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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ___ to ___.
Commission File Number:
Daktronics, Inc.
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
|||
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
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☒ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock outstanding as of November 23, 2021 was
DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended October 30, 2021
|
Page |
||
| 1 | ||
|
Condensed Consolidated Balance Sheets as of October 30, 2021 and May 1, 2021 |
||
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
||
| Index to Exhibits | 21 | |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) |
|
October 30, |
May 1, |
|||||||
|
2021 |
2021 |
|||||||
|
ASSETS |
||||||||
|
CURRENT ASSETS: |
||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
||||
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Restricted cash |
|
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||||||
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Accounts receivable, net |
|
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||||||
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Inventories |
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||||||
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Contract assets |
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||||||
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Current maturities of long-term receivables |
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Prepaid expenses and other current assets |
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||||||
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Income tax receivables |
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||||||
|
Total current assets |
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||||||
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Property and equipment, net |
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|
||||||
|
Long-term receivables, less current maturities |
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||||||
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Goodwill |
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||||||
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Intangibles, net |
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||||||
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Investment in affiliates and other assets |
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||||||
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Deferred income taxes |
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||||||
|
TOTAL ASSETS |
$ |
|
$ |
|
||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
|
CURRENT LIABILITIES: |
||||||||
|
Accounts payable |
$ |
|
$ |
|
||||
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Contract liabilities |
|
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||||||
|
Accrued expenses |
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||||||
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Warranty obligations |
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Income taxes payable |
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||||||
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Total current liabilities |
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Long-term warranty obligations |
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Long-term contract liabilities |
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Other long-term obligations |
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||||||
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Long-term income taxes payable |
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||||||
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Deferred income taxes |
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||||||
|
Total long-term liabilities |
|
|
||||||
|
SHAREHOLDERS' EQUITY: |
||||||||
|
Common Stock, par value, authorized shares; and shares issued at October 30, 2021 and May 1, 2021, respectively |
|
|
||||||
|
Additional paid-in capital |
|
|
||||||
|
Retained earnings |
|
|
||||||
|
Treasury Stock, at cost, and shares at October 30, 2021 and May 1, 2021, respectively |
(
|
) |
(
|
) | ||||
|
Accumulated other comprehensive loss |
(
|
) |
(
|
) | ||||
|
TOTAL SHAREHOLDERS' EQUITY |
|
|
||||||
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
|
$ |
|
|
|||
|
See notes to condensed consolidated financial statements. |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) |
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
October 30, |
October 31, |
October 30, |
October 31, |
|||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
|
Net sales |
$ |
|
$ |
|
$ |
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$ |
|
||||||||
|
Cost of sales |
|
|
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||||||||||||
|
Gross profit |
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||||||||||||
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Operating expenses: |
||||||||||||||||
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Selling |
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||||||||||||
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General and administrative |
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||||||||||||
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Product design and development |
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|||||||||||||
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Operating income |
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||||||||||||
|
Nonoperating (expense) income: |
||||||||||||||||
|
Interest (expense) income, net |
(
|
) |
(
|
) |
|
(
|
) | |||||||||
|
Other (expense) income, net |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Income before income taxes |
|
|
|
|
||||||||||||
|
Income tax expense |
|
|
|
|
||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Weighted average shares outstanding: |
||||||||||||||||
|
Basic |
|
|
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|
||||||||||||
|
Diluted |
|
|
|
|
||||||||||||
|
Earnings per share: |
||||||||||||||||
|
Basic |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Diluted |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
See notes to condensed consolidated financial statements. |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) |
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
October 30, |
October 31, |
October 30, |
October 31, |
|||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Other comprehensive (loss) income: |
||||||||||||||||
|
Cumulative translation adjustments |
(
|
) |
|
(
|
) |
|
||||||||||
|
Total other comprehensive (loss) income, net of tax |
(
|
) |
|
(
|
) |
|
||||||||||
|
Comprehensive income |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
See notes to condensed consolidated financial statements. |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) (unaudited) |
|
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total |
|||||||||||||||||||
|
Balance as of May 1, 2021 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
||||||||||
|
Net income |
|
|
|
|
|
|
||||||||||||||||||
|
Cumulative translation adjustments |
|
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
Share-based compensation |
|
|
|
|
|
|
||||||||||||||||||
|
Employee savings plan activity |
|
|
|
|
|
|
||||||||||||||||||
|
Treasury stock reissued |
|
|
|
|
|
|
||||||||||||||||||
|
Balance as of July 31, 2021 |
|
|
|
(
|
) |
(
|
) |
|
||||||||||||||||
|
Net income |
|
|
|
|
|
|
||||||||||||||||||
|
Cumulative translation adjustments |
|
|
|
|
(
|
) |
(
|
) | ||||||||||||||||
|
Share-based compensation |
|
|
|
|
|
|
||||||||||||||||||
|
Exercise of stock options |
|
|
|
|
|
|
||||||||||||||||||
|
Tax payments related to RSU issuances |
|
(
|
) |
|
|
|
(
|
) | ||||||||||||||||
|
Balance as of October 30, 2021 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
||||||||||
|
See notes to condensed consolidated financial statements. |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued) (in thousands) (unaudited) |
|
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total |
|||||||||||||||||||
|
Balance as of May 2, 2020 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
||||||||||
|
Net income |
|
|
|
|
|
|
||||||||||||||||||
|
Cumulative translation adjustments |
|
|
|
|
|
|
||||||||||||||||||
|
Share-based compensation |
|
|
|
|
|
|
||||||||||||||||||
|
Treasury stock reissued |
|
|
|
|
|
|
||||||||||||||||||
|
Balance as of August 1, 2020 |
|
|
|
(
|
) |
(
|
) |
|
||||||||||||||||
|
Net income |
|
|
|
|
|
|
||||||||||||||||||
|
Cumulative translation adjustments |
|
|
|
|
|
|
||||||||||||||||||
|
Share-based compensation |
|
|
|
|
|
|
||||||||||||||||||
|
Tax payments related to RSU issuances |
|
(
|
) |
|
|
|
(
|
) | ||||||||||||||||
|
Balance as of October 31, 2020 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
||||||||||
|
See notes to condensed consolidated financial statements. |
|
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
|
|
Six Months Ended |
||||||||
|
October 30, |
October 31, |
|||||||
|
2021 |
2020 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
|
Net income |
$ |
|
$ |
|
||||
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
|
Depreciation and amortization |
|
|
||||||
|
Gain on sale of property, equipment and other assets |
(
|
) |
(
|
) | ||||
|
Share-based compensation |
|
|
||||||
|
Equity in loss of investees |
|
|
||||||
|
Provision for doubtful accounts |
(
|
) |
|
|||||
|
Deferred income taxes, net |
(
|
) |
|
|||||
|
Change in operating assets and liabilities |
(
|
) |
|
|||||
|
Net cash (used in) provided by operating activities |
(
|
) |
|
|||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
|
Purchases of property and equipment |
(
|
) |
(
|
) | ||||
|
Proceeds from sales of property, equipment and other assets |
|
|
||||||
|
Proceeds from sales or maturities of marketable securities |
|
|
||||||
|
Purchases of and loans to equity investees |
(
|
) |
(
|
) | ||||
|
Net cash used in investing activities |
(
|
) |
(
|
) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
|
Principal payments on long-term obligations |
(
|
) |
(
|
) | ||||
|
Proceed from exercise of stock options |
|
|
||||||
|
Tax payments related to RSU issuances |
(
|
) |
(
|
) | ||||
|
Net cash used in financing activities |
(
|
) |
(
|
) | ||||
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
(
|
) | |||||
|
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
(
|
) |
|
|||||
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH: |
||||||||
|
Beginning of period |
|
|
||||||
|
End of period |
$ |
|
$ |
|
||||
|
Supplemental disclosures of cash flow information: |
||||||||
|
Cash paid for: |
||||||||
|
Interest |
$ |
|
$ |
|
||||
|
Income taxes, net of refunds |
|
|
||||||
|
Supplemental schedule of non-cash investing and financing activities: |
||||||||
|
Demonstration equipment transferred to inventory |
$ |
|
$ |
|
||||
|
Purchases of property and equipment included in accounts payable |
|
|
||||||
|
Contributions of common stock under the ESPP |
|
|
||||||
|
See notes to condensed consolidated financial statements. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share data)
(unaudited)
Note 1. Basis of Presentation
Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are the world's industry leader in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions affecting the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.
Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at May 1, 2021 , has been derived from the audited financial statements at that date, but it does not include all the information and disclosures required by GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended May 1, 2021 , which are contained in our Annual Report on Form 10 -K previously filed with the Securities and Exchange Commission ("SEC"). The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Daktronics, Inc. operates on a 52 - or 53 -week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13 -week periods following the beginning of each fiscal year. In each 53 -week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13 -week period. The six months ended October 30, 2021 and October 31, 2020 , contained operating results for 26 weeks.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statements of cash flows. Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees.
|
October 30, |
October 31, |
|||||||
|
2021 |
2020 |
|||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
||||
|
Restricted cash |
|
|
||||||
|
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows |
$ |
|
$ |
|
||||
Other Business Developments - Coronavirus Pandemic
During fiscal 2021, the global spread of the coronavirus pandemic ("COVID- 19" ) and resulting restrictions negatively impacted our business and created significant volatility, uncertainty and global economic disruption. We took proactive steps to solidify our financial position and mitigate any adverse consequences. Our orders and sales decline in fiscal 2021 are largely the result of the impacts of the pandemic. To align our expenses to the change in the market, we reduced investments in capital assets, reduced executive pay and board member compensation for fiscal 2021 and instituted initiatives to reduce other costs in the business. On April 1, 2020, our board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends. In addition, throughout fiscal 2021, we temporarily furloughed employees to manage our cost structure to align with decreased demand.
A special voluntary retirement and voluntary exit incentive program ("Offering") and
two
reductions in force ("RIFs") were instituted during the
first
six
months of fiscal
2021
to adjust our capacity and reduce on-going expenses in response to the reduced revenue and uncertainties created by the COVID-
19
pandemic. During the
first
quarter of fiscal
2021
,
We received governmental wage subsidies from various governmental programs related to COVID implications of $
The pandemic continues to evolve, as evidenced by the recent Omicron variant reports, impacting economic and business conditions. We continue to monitor guidance from international and domestic authorities regarding the COVID- 19 pandemic and may take additional actions based on their requirements and recommendations. Since late fiscal 2021, our order and quoting activities have increased, creating a strong backlog and positive outlook; however, there is no assurance that this trend will continue in future quarters. Supply chain disruptions continue as a result of several factors including the pandemic, shipping container shortages, labor shortages, and the changes in global demand. Specifically, we are impacted by the global shortage of semiconductors and related electronic components, labor and other materials needed for production, and freight availability. We have experienced increased input costs including material, freight, and tariff costs and increased personal spend through the first half of the fiscal year. We expect continued disruptions in obtaining material, labor, and freight availability and an increase in inflation as the world economies react to and recover from the pandemic, which may cause volatility in our pricing, order and revenue cycles and production costs. In addition, regulatory requirements like those proposed by the US Occupational Safety and Health Administration ("OSHA"), may increase on-going compliance costs.
Recent Accounting Pronouncements
There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10 -K for the fiscal year ended May 1, 2021 .
Accounting Standards Adopted
There are no significant Accounting Standard Updates ("ASUs") issued that we adopted in the six months ended October 30, 2021 .
Accounting Standards Not Yet Adopted
There are no significant ASU's issued but not yet adopted as of October 30, 2021 .
Note 2. Investments in Affiliates
The aggregate amount of our investments in affiliates accounted for under the equity method was $
Note 3. Earnings Per Share ("EPS")
The following is a reconciliation of the net income and common share amounts used in the calculation of basic and diluted EPS for the three and six months ended October 30, 2021 and October 31, 2020 :
|
Net income |
Shares |
Per share income |
||||||||||
|
For the three months ended October 30, 2021 |
||||||||||||
|
Basic earnings per share |
$ |
|
|
$ |
|
|||||||
|
Dilution associated with stock compensation plans |
— |
|
— | |||||||||
|
Diluted earnings per share |
$ |
|
|
$ |
|
|||||||
|
For the three months ended October 31, 2020 |
||||||||||||
|
Basic earnings per share |
$ |
|
|
$ |
|
|||||||
|
Dilution associated with stock compensation plans |
— |
|
— | |||||||||
|
Diluted earnings per share |
$ |
|
|
$ |
|
|||||||
|
For the six months ended October 30, 2021 |
||||||||||||
|
Basic earnings per share |
$ |
|
|
$ |
|
|||||||
|
Dilution associated with stock compensation plans |
— |
|
— | |||||||||
|
Diluted earnings per share |
$ |
|
|
$ |
|
|||||||
|
For the six months ended October 31, 2020 |
||||||||||||
|
Basic earnings per share |
$ |
|
|
$ |
|
|||||||
|
Dilution associated with stock compensation plans |
— |
|
— | |||||||||
|
Diluted earnings per share |
$ |
|
|
$ |
|
|||||||
Options outstanding to purchase
Options outstanding to purchase
Note 4. Revenue Recognition
Disaggregation of revenue
The following table presents our disaggregation of revenