routes, cause increases in inflation, or result in cyberattacks. We cannot predict the extent to which these factors may affect our business, financial condition, or results of operations.
Our business is sensitive to global economic conditions, including recessions, inflation, and interest rate fluctuations. Weakened global economic or recessionary conditions may materially and adversely affect our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions. The United States and other key international economies have experienced downturns and recessions from time to time during which economic activity was impacted by falling demand for a variety of goods and services; restricted credit; reduced liquidity; reduced corporate profitability; volatility in credit, equity and foreign exchange markets; increased unemployment; bankruptcies; and overall economic uncertainty. These conditions affect consumer and entertainment spending and could materially and adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value of their contracts, or affect attrition rates, all of which could adversely affect our operating results.
In addition, these demand fluctuations may reduce our ability to effectively utilize our capacity and negatively impact our results of operations.
We rely on global supply chains, and inflationary pressures may increase our input costs faster than our ability to raise prices. In addition, disruptions in global supply chains may limit our ability to obtain parts and components or increase the cost of those inputs. These factors could have a material adverse effect on our results of operations.
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The interest rates applicable to borrowings under our credit agreement with JPMorgan Chase Bank, N.A. are based on variable rate benchmarks, including the Secured Overnight Financing Rate (“SOFR”), or alternative base rates, and are influenced by broader market conditions and monetary policy. As a result, increases in these benchmark rates will increase the cost of borrowings under our credit facility. In addition, we incur commitment fees on unused portions of our revolving credit facility, which may increase our overall financing costs.
Unexpected events, including natural disasters, weather events, wars, terrorist acts, and pandemics, may increase our cost of doing business or disrupt our operations.
We operate manufacturing operations in three locations in the United States, Brookings, South Dakota, Sioux Falls, South Dakota, and Redwood Falls, Minnesota, and we have production facilities in Ireland and China. Additionally, we plan to open a new manufacturing facility in Saltillo, Mexico during fiscal 2027. Unexpected events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to manufacture and deliver products to our customers, thereby adversely affecting our business, operating results, or financial condition. Additionally, such events could disrupt our data centers or cloud-based infrastructure, or result in cybersecurity incidents, potentially rendering critical computing processes and systems temporarily unavailable, which may impair our ability to operate effectively.
The occurrence of one or more unexpected events in the United States or in other countries may impact the operations of our suppliers and customers, may disrupt our operations and could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects or cause our suppliers not to perform, resulting in parts and component shortages, or disrupt transportation and logistic networks.
Risks Related to Our Business and Industry
We depend on a single-source or a limited number of suppliers for our raw materials and components from countries around the world. The loss, interruption, or material change in our business relationships with our suppliers or in global supply chain conditions may result in a disruption in our supply chains and a substantial increase in the costs of such raw materials and components.
Geopolitical tensions can impact our ability to obtain key materials and components. Such changes can result in extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our customers and may result in lost sales and customer relationships and cause harm to our sales, financial condition, and results of operations.
The performance and financial condition of a supplier may cause us to alter our business terms with that supplier, cease doing business with that particular supplier, or change our sourcing practices. Our suppliers are subject to fluctuations in global economic cycles and conditions, governmental regulations, and other business risk factors which may impact their ability to operate their businesses. Our supply chain includes semiconductor-type components including LEDs, printed circuit boards, and other integrated circuits, which are sourced or packaged directly or indirectly primarily through suppliers in Taiwan or China. Imports from China to the United States have been subject to increased import/export controls and tariffs, which may increase costs, limit availability of key components, or disrupt our supply chain. Geopolitical tensions, tariff and trade controls, other governmental actions, and shipping disruptions can impact our suppliers’ ability to deliver components and raw materials.
An interruption from our suppliers of their supply of raw materials or components could affect our ability to manufacture our products until a new source of supply is located and, therefore, could have a material adverse effect on our business, financial condition, or results of operations. Our suppliers may need to allocate available supply, and we may not be able to obtain parts needed for production. Qualifying new suppliers to compensate for such shortages may be time-consuming and costly and may increase the likelihood of errors in design or production.
In order to reduce manufacturing lead times and plan for adequate component supply, from time to time, we may issue purchase orders or prepay for components and products that are non-cancelable and non-returnable. In addition, we may purchase components and products that have extended lead times to ensure adequate supply to support long-term customer demand and mitigate the impact of supply disruptions. If we are unable to use all of the components we have purchased, we may have excess inventory or obsolescence, or increased inventory or carrying costs, which could have an adverse impact on our results of operations or financial condition.
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We operate in highly competitive markets and face significant competition and pricing pressures. If we are not able to continue to enhance existing products or are unable to keep up with the rapidly changing product developments and new technologies, or effectively market and compete with our new or enhanced products that respond to customer needs and preferences, we could lose market share and orders, which would negatively impact our results of operations.
The electronic display industry is characterized by ongoing product improvement, innovation, and development and low-cost competition. We compete against products produced in foreign countries and the United States. Our competitors may develop lower-cost or lower-featured products, may be willing to charge lower prices to increase their market share, bring new products to the market faster, or offer new or differentiated products, services, and controller offerings. Some competitors have more capital and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements. Other competitors use sponsorships as a way to win business at a particular location or market. In addition, our products compete with other forms of advertising, such as television, print media, digital and mobile, and fixed display signs.
To remain competitive, we must anticipate and respond quickly to provide innovative, customer-valued products and services that meet our customers’ needs, enhance our existing products, introduce new products and features, and continue to price our products competitive ly. Relevant innovation is an important part of our growth strategy. Product development involves complex and resource-intensive processes, including research, planning, design, engineering, testing, and marketing. We may not always be able to develop or introduce new or improved products in a timely manner, or at all.
We may be unable to protect our intellectual property rights effectively, or we may infringe upon the intellectual property rights of others, either of which may have a material adverse effect on our operating results and financial condition.
We rely on a variety of intellectual property used in our products and services. We may not be able to successfully preserve our intellectual property rights in the future, and these rights could be invalidated, circumvented, or challenged. In particular, the laws of certain countries in which our products are sold do not protect our products and intellectual property to the same extent as the laws of the United States. If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources even if we ultimately prevail.
In addition, intellectual property rights of others have an impact on our ability to offer some of our products and services for specific uses or at competitive prices. Competitors’ patents or other intellectual property may limit our ability to offer products or services to our customers. Any infringement or claimed infringement by us of the intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, products and services, even if we are successful in defending against any such claim.
If we fail to timely and effectively obtain shipments of raw materials and components from our suppliers or to send shipments of our manufactured product to our customers, our business and operating results could be materially and adversely affected.
We cannot control all of the various factors that might affect our suppliers’ timely and effective delivery of raw materials and components to our manufacturing facilities or the availability of freight capacity for us to deliver products to our customers. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our results of operations.
Our utilization of a complex supply chain for raw material and component imports and the global distribution of our products makes us vulnerable to many risks, including, among other things, shortages or delays because of work restrictions; supply chain implications due to war or other geopolitical impacts on supply chains; risks of damage, destruction, or confiscation of products while in transit to and from our manufacturing facilities; organized labor strikes and work stoppages, such as labor disputes or related employee worker unavailability, that could disrupt operations at ports-of-entry; transportation and other delays in shipments as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions; unexpected or significant port congestion; lack of freight availability; and freight cost increases. In addition, we may be required to arrange for products to be delivered through airfreight, which is significantly more expensive than standard shipping by sea. We may not be able to obtain sufficient freight capacity on a timely basis and, therefore, may not be able to timely receive shipments of raw materials and components or deliver products to customers.
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Cost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs can have a significant impact on our price competitiveness and/or ability to produce our products, which have caused and could continue to cause harm to our sales, financial condition, and results of operations.
Cost inflation and shortages of the raw materials and components used to manufacture our products have and may continue to occur due to various factors, such as worldwide demand, natural disasters, logistics disruptions, war and other conflicts, and trade regulations.
In addition, we are currently experiencing cost inflation across certain commodity and electronic component categories. Aluminum, which is used extensively in our display cabinets, structures, and related products, has experienced price increases driven by market conditions, tariffs, and supply chain factors, increasing our manufacturing costs. Similarly, increased industry demand for certain computing components associated with artificial intelligence and data center infrastructure investments has contributed to higher costs and supply constraints for certain inputs used in our products. While we continue to pursue sourcing, design, and pricing actions to mitigate these impacts, sustained inflation or shortages in these categories could adversely affect our margins, competitiveness, financial condition, and results of operations.
Electronic and other components and materials used in our products are sometimes in short supply, which may impact our ability to meet customer demand. Transportation costs and availability can fluctuate due to fluctuations in oil prices and other social, economic, and geopolitical factors. Certain key components, including semiconductor memory and related electronic inputs, have experienced supply constraints and cost increases, which have increased, and may continue to increase, our input costs and adversely affect our results of operations.
If we experience shortages or increases in the prices we pay for raw materials and components and are unable to pass on those increases to our customers or are unable to manufacture our products at all or on a timely basis, it could negatively affect our business, financial condition, or results of operations, as similar conditions have adversely affected our business in the past. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits.
Trade disruptions and trade policies between countries could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program. We seek to mitigate these impacts through vendor negotiations, alternative sourcing, and pricing adjustments; however, these efforts may not be successful.
Our global manufacturing and sales operations expose us to risks that could materially and adversely impact our business.
Expanding our international footprint is an important part of our growth strategy; however, operating across multiple countries exposes us to risks that may not present in our domestic operations. We manufacture certain products and source components in multiple international locations, including China, and a portion of these products and components are imported into the United States and other markets, which increases our exposure to tariffs, trade restrictions, and other cross-border regulatory risks.
These risks include complex and evolving regulatory environments, political and economic instability, exposure to foreign currency fluctuations, differing labor laws and employment practices, and challenges related to infrastructure, logistics, and supply chain reliability. We may also face increased costs or delays due to tariffs, trade restrictions, customs regulations, or changes in international trade agreements and policies.
In addition, international operations, including our manufacturing expansion in Mexico, often require significant upfront investment in market development, personnel, and facilities, which may not yield immediate returns. Legal systems, intellectual property protections, and enforcement mechanisms may be less predictable or less robust in some jurisdictions, increasing our exposure to potential disputes or infringement.
These and other factors may impact our ability to operate efficiently and profitably in international markets. Although we attempt to manage these risks, there can be no assurance that our efforts will be successful or that international operations will not have a material adverse effect on our business.
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We depend on third parties to complete some of our contracts.
Depending on a contract’s scope of work, we may engage third-party subcontractors for on-site installation and service-related activities, use manufacturers for structures or elements related to installations, rely on contract manufacturers for certain product lines, or purchase specialty non-display system components from third parties. If we are unable to engage qualified subcontractors, manufacturers, or other third-party providers, our ability to successfully complete a project could be impaired. If we are not able to locate qualified third party subcontractors or manufacturers, the amount we are required to pay may exceed what we have estimated, and we may suffer reduced margins or losses on these contracts. If the subcontractor or manufacturer fails to perform, we may be required to source these services to other third parties on a delayed basis or on less favorable terms, which could impact contract profitability. There is a risk that we may have disputes with our subcontractors relating to, among other things, the quality and timeliness of work performed, customer concerns about the subcontractor, or faulty workmanship, resulting in claims against us for failure to meet required project specifications and negatively impacting our financial condition and results of operations.
These third parties are subject to fluctuations in global economic cycles and conditions and other business risk factors which may adversely impact their ability to operate their businesses. The performance and financial condition of the third parties may cause us to modify our business terms or cease doing business with a particular third party.
We may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may materially and adversely affect our business and operating results.
We adjust our production and services capacity and the overhead supporting order fulfillment based on anticipated market demand. Market demand, however, has not always developed as expected or remained consistent. These underutilization and overbooking capacity risks can potentially decrease our profitability and result in the impairment of certain assets.
The following factors are among those that could complicate capacity planning for market demand: (i) changes in the demand for and mix of products that our customers buy; (ii) tariff landscape and import/export controls; (iii) our ability to scale down or to add and train our manufacturing and services staff in advance of demand changes; (iv) the market’s pace of technological change; (v) variability in our manufacturing or services productivity; (vi) long lead times for and availability of raw materials and components used in production; (vii) our ability to engage qualified third parties; (viii) geographic location of orders and related shipping methods; and (ix) long lead times associated with capital expenditures for plant and equipment.
Our results of operations on a quarterly and annual basis have and are likely to continue to fluctuate and be substantially affected by the size and timing of large contract order awards.
Customer demand and the timing and size of large contracts create volatility in supply chain planning and capacity requirements to fulfill orders. Awards of large contracts and their timing and amounts are difficult to predict, may not be repeatable, and are outside of our control. Market demand has not always developed as expected or remained at a consistent level. Adjusting supply chain material planning and production and services capacity to meet this variability in demand can increase costs. Demand for our products is also influenced by trends and capital spending within key end markets, which may be adversely affected by economic or industry-specific conditions. Large contracts or customer awards include projects for college and professional sports facilities markets, the OOH niche, the transportation market, and the large spectacular niche. These projects can have short delivery time frames.
Some factors that may cause our operating results to vary due to timing and size of the awards include: (i) the timing of orders and related deliveries, including delays or cancellations of orders; (ii) our ability to obtain raw materials and components timely and at reasonable prices; (iii) our ability to adjust and utilize production and services capacity; (iv) our ability to engage third parties to support production and fulfillment; (v) new product introductions; (vi) variations in product mix; and (vii) customer financial wherewithal and the related economic conditions impacting their business.
Operating results in one or more quarters of a fiscal year may not be indicative of future operating results.
We enter into fixed price contracts, which could reduce our profits if actual costs exceed estimated costs.
Because of the complexity of many of our client contracts, accurately estimating the cost, scope, and duration of a particular contract can be a difficult task. Unanticipated costs that exceed our original estimates may not be recoverable under fixed price contracts. Unanticipated cost increases may occur as a result of several factors including, but not limited
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to: increases in the cost, shortages or non-availability of materials or labor; unanticipated technical problems; required project modifications not initiated by the customer; suppliers’ or subcontractors’ failure to perform or delay in performing their obligations; logistics disruptions or delays; and capacity constraints. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages which would negatively impact our profits. We evaluate changes in estimates on a contract-by-contract basis and disclose significant changes, if material, in the Notes to Consolidated Financial Statements. The cumulative catch-up method is used to account for revisions in estimates.
Our backlog may not be indicative of future revenue, profitability, or results of operations.
Many of our products have long sales, delivery, and acceptance cycles. In addition, our backlog is subject to order cancellations and delays. Orders normally contain cancellation provisions to permit our recovery of costs expended as well as a pro-rata portion of the profit. If projects are delayed, revenue recognition may be extended over longer periods, and projects may remain in backlog for longer than initially anticipated. If we receive relatively large orders in any given quarter, fluctuations in quarterly backlog levels may occur, as backlog levels in one period may not be sustained in subsequent periods.
Unanticipated events resulting in credit losses could have a material adverse impact on our financial results.
Significant portions of our sales are to customers who place large orders for custom products. We closely monitor the creditworthiness of our customers and have not, to date, experienced significant credit losses. We mitigate our exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments, payment bonds, and letters of credit. However, because some of our exposure to credit losses is outside of our control, unanticipated events resulting in credit losses could have a material adverse impact on our operating results.
As of May 2, 2026, a provision for expected credit losses of $3.8 million was recorded as management’s analysis concluded the loans related to an affiliate, in which the Company has an investment, are anticipated to be uncollectible.
Our actual results could differ from the estimates and assumptions we make to prepare our financial statements, which could have a material adverse impact on our financial condition and results of operations.
In connection with the preparation of our financial statements, including the Consolidated Financial Statements included in this Form 10-K, our management is required under GAAP to make estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.
These estimates and assumptions affect the timing and amount of net sales, costs, and profits or losses in applying the principles to contracts with customers under the over time method of recording revenue using the cost-to-cost input method; credit losses for accounts receivables and contract assets; the valuation of inventory; estimated amounts for warranty and product maintenance agreement costs; the calculation and valuation of our investments and deferred tax assets; the valuation of our investment in affiliates or unconsolidated subsidiaries; fair value estimates used in goodwill and long-term assets testing; estimating the impact of uncertainties in the application of complex tax laws; and calculating share-based compensation expense. Although we believe these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. If management’s estimates and assumptions change or are not correct, our financial condition or results of operations could be adversely affected.
Unanticipated warranty and other costs for defective products could adversely affect our financial condition, results of operations, and reputation.
We provide warranties on our products with terms varying from one to 10 years. In addition, we offer extended warranties. These warranties require us to repair or replace faulty products and meet certain performance standards, among other customary warranty provisions. Our products are often complex systems that must operate reliably in a variety of environmental and application conditions, and may require integration with customer infrastructure or third-party components. Failures, performance issues, or integration challenges could result in increased costs, customer dissatisfaction, contractual claims, or reputational harm. Although we continually monitor our warranty claims and accrue a liability for estimated warranty costs, unanticipated claims could have a material adverse impact on our financial results. In some cases, we may be able to subrogate a claim back to a subcontractor or supplier if the subcontractor or supplier
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supplied the defective product or performed the service, but this may not always be possible. In addition, the need to repair or replace products with design and manufacturing defects could adversely affect our reputation. Remediation of a claim may take time and could result in lost or deferred revenue, lead to costly warranty expenses, and have a material adverse impact on our financial condition and operating results.
The terms and conditions of our credit facilities impose restrictions on our operations, and if we default on our credit facilities, it could have a material adverse effect on our results of operations and financial condition, make us vulnerable to adverse economic or industry conditions, and result in liquidity issues.
The terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, contingent liabilities, lease obligations or liens; to merge or consolidate with another company; to dispose of substantially all our assets; to acquire or purchase a business or its assets; to pay dividends; to repurchase our shares; or to sell our assets, among other restrictions. Our credit facilities also impose certain financial covenants on us which restrict the level of our cash dividends and capital expenditures. A breach of any of these covenants could result in an event of default under our credit facilities. Upon the occurrence of an event of default, the lender could elect to declare any and all amounts outstanding under such facilities to be immediately due and payable and terminate all commitments to extend further credit. For additional information on financing agreements, see “Note 8. Financing Agreements” of the Notes to our Consolidated Financial Statements included in this Form 10-K.
For the foreseeable future, it is anticipated that our cash on hand, marketable securities, cash provided by operating activities, and borrowings under our credit facilities should provide sufficient funds to finance our capital expenditures and working capital needs and otherwise meet operating expenses and debt service requirements. However, if additional capital is required or we are unable to renew our existing credit facilities at all or on a timely basis, there can be no assurance we will be able to obtain such capital when needed or on satisfactory terms.
If we became unable to obtain adequate surety bonding or letters of credit, it could adversely affect our ability to bid on new work, which could have a material adverse effect on our future revenue and business prospects.
In line with industry practice, we are often required to provide performance and surety bonds to customers and may be required to provide letters of credit. These bonds and letters of credit provide credit support for the client if we fail to perform our obligations under the contract. If security is required for a project and we are unable to obtain a bond or letter of credit on terms acceptable to us and our client, we may not be able to pursue that project. In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets.
Acquisitions, investments, and divestitures pose financial, management, and other risks and challenges.
We routinely invest in and explore investing in or acquiring other businesses and related assets to complement or enhance our business strategies. These investments are often made to increase and enhance our customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio. Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.
The financial, management and other risks and challenges associated with these activities include, but are not limited to, the following: (i) diversion of management attention; (ii) difficulty with integrating acquired businesses; (iii) adverse impact on overall profitability if the expanded operations or investments in affiliates do not achieve the strategic benefits forecasted; (iv) potential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business; (v) inability to effectively manage our expanded operations; (vi) difficulty with the integration of different corporate cultures; (vii) personnel issues; (viii) increased expenses; (ix) assumption of unknown liabilities and indemnification obligations; (x) potential disputes with the buyers or sellers; (xi) the time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls; (xii) incorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities; and (xiii) incorrect assumptions and estimates made in accounting for the value of such asset.
There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits.
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As of May 2, 2026, we had no remaining investments in or advances to affiliates. During fiscal 2026, we recorded a provision for losses of $3.8 million related to an affiliate note determined to be uncollectible. In fiscal 2025, we recorded a provision for losses of $15.5 million related to a different affiliate note determined to be uncollectible.
If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.
We have pursued and will continue to seek potential acquisitions to complement and expand our existing businesses, increase our revenues and profitability, and expand our markets. As a result of prior acquisitions, we have goodwill and intangible assets recorded in our Consolidated Balance Sheets as described in “Note 5. Goodwill and Intangible Assets” of the Notes to our Consolidated Financial Statements included in this Form 10-K.
Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is not amortized and remains in our Consolidated Balance Sheets indefinitely unless there is an impairment or a sale of a portion of the business. Under current accounting guidelines, we must assess, at least annually, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods.
We perform our annual impairment test on the first day of our third fiscal quarter. Management concluded that no goodwill impairment existed for fiscal years 2026, 2025, and 2024 based on its annual impairment testing.
We may fail to continue to attract, develop, and retain key personnel, including management personnel, which could negatively impact our operating results.
We depend on qualified employees, including experienced and skilled technical personnel, to design, market, fulfill, and serve our customers. Qualified employees can be in high demand and limited in availability. We depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel. The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy. Our future success will also depend upon our ability to attract, train, motivate, and retain qualified personnel to maintain and grow capacity. We have recently appointed a new Chief Executive Officer and are currently recruiting for a new Chief Financial Officer. The effectiveness of this leadership transition, including the timing and outcome of the Chief Financial Officer search, could impact our ability to execute our business strategy and achieve our objectives.
Although we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees for our research and development and manufacturing operations, we may be unable to achieve the synergies expected from mergers and acquisitions or to develop and commercialize new products or new applications for existing products. Furthermore, possible shortages of key personnel, including engineers, could require us to pay more to hire and retain key personnel, thereby increasing our costs and negatively affecting our financial condition and results of operations.
Increases in the cost of employee benefits could impact our financial results and cash flows.
Our expenses relating to employee benefits, particularly health benefits, are significant. Unfavorable changes in the cost of and the unpredictability of claims under such benefits, including the current inflationary pressures on wages and benefits, could negatively impact our financial results and cash flows. Although we purchase stop loss insurance, its cost and healthcare costs have risen significantly in recent years. Legislative and private sector initiatives regarding healthcare reform could result in significant changes to the United States healthcare system. Due to the breadth and complexity of the healthcare reform legislation and the uncertainty surrounding further reform proposals, we are not able to fully determine the impact that any healthcare reform will have in the future on company sponsored medical plans.
The outcome of pending and future claims, investigations, or litigation can have a material adverse impact on our business, financial condition, and results of operations.
We are involved from time to time in a variety of litigation, investigations, inquiries or similar matters arising in our business. Litigation, investigations, and regulatory proceedings are subject to inherent uncertainties, and unfavorable rulings and outcomes can and do occur. Pending or future claims against us could result in professional liability, product
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liability, criminal liability, warranty obligations, indemnity claims, or other liabilities to the extent we are not insured against a loss or our insurance fails to provide adequate coverage. Also, a well-publicized actual or perceived threat of litigation could adversely affect our reputation and reduce the demand for our products. See “Note 17. Commitments and Contingencies” of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on litigation obligations.
Information Systems, Legal, and Regulatory Risks
Our business depends on numerous complex information systems and technologies. Any failure to maintain these systems, a network disruption, a misuse of technologies, or breaches in data security could result in business disruption or the loss of confidential or proprietary information and have a material adverse effect on our business.
We rely heavily on complex information systems and technologies for the successful operation of our business, the support of our offerings, and the collection and retention of business data. Any information system failure or security breach could adversely affect our operations, and we cannot guarantee that our data could be restored and the vulnerabilities remediated. Despite the security measures we have in place, our systems and those of our third-party service providers may be vulnerable to cybersecurity incidents, including ransomware, computer viruses, malicious attacks, programming errors, human error, or other similar events. The increasing use of artificial intelligence (“AI”) technologies may further increase the sophistication and frequency of cybersecurity threats.
Our use of AI technologies in our business processes and decision-making may introduce additional risks. These technologies may result in the unintended disclosure of confidential information if sensitive data is used as an input or otherwise exposed through their use. In addition, AI systems may generate inaccurate, incomplete, or misleading outputs. Reliance on such outputs could adversely affect our operations, decision-making, or customer relationships and could expose us to reputational harm, contractual claims, or other liabilities. Our use of AI technologies may also give rise to intellectual property or other legal risks, including potential claims related to the use of data or outputs generated by such systems.
Any misappropriation, loss, or unauthorized disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers, could adversely affect our business and operations. We could face significant costs, including remediation, investigation, penalties, litigation, and reputational harm, any of which could materially and adversely affect our business, financial condition, and results of operations. For further discussion of our cybersecurity programs, please the discussion set forth in this Form 10-K “Part I, Item 1C. Cybersecurity.”
Increases in the cost or limited availability of computing infrastructure, including memory and processing resources, could adversely affect our business, financial condition, and results of operations.
Some of the services we provide to customers depend on access to substantial computing infrastructure, including memory, networking equipment, and cloud-based computing services. Demand for high-performance computing infrastructure has increased significantly in recent years in part due to the rapid adoption and proliferation of AI, machine learning, and other data-intensive technologies. This increased demand has contributed to supply constraints, longer procurement lead times, and higher prices in certain components, including memory and processing-related components, as well as the broader computing infrastructure. These trends may continue or intensify as AI-related workloads expand across industries.
In particular, increased demand for memory, processors, and other key electronic components may limit availability or reduce our purchasing leverage with suppliers. The cost of acquiring, leasing, or accessing compute and memory resources may continue to increase due to growing industry demand, supply chain constraints, geopolitical factors, inflationary pressures, changes in vendor pricing, tariffs, or other market conditions. In addition, shortages of high-performance computing components, including advanced memory technologies and AI-optimized processors, could limit our ability to obtain sufficient capacity on acceptable terms or within required timeframes. If we are unable to secure adequate computing or memory capacity on commercially reasonable terms, manage procurement lead times effectively, or if the costs of such infrastructure increase rapidly, or if we are unable to pass increased costs through to customers, we may experience negative effects on our business, financial condition, and results of operations.
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Our global operations expose us to global regulatory, geopolitical, economic, and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition.
Our domestic and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with international laws, regulations, and governmental actions. These conditions include political developments; economic changes; unfavorable trade policies; changes in foreign and domestic laws, regulations, or governmental requirements; changes in treaty and trade relationships; the imposition of government restrictions or emergency measures that differ among jurisdictions; and changes in monetary and fiscal policies.
Additional risks include changes in economic or political conditions; the pricing and marketing of our products; local labor conditions and regulations; reduced protection of intellectual property rights; changes in regulatory or legal environments; lack of well-developed legal systems; foreign currency restrictions and exchange rate fluctuations; and burdensome taxes, tariffs, and other trade regulations or barriers. Other exposures and uncertainties include changing social conditions and attitudes, terrorism, political instability, and armed conflicts.
We also face operational challenges in managing our global footprint, including staffing and managing multiple locations and addressing logistical and communication challenges. The likelihood and impact of these risks vary by country, are outside of our control, and are difficult to predict.
Our business involves the use of hazardous materials, and we must comply with environmental, health, and safety laws and regulations, which can be expensive and restrict how we do business.
Our business involves the blending, controlled storage, use, and disposal of hazardous materials. We and our suppliers are subject to federal, state, local, and foreign laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. Although we believe the safety procedures we utilize for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, local, state, federal, or foreign authorities may curtail the use of these materials and interrupt our business operations. If we are subject to any liability as a result of activities involving hazardous materials, our business, financial condition, and results of operations may be adversely affected, and our reputation may be harmed. Additionally, future laws regarding hazardous materials may increase our costs with respect to their use and disposal.
Our future results may be affected by compliance risks related to United States and other countries’ anti-bribery and anti-corruption laws, trade controls, economic sanctions, and similar laws and regulations. Our failure to comply with these laws and regulations could subject us to civil, criminal, and administrative proceedings or penalties and harm our reputation.
Doing business on a worldwide basis requires us to comply with the laws and regulations of the United States government and various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners, customers, and investments.
In particular, we and our operations are subject to United States and foreign anti-corruption and trade control laws and regulations, such as the United States Foreign Corrupt Practices Act (the “FCPA”); the United Kingdom Bribery Act (the “Bribery Act”); and export controls and economic sanctions programs, including those administered by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”), the State Department’s Directorate of Defense Trade Controls (the “DDTC”), and the Bureau of Industry and Security of the United States Department of Commerce.
As part of our business, we deal with state-owned business enterprises, the employees of which are considered to be foreign officials for purposes of the FCPA’s prohibition on United States companies from engaging in bribery, providing anything of value, or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and other similar regulations in other areas of the world. In addition, the provisions of the Bribery Act apply to the bribery of foreign officials and to transactions with individuals that a government does not employ. The FCPA also requires us to maintain specific record-keeping standards and adequate internal accounting controls. In addition, we are subject to similar requirements in other countries. Some of the international locations in which we do business lack a developed legal system and have higher than normal levels of corruption. Our expansion outside of the United States and our development of new partnerships and joint venture relations worldwide could increase the risk of violation of the FCPA, OFAC, the Bribery Act or similar laws and regulations.
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As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the United States and other countries having jurisdiction over our operations and trade sanctions against embargoed countries and destinations administered by OFAC. Before shipping certain items, we must obtain an export license or verify that license exemptions are available. Any failures to comply with these laws and regulations could result in fines, adverse publicity, and restrictions on our ability to export our products. Repeat failures could carry more significant penalties.
Anti-bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity, and severity on a global basis. Violations of anti-corruption, anti-bribery, and trade control laws and sanctions regulations are punishable by civil penalties, including fines; the denial of export privileges; injunctions; asset seizures; debarment from government contracts and revocations or restrictions of licenses; as well as criminal fines and imprisonment, and could harm our reputation, create negative stockholder sentiment, and affect our share value. We have established policies and procedures with the intention of providing reasonable assurance of compliance with these laws and regulations and trained our employees to comply with these laws and regulations. However, our employees, contractors, agents, and licensees involved in our international operations may take actions in violations of such policies. If our employees, agents, distributors, suppliers, and other third parties with whom we do business violate anti-bribery, anti-corruption, or similar laws and regulations, we may incur severe fines, penalties, and reputational damage even if we were not aware of such violation. Additionally, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our partners take inside or outside of the United States even though we are not aware of such actions or our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could have an adverse effect on our reputation, business, financial condition, and results of operations. In addition, various state and municipal governments, universities, and other investors maintain prohibitions or restrictions on investments in companies that do business with sanctioned countries, persons, and entities, which could adversely affect our reputation, business, financial condition, and results of operations.
Regulation in the areas of privacy, data protection, and information security could increase our costs and affect or limit our business opportunities and how we collect or use personal information.
As privacy, data protection, and information security laws, including data localization laws, are interpreted and applied, our compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place. In recent years, there have been increasing regulatory enforcement and litigation activities in the areas of privacy, data protection, and information security in the United States and in various countries in which we operate.
In addition, state and federal legislators and/or regulators in the United States and other countries in which we operate are increasingly adopting or revising privacy, data protection, and information security laws that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices; our collection, use, sharing, retention, and safeguarding of consumer and/or employee information; and some of our current or planned business activities. New legislation or regulation could increase our costs of compliance and business operations and could reduce revenues from certain business initiatives. Moreover, the application of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost.
Compliance with current or future privacy, data protection, and information security laws relating to consumer and/or employee data, including the General Data Protection Regulation in the European Union and similar laws in other regions of the world, including the United States, could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our results of operations. Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, customer indemnity claims, decreases in the use or acceptance of our products and services, and damage to our reputation and our brand.
Environmental, social, and governance (“ESG”) regulations and disclosures may impact our reputation, expose us to additional costs, or have other impacts which could adversely affect our business, financial condition, or results of operations.
