DAKTRONICS INC /SD/ 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The MD&A provides a narrative analysis explaining the reasons for material changes in the (i) financial condition of Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) during the period from the most recent fiscal year-end, May 2, 2026, to and including August 1, 2026; and (ii) results of operations of the Company during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. This Quarterly Report on Form 10-Q, including the MD&A, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “may,” “might,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plan,” “forecast,” “project,” “continue,” “outlook,” “focus,” “goal,” “target,” “transform,” “expand,” “execute,” “ongoing,” “improve,” “grow,” and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any and all forecasts and projections in this document are “forward-looking statements” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us. Any or all forward-looking statements in this Quarterly Report on Form 10-Q and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts, orders, and capital investment projects, fluctuations in margins, interest rate risk, the introduction of new products and technology, the impact of adverse weather conditions, increased regulation, the imposition of tariffs, trade wars, the availability and costs of raw materials, components, and shipping services, geopolitical and governmental actions, including the U.S. federal government shutdown, expansion into new geographical markets, the Company’s recent leadership transition, transformation initiatives, future strategy, and the other risks, trends, and uncertainties described more fully in the Company’s Annual Report on Form 10-K for the fiscal year ended May 2, 2026 (the "Form 10-K") filed with the Securities and Exchange Commission ("SEC"), this Quarterly Report on Form 10-Q, and other reports filed with or furnished to the SEC by the Company. We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable law. The MD&A should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q, the Form 10-K (including the information presented therein under “Item 1A. Risk Factors” of Part I), and other reports filed with or furnished to the SEC by the Company. The quarter-over-quarter comparisons in this MD&A are as of and for the fiscal quarters ended August 1, 2026 and August 2, 2025 unless otherwise stated. Non-GAAP Financial Measures 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 21 Table of Contents maintenance, conventions, and trade shows), costs associated with customer relationship management and marketing systems, bad debt expense, third-party commissions, and other related expenses. In addition to gross profit, management considers contribution margin a meaningful metric for assessing the financial performance of individual segments. We believe this measure provides investors with a useful view of our segment-level performance consistent with the approach used by management. By presenting contribution margin, we aim to enhance transparency and allow investors to better understand how we evaluate and manage our business operations. See the section of this Item 2 entitled “Reportable Segment Performance Summary” for a reconciliation of contribution margin to operating income, the most directly comparable GAAP measure. Overview Daktronics designs, manufactures, and sells electronic display systems and related solutions used in sports, commercial, and transportation applications. Our offerings include standard display products as well as custom-designed and integrated systems that incorporate display hardware, control systems, and software. Our product portfolio ranges from small scoreboards and electronic displays to large-scale video display systems deployed in stadiums, arenas, commercial facilities, and other public venues. These systems are often integrated with related technologies, including control, timing, and audio systems, and are used to present real-time data, graphics, animation, and video. We operate a vertically integrated business model that includes marketing and sales, engineering and product design and development, manufacturing, installation, and ongoing customer support. This lifecycle approach allows us to support customers from initial system design and installation through long-term maintenance, upgrades, and replacement cycles. In addition to equipment sales and installation, we provide services that include technical support, professional services, and software-based solutions that enable customers to operate and manage their display systems. The Company operates on a 52- or 53-week fiscal year ending on the Saturday closest to April 30. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Each fiscal quarter consists of 13 weeks, except in a 53-week fiscal year, where the first quarter includes 14 weeks. The three months ended August 1, 2026, and August 2, 2025, included 13 and 14 weeks of operations, respectively. Known Trends and Uncertainties During the first quarter of fiscal 2027, we continued to focus on initiatives intended to support sustainable growth, improve operating performance, and enhance returns on invested capital. These efforts include operational execution, capacity optimization, digital capabilities, and initiatives designed to support long-term scalability and profitability. Demand for digital display systems continues to be supported by the ongoing adoption of LED-based technologies across sports, commercial, and transportation applications; however, customer demand levels and project timing can vary based on economic conditions, funding availability, and other external factors. The business environment remains dynamic, with changes in trade policy and tariffs continuing to affect supply chains, customer purchasing decisions, and operating costs. Tariffs on electronic components, aluminum, steel, copper, and other imported materials have increased product costs and created uncertainty regarding future project economics. In response, the Company has taken pricing actions, sourcing strategies, and operational initiatives intended to mitigate these impacts; however, the ultimate effect on demand, margins, and profitability remains uncertain. The Company continues to monitor developments related to tariffs and available refund programs associated with certain previously paid tariffs. Daktronics has submitted, and may continue to submit, claims for additional recoveries where appropriate. The Company recognizes tariff refunds when received. Due to uncertainties regarding eligibility, administrative review processes, and the ultimate resolution of outstanding claims, the Company has not recognized assets related to potential recoveries that do not meet the applicable accounting recognition criteria. The timing and amount of any future recoveries remain uncertain. The global market for digital display systems continues to evolve through advancements in display technologies, control systems, software, and related services. Customers increasingly seek integrated solutions that improve content management, user experience, system monitoring, reliability, and operational efficiency. The adoption of narrow pixel 22 Table of Contents pitch and other advanced display technologies continues to influence customer purchasing decisions across many of the markets we serve. Daktronics participates in large end markets that continue to benefit from customer investments intended to enhance audience engagement, communication, and operational effectiveness. To address evolving market conditions and competitive dynamics, we continue to focus on operational execution, manufacturing efficiency, product innovation, and market expansion. While these initiatives are expected to support long-term growth opportunities and operating performance, the timing and magnitude of associated benefits depend on execution, customer demand, and broader economic conditions. The Company also continues to expand its global manufacturing footprint, including the ongoing ramp-up of manufacturing operations in Mexico. We expect these expanded manufacturing facilities to provide additional manufacturing flexibility and support long-term cost structure optimization. However, the timing and extent of associated operational and financial benefits depend on production volumes, staffing, execution, and market conditions. There may be periods in which revenue trends and operating expenses are not fully aligned as the Company continues to invest in operational capabilities, systems, manufacturing flexibility, and corporate governance. While these investments may affect near-term profitability, they are intended to support long-term operational effectiveness, scalability, and value creation. Despite ongoing uncertainties related to tariffs, trade policy, geopolitical developments, and broader economic conditions, the Company believes the long-term demand drivers supporting the audiovisual industry remain favorable. Continued adoption of digital display technologies, together with the Company's portfolio of products, software, services, and integrated solutions, may support future growth opportunities. Actual demand levels, however, will continue to depend on customer spending priorities, funding availability, competitive conditions, and overall economic activity. We maintain a unique leadership position in our target markets, which are large, growing, and supported by resilient demand from customers seeking to enhance audience experiences in sports, commercial, and transportation environments RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED AUGUST 1, 2026 AND AUGUST 2, 2025 Product Order Backlog Backlog represents the dollar value of orders for integrated electronic display systems and related products and services which are expected to be recognized in net sales in the future. Orders are contractually binding purchase commitments from customers. Orders are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Orders and backlog are not metrics defined by GAAP, and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts. Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multimillion-dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. Order fulfillment timing is dependent on customer schedules, supply chain conditions, and our capacity availability. We believe order information is useful to investors because it provides an indication of our market share and future revenues. As of August 1, 2026, our product order backlog was $311.3 million, compared to $360.3 million as of August 2, 2025, and $356.2 million as of May 2, 2026. The decrease in backlog year-over-year reflects the conversion of existing backlog into revenue at a pace that exceeded order intake during the quarter. We expect to fulfill the backlog as of August 1, 2026 within the next 24 months. The timing of backlog fulfillment may be impacted by project delays resulting from factors outside of our control, including customer site conditions. 23 Table of Contents Consolidated Performance Summary The following is an analysis of changes in key items included in the statements of operations for the three months ended August 1, 2026 and August 2, 2025 (in thousands): August 1, 2026 % of Net sales (1) August 2, 2025 % of Net sales (1) Dollar Change (1) Percent Change (1) Net sales $ 234,565 100.0 % $ 218,972 100.0 % $ 15,593 7.1 % Cost of sales 162,966 69.5 153,900 70.3 9,066 5.9 Gross profit 71,599 30.5 65,072 29.7 6,527 10.0 Operating expenses: Selling 18,990 8.1 16,834 7.7 2,156 12.8 General and administrative 15,559 6.6 14,295 6.5 1,264 8.8 Product design and development 12,114 5.2 10,671 4.9 1,443 13.5 Total operating expenses 46,663 19.9 41,800 19.1 4,863 11.6 Operating income 24,936 10.6 23,272 10.6 1,664 7.2 Nonoperating income (expense): Interest income (expense), net 1,134 0.5 893 0.4 241 27.0 Other expense, net (403) (0.2) (1,942) (0.9) 1,539 (79.2) Income before income taxes 25,667 10.9 22,223 10.1 3,444 15.5 Income tax expense 6,237 2.7 5,753 2.6 484 8.4 Net income $ 19,430 8.3 % $ 16,470 7.5 % $ 2,960 18.0 % Diluted earnings per share $ 0.40 $ 0.33 $ 0.07 21.2 % Diluted weighted average shares outstanding 48,901 49,736 $ (835) (1.7) % Orders $ 191,799 $ 238,543 $ (46,744) (19.6) % (1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided. In addition, percentages may not add in total due to rounding. Sales, orders, gross profit, and operating expenses were impacted as a result of the first quarter of fiscal 2027 including 13 weeks. The first quarter of fiscal 2026 contained 14 weeks. Net Sales: The net sales increase in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 was the result of higher sales volumes in the Live Events, Transportation, and International business units, partially offset by decreased sales in the Commercial and High School Park and Recreation business units. The amount of recognized revenue associated with performance obligations satisfied in prior years during the three months ended August 1, 2026 and August 2, 2025 was immaterial. Orders: Order volume decreased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026, reflecting the timing of customer project awards and a strong prior-year comparison period that included an additional week of operations. Variability in orders is typical in the Company's project-based business, with order volume fluctuating from period to period based on the timing and size of customer awards and project bookings. 24 Table of Contents Gross profit: Gross profit increased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 as a result of higher sales volume. Gross profit as a percentage of net sales increased slightly to 30.5 percent for the first quarter of fiscal 2027 as compared to 29.7 percent for the same period a year ago. The increase in gross profit margin included the receipt of tariff refunds, partially offset by higher price-sensitive input costs. Total warranty expense as a percentage of sales increased to 1.7 percent for the first quarter of fiscal 2027 as compared to 1.2 percent for the same period a year ago. Selling: Selling expenses increased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 primarily due to increases in personnel-related wages and benefits and a commission on a large International project completed during the quarter. General and Administrative: General and administrative expenses increased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 primarily due to continued investments in operational capabilities, technology initiatives, and corporate support functions. Product Design and Development: Product design and development expenses increased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 primarily due to continued investment in product development, engineering resources, and technology initiatives intended to support future growth opportunities. Interest Income (Expense), net: Interest income increased in the first quarter of fiscal 2027 compared to the same period a year ago, reflecting higher interest income on invested cash balances and lower interest expense and interest on tariff refunds. Other Expense, net: Other expense decreased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 due to lower non-operating expenses recognized during the most recent period. Foreign currency fluctuations continued to impact results in both periods. Income Tax Expense: For the three months ended August 1, 2026, our effective tax rate was 24.3 percent compared to 25.9 percent for the three months ended August 2, 2025. The decrease in the effective tax rate was primarily attributable to valuation allowances recorded in fiscal 2026 which did not recur in fiscal 2027. Net Income: The increase in net income reflects higher gross profit and operating income compared to the same period a year ago. For the three months ended August 1, 2026, our earnings per diluted share was $0.40 compared to $0.33 in the same period last year. 25 Table of Contents Reportable Segment Performance Summary Non-GAAP Reconciliation: The following table shows information regarding our reportable segment financial performance of contribution margin reconciled to operating income, the most comparable GAAP metric, for the three months ended August 1, 2026 and August 2, 2025 (in thousands): Three Months Ended August 1, 2026 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 43,703 $ 86,398 $ 54,711 $ 21,378 $ 28,375 $ 234,565 Cost of sales 30,353 69.5 % 66,025 76.4 % 34,956 63.9 % 14,242 66.6 % 17,390 61.3 % 162,966 69.5 % Gross profit 13,350 30.5 20,373 23.6 19,755 36.1 7,136 33.4 10,985 38.7 71,599 30.5 Selling 4,460 10.2 3,273 3.8 4,528 8.3 1,572 7.4 5,157 18.2 18,990 8.1 Contribution margin 8,890 20.3 17,100 19.8 15,227 27.8 5,564 26.0 5,828 20.5 52,609 22.4 General and administrative — — — — — — — — — — 15,559 6.6 Product design and development — — — — — — — — — — 12,114 5.2 Operating income $ 8,890 20.3 % $ 17,100 19.8 % $ 15,227 27.8 % $ 5,564 26.0 % $ 5,828 20.5 % $ 24,936 10.6 % Orders $ 46,568 $ 47,213 $ 56,276 $ 22,703 $ 19,039 $ 191,799 Three Months Ended August 2, 2025 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 46,167 $ 79,800 $ 59,347 $ 16,575 $ 17,083 $ 218,972 Cost of sales 32,517 70.4 % 59,614 74.7 % 37,406 63.0 % 11,419 68.9 % 12,944 75.8 % 153,900 70.3 % Gross profit 13,650 29.6 20,186 25.3 21,941 37.0 5,156 31.1 4,139 24.2 65,072 29.7 Selling 4,738 10.3 3,208 4.0 4,629 7.8 1,593 9.6 2,666 15.6 16,834 7.7 Contribution margin 8,912 19.3 16,978 21.3 17,312 29.2 3,563 21.5 1,473 8.6 48,238 22.0 General and administrative — — — — — — — — — — 14,295 6.5 Product design and development — — — — — — — — — — 10,671 4.9 Operating income $ 8,912 19.3 % $ 16,978 21.3 % $ 17,312 29.2 % $ 3,563 21.5 % $ 1,473 8.6 % $ 23,272 10.6 % Orders $ 44,223 $ 92,219 $ 63,254 $ 21,909 $ 16,938 $ 238,543 Net Dollar and % Change Commercial Percent Change (1) Live Events Percent Change (1) High School Park and Recreation Percent Change (1) Transportation Percent Change (1) International Percent Change (1) Total Percent Change (1) Net sales $ (2,464) (5.3) % $ 6,598 8.3 % $ (4,636) (7.8) % $ 4,803 29.0 % $ 11,292 66.1 % $ 15,593 7.1 % Cost of sales (2,164) (6.7) 6,411 10.8 (2,450) (6.5) 2,823 24.7 4,446 34.3 9,066 5.9 Gross profit (300) (2.2) 187 0.9 (2,186) (10.0) 1,980 38.4 6,846 165.4 6,527 10.0 Selling (278) (5.9) 65 2.0 (101) (2.2) (21) (1.3) 2,491 93.4 2,156 12.8 Contribution margin (22) (0.2) 122 0.7 (2,085) (12.0) 2,001 56.2 4,355 295.7 4,371 9.1 General and administrative — — — — — — — — — — 1,264 8.8 Product design and development — — — — — — — — — — 1,443 13.5 Operating income $ (22) (0.2) % $ 122 0.7 % $ (2,085) (12.0) % $ 2,001 56.2 % $ 4,355 295.7 % $ 1,664 7.2 % Orders $ 2,345 5.3 % $ (45,006) (48.8) % $ (6,978) (11.0) % $ 794 3.6 % $ 2,101 12.4 % $ (46,744) (19.6) % 26 Table of Contents (1) Amounts are calculated on unrounded numbers and therefore may not recalculate using the rounded numbers provided. In addition, percentages may not add in total due to rounding. Sales, orders, gross profit, and operating expenses were impacted as a result of the first quarter of fiscal 2027 including 13 weeks. The first quarter of fiscal 2026 contained 14 weeks. During the first quarter of fiscal 2027, total net sales increased and gross profit as a percentage of net sales increased, reflecting the cumulative impact of the following factors: Commercial: The decrease in net sales in the first quarter of fiscal 2027 compared to the same period one year ago was primarily due to lower backlog entering the quarter, which reduced the volume of projects available for revenue recognition during the period. Gross profit as a percentage of sales increased due to delivering more profitable projects in the Spectaculars and On-Premise niches and higher sales volume over a relatively fixed cost structure. Selling expenses decreased year-over-year, primarily reflecting lower personnel costs. The increase in order bookings reflects continued market adoption of digital display technology. Live Events: The increase in net sales in the first quarter of fiscal 2027 compared to the same period one year ago was primarily due to the timing and execution of project deliveries and revenue recognition on large customer projects. Gross profit as a percentage of sales in the quarter decreased slightly due to normal variability in project and customer mix. Selling expenses remained relatively flat. Order volume decreased in the first quarter of fiscal 2027 compared to the same period in fiscal 2026 primarily due to the timing of customer project awards and a strong prior-year comparison period. Variability in orders is common within the Live Events business unit, as a relatively small number of large projects can significantly affect order volume in any given period. High School Park and Recreation: Sales decreased during the first quarter of fiscal 2027 compared to the same period one year ago primarily due to lower project delivery activity during the quarter. Gross profit as a percentage of sales decreased slightly due to normal variability in project and customer mix. Selling expenses decreased primarily due to lower sales activity during the period. Order bookings decreased due to the timing of customer project awards. Order activity can fluctuate from period to period based on customer funding cycles and project timing. Transportation: Sales increased during the first quarter of fiscal 2027 compared to the same period one year ago due to increased project delivery activity and revenue recognition during the quarter. Gross profit as a percentage of sales increased primarily due to favorable project mix and execution on projects recognized during the quarter. Selling expenses and order bookings remained relatively flat year-over-year. International: The increase in net sales in the first quarter of fiscal 2027 was due to the timing of project execution and customer deliveries. Gross profit as a percentage of sales increased primarily due to favorable project mix and improved execution on projects recognized during the quarter. Selling expenses increased primarily due to a commission on a large project completed during the quarter and investments to support growth within the International business unit. Order bookings increased compared to the same period a year ago, reflecting favorable customer demand and project award timing. 27 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Three Months Ended (in thousands) August 1, 2026 August 2, 2025 Dollar Change Net cash provided by (used in): Operating activities $ 31,433 $ 26,097 $ 5,336 Investing activities (3,909) (5,620) 1,711 Financing activities (4,500) (11,128) 6,628 Effect of exchange rate changes on cash (78) — (78) Net increase in cash, cash equivalents and restricted cash $ 22,946 $ 9,349 $ 13,597 Net cash provided by operating activities: The $31.4 million of cash provided by operating activities during the first three months of fiscal 2027 increased from the $26.1 million in the same period of fiscal 2026. The increase was primarily driven by higher net income and a greater source of cash from changes in operating assets and liabilities. Changes in operating assets and liabilities provided $5.9 million of cash in fiscal 2027 compared to $1.7 million in fiscal 2026, primarily reflecting favorable changes in contract assets, customer deposits, income taxes receivable, and accrued liabilities. These benefits were partially offset by a larger use of cash for accounts receivable and inventory and a lower source of cash from accounts payable. The changes in net operating assets and liabilities for the three months ended August 1, 2026 and August 2, 2025 consisted of the following: Three Months Ended (in thousands) August 1, 2026 August 2, 2025 (Increase) decrease: Accounts receivable $ (36,439) $ (32,055) Long-term receivables 663 241 Inventories (6,700) (3,512) Contract assets 14,860 (682) Prepaid expenses and other current assets (4,464) (4,971) Income tax receivables 2,929 2,768 Investment in affiliates and other assets (1,799) (3,884) Increase (decrease): Accounts payable 10,769 25,839 Contract liabilities 20,345 14,417 Accrued expenses 5,859 3,606 Warranty obligations 761 (257) Long-term warranty obligations 302 690 Income taxes payable (973) 225 Long-term marketing obligations and other payables (207) (737) $ 5,906 $ 1,688 Net cash used in investing activities: During the first three months of fiscal 2027, net cash used in investing activities totaled $3.9 million, primarily driven by $4.1 million in purchases of property and equipment offset by $0.2 million in proceeds from sales of property and equipment. In comparison, the same period in fiscal 2026 had total cash used in investing activities of $5.6 million, driven by $4.3 million in property and equipment purchases and $1.5 million in affiliate investments and offset by $0.2 million in proceeds from sales of property and equipment. 28 Table of Contents Net cash used in financing activities: In the first three months of fiscal 2027, financing activities resulted in a net cash outflow of $4.5 million, which included $4.4 million for repurchased shares, $0.3 million in payments on notes payable, offset by $0.2 million in proceeds from exercise of stock options. In comparison, the first quarter of fiscal 2026 reflected a net outflow of $11.1 million, primarily driven by $10.7 million for repurchased shares and $0.5 million in payments on notes payable. These outflows were partially offset by $0.1 million in proceeds from the exercise of stock options. Debt and Cash On November 26, 2025, we entered into a $71.5 million senior credit facility (the “Credit Facility”) pursuant to a Credit Agreement (the “Credit Agreement”). The 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 “Term Loan”). We believe the Credit Facility enhances financial flexibility in managing our operations and capital structure by extending maturities and providing committed liquidity. As of August 1, 2026, there were no advances under the Revolver, and the balance of letters of credit outstanding under the Revolver was approximately $1.9 million. For additional information on financing agreements, see “Note 7. Financing Agreements” of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. As of August 1, 2026, we had $154.6 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 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. 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 Credit Facility. We were in compliance with all debt covenants under the Credit Agreement as of August 1, 2026, and we expect to remain in compliance with those covenants for at least the next 12 months. Working Capital Working capital was $270.0 million as of August 1, 2026, and $254.3 million as of May 2, 2026, reflecting a $15.7 million increase. This change was primarily impacted by fluctuations in key components such as an increase in cash and cash equivalents by $22.9 million, accounts receivable by $36.1 million, inventory by $7.0 million, and accounts payable by $11.7 million. Contract assets decreased by $14.9 million . These shifts are influenced by the seasonality of the sports market and construction cycles, which affect the timing of cash flows. Specifically, payments for inventory and to subcontractors often precede customer receipts, especially on large-scale, customized orders. These projects can span over 12 months, depending on complexity and delivery schedules. To manage cash flow, the Company typically uses upfront cash for materials and services and offsets this with down payments or progress payments from customers. As of August 1, 2026, the Company had $7.9 million in retainage on long-term contracts included in receivables and contract assets, which is expected to be collected within one year. Other Liquidity and Capital Uses Our long-term capital allocation strategy prioritizes funding operations and 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 may invest in value-accretive inorganic opportunities, and may also return excess cash over time to stockholders through dividends or share repurchases. During the first three months of fiscal 2027 and fiscal 2026, we repurchased shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), but did not issue dividends. Our strategies for business growth and profitability improvement rely on capital expenditures and strategic investments. We project total capital expenditures of approximately $13.2 million for fiscal 2027. These expenditures will support the acquisition of manufacturing equipment for new or enhanced product lines, expanded production capacity, and increased process automation. Additional investments will target quality and reliability testing equipment, demonstration and showroom assets, and continued upgrades to our information infrastructure. 29 Table of Contents Beyond capital expenditures, we plan to invest in general and administrative functions to support our strategic initiatives. These investments primarily include continued enhancements to our enterprise performance management systems and related business processes. We also evaluate strategic investments in new technologies, affiliates, or potential acquisitions aligned with our business strategy. For fiscal 2027, future investments in our current affiliates are being reviewed on a quarterly basis by our Board of Directors (the “Board”). We are sometimes required to obtain performance bonds for display installations, and we have a $190.0 million bonding line available through surety companies. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. As of August 1, 2026, we had $36.7 million of bonded work outstanding. Contractual Obligations and Commercial Commitments During the first three months of fiscal 2027, there were no material changes in our contractual obligations. See the Form 10-K for additional information regarding our contractual obligations and commercial commitments. Significant Accounting Policies and Estimates We describe our significant accounting policies in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in the Form 10-K. We discuss our critical accounting estimates in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K. There have been no material changes to the significant accounting policies and critical accounting estimates identified in the Form 10-K during the first three months of fiscal 2027. New Accounting Pronouncements For a summary of recently issued accounting pronouncements and the effects of those pronouncements on our financial results, refer to "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in the Form 10-K. There have been no material changes in our exposure to the market risks identified in the Form 10-K during the first three months of fiscal 2027.