There is continued focus and evolving expectations from regulators, investors, employees, customers, and other stakeholders relating to ESG matters, with regulatory approaches differing across jurisdictions. We periodically
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communicate our ESG initiatives, which include prioritizing people, community, environmental, and product stewardship. Certain market participants, including major institutional investors, proxy advisory firms, and capital providers, use benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions or recommending voting positions. We have limited and in some instances no visibility or control over these scores or their underlying methodologies. Unfavorable ESG ratings could lead to increased negative investor sentiment towards us or our industry, which could negatively impact our share price as well as our access to and cost of capital.
The ESG regulatory environment is evolving and, in some cases, becoming fragmented, with certain jurisdictions increasing disclosure and compliance requirements while others are reducing or revising such requirements. This may result in increased costs, complexity, and challenges in complying with applicable requirements. At the same time, there are efforts by some stakeholders to increase companies’ focus on ESG matters, while others are seeking to reduce or limit such efforts. Both advocates of and opponents to certain ESG matters are increasingly engaging in a range of activities, including media campaigns, shareholder proposals, and litigation, to advance their perspectives.
In addition, we may be subject to increased regulatory scrutiny, investigations, litigation, or enforcement actions relating to our ESG disclosures, initiatives, or public statements, including potential claims regarding the accuracy or completeness of such disclosures or allegations of “greenwashing.” Compliance with evolving ESG-related requirements may require significant data collection, validation, and reporting efforts, including the potential need for enhanced internal controls or third-party assurance, which could increase our costs and complexity. To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete effectively to attract and retain employees or customers, which may adversely impact our operations. In addition, achieving our ESG initiatives may result in increased costs, which could have a material adverse impact on our business, financial condition, or results of operations.
Global tax law changes may adversely affect our business, financial condition, and results of operations.
We are subject to the income tax laws of the United States and its various state and local governments, as well as several foreign tax jurisdictions. Our future income taxes could be materially adversely affected by changes in the amount or mix of earnings among countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or the interpretation of tax rules and regulations in jurisdictions in which we do business, changes in tax laws, or the outcome of income tax audits and any related litigation. The United States Tax Cuts and Jobs Act of 2017 is one such example of legislation that has impacted our effective tax rate.
Further changes in tax laws in the United States and foreign jurisdictions could arise, including additional tax reform in the United States and evolving international tax frameworks, such as those developed by the Organization for Economic Co-operation and Development (“OECD”). These developments include the implementation of global minimum tax regimes and related guidance across multiple jurisdictions, which may differ in scope, timing, and application. These changes may result in increased complexity, compliance burdens, and uncertainty with respect to our global tax position.
Both U.S. tax reform and international tax developments may materially affect long-standing tax positions and principles, including the taxation of foreign earnings and cross-border transactions. These changes could increase tax uncertainty and may adversely affect our business, financial condition, and results of operations.
Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal controls over financial reporting. Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely affect our stock price.
If we identify control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Our failure to maintain effective internal control over financial reporting could result in violations of applicable securities laws and stock exchange listing requirements; subject us to litigation, investigations, or administrative proceedings; negatively affect investor confidence in our financial statements; and adversely impact our stock price and ability to access capital markets.
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Insurance coverage can be difficult or expensive to obtain, and our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations.
We maintain insurance both as a corporate risk management strategy and to satisfy the requirements of many of our contracts with customers. As the costs and availability of insurance change, we may decide not to be covered against certain losses where, in the judgment of management, the insurance is not warranted due to the cost or availability of coverage or the remoteness of the perceived risk. We cannot provide assurance that all necessary or appropriate insurance will be available, cover every type of loss incurred, or be able to be economically obtained. For example, some insurers limit or refuse coverages, increase premium costs, or increase deductibles when global catastrophic events occur. As part of our corporate risk management strategy, we monitor and place our coverages with financially strong insurers, layer our risk with multiple insurers, and seek advice on the amount, breadth, and type of insurance coverages to protect our interests. We also contractually require subcontractors and others working on our behalf to carry common insurance coverages for the types of work they perform to mitigate any risk of our loss. Our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations.
We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict minerals”, which has imposed and may impose additional costs on us and could raise reputational challenges and other risks.
The SEC has promulgated rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding disclosure of the use of certain minerals, known as conflict minerals, mined from the Democratic Republic of the Congo and adjoining countries. As required, we have filed annual Forms SD with the SEC since 2014 reporting our work performed to gain information on the source of conflict minerals we use. We incur costs associated with complying with these disclosure requirements. As we continue our due diligence, we may face reputational challenges if we continue to be unable to verify the origins of all conflict minerals used in our products. We may also encounter challenges in our efforts to satisfy customers that may require all of the components of products purchased to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier, which could negatively affect our business, financial condition, and results of operations.
Risks Related to an Investment in Our Common Stock
The protections we have adopted and to which we are subject may discourage takeover offers favored by our stockholders.
Our certificate of incorporation (the “Certificate of Incorporation”), by-laws, and other corporate governance documents, as well as the General Corporation Law of the State of Delaware (the “DGCL”) and other applicable Delaware laws, contain protections that could have an anti-takeover effect and discourage, delay, or prevent a change in control or an acquisition that some stockholders may find attractive. These protections under Delaware law and our governance documents, which may make it more difficult for our stockholders to take certain corporate actions related to a change in control of the Company, include, without limitation:
• the ability of our Board of Directors (the “Board” or the “Board of Directors”), without stockholder approval, to authorize and issue shares of stock with voting, liquidation, dividend, and other rights and preferences that are superior to our common stock;
• the classification of our Board, which effectively prevents stockholders from electing a majority of the directors at any one meeting of stockholders;
• the requirement for stockholders to provide advance notice to raise business matters or nominate directors at annual meetings of stockholders;
• the prohibition of cumulative voting in the election of directors;
• under the DGCL, stockholders who do not approve a change in control generally do not have the right, solely by reason of their dissent, to receive a judicially determined control premium or other premium for their shares, although appraisal rights may be available in certain transactions; and
• in general, Section 203 of the DGCL prohibits us from engaging in a Business Combination (as defined below) with an Interested Stockholder (as defined below) for a period of three years after the date of the transaction in which the person became an Interested Stockholder unless: (i) our Board approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder prior to the date the interested stockholder became an Interested Stockholder; (ii) the Interested Stockholder acquires at least 85 percent of our common stock (excluding shares owned by our directors, officers, and certain participants in
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employee stock purchase plans) in the transaction in which it became an Interested Stockholder; or (iii) the business combination is approved by our Board and the affirmative vote of at least two-thirds of the votes entitled to be cast by disinterested stockholders at an annual or special meeting of our stockholders. The DGCL permits a corporation to opt out of, or choose not to be governed by, Section 203 of the DGCL by expressly stating so in its original certificate of incorporation (or subsequent amendment to its certificate of incorporation or bylaws approved by its stockholders). The Certificate of Incorporation does not contain a provision expressly opting out of the application of Section 203 of the DGCL. Therefore, the Company is subject to Section 203 of the DGCL .
A “Business Combination” is defined under the DGCL broadly to include mergers, consolidations, asset sales, and other transactions resulting in a financial benefit to an interested stockholder. Section 203 of the DGCL generally defines an “Interested Stockholder” as an entity or person beneficially owning 15 percent or more of the outstanding voting stock of a corporation and any entity or person affiliated with or controlling or controlled by such entity or person.
The above protections may deny our stockholders a premium on a sale of their common stock, which, in turn, may have a material adverse effect on the market price of our common stock.
Our common stock has at times been thinly traded, which may result in low liquidity and price volatility.
The daily trading volume of our common stock has at times been relatively low. If this were to occur in the future, the liquidity and appreciation of our common stock may not meet our stockholders’ expectations, and the price at which our stock trades may be volatile. The market price of our common stock could be adversely impacted as a result of sales by existing stockholders of a large number of shares of common stock in the market or by the perception such sales could cause.
Significant changes in the market price of our common stock could result in securities litigation claims against us.
The market price of our common stock has fluctuated and will likely continue to fluctuate. In the past, companies that have experienced significant changes in the market price of their stock have been subject to securities litigation claims. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns even if we prevail in the litigation, which could harm our business.
Additionally, if we fail to meet or exceed the expectations of securities analysts and investors, or if one or more of the securities analysts who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline. Moreover, our stock price may be based on expectations, estimates, and forecasts of our future performance that may be unrealistic or that may not be met. Further, our stock price may fluctuate based on reporting by the financial media, including television, radio, press reports, podcasts, and blogs.
Activist stockholder activity has impacted, and may continue to impact, our governance, operations, strategic directions, and the value of our common stock.
We have experienced activist stockholder activity that has led to changes in our Board composition and governance practices, and the possibility of future activism could have a material adverse effect on our business, financial condition, or results of operations, as well as the price of our common stock.
On March 3, 2025, we entered into a cooperation agreement with Alta Fox Capital Management, LLC (together with certain of its affiliates, “Alta Fox”) (the “Alta Fox Cooperation Agreement”), our largest stockholder. Pursuant to the Cooperation Agreement, an Alta Fox-recommended candidate was appointed to our Board of Directors and the Transformation Committee of the Board, and we committed to various governance and investor engagement initiatives, including hosting an Investor Day and seeking Alta Fox’s input on our search for a new Chief Financial Officer (“CFO”).
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Alta Fox has agreed to customary standstill and voting provisions through our 2027 annual meeting of stockholders and has withdrawn its litigation against the Company with prejudice.
In response to stockholder engagement, including activist activity, we are pursuing various strategic and operational initiatives. These initiatives may not be successfully implemented, may disrupt our operations, or may not achieve the expected benefits within the anticipated timeframes, if at all.
Any future activist campaigns, whether by current stockholders or new investors, could be costly and time-consuming, disrupt our operations, divert the attention of management and our Board, interfere with our ability to execute our strategic plans, and create uncertainty among employees, customers, and investors. These impacts, alone or in combination, could materially adversely affect the market price and volatility of our securities.
Our founder and former Chairman of the Board and his family may have the ability to significantly influence all matters submitted to our stockholders for approval.
Daktronics co-founder Dr. Aelred Kurtenbach served as our Chairman of the Board until September 3, 2014. Dr. Aelred Kurtenbach’s family members currently serve or have recently served as executive officers of the Company. His son, Mr. Reece A. Kurtenbach, served on our Board of Directors until February 1, 2026 and served as Chief Executive Officer (“CEO”) of Daktronics until March 5, 2025. One of Dr. Aelred Kurtenbach’s children currently serves as our Vice President of Manufacturing, and another of his children previously served as Vice President of Human Resources and Secretary through January 31, 2026.
Together, these individuals, in the aggregate, beneficially own shares of our outstanding common stock. Although this does not represent a majority of our outstanding common stock, if these stockholders were to choose to act together, they would be able to significantly influence all matters submitted to our stockholders for approval, and may be able to influence our management and affairs. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire. The interests of this group of stockholders may not always coincide with the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, that might affect the prevailing market price for our common stock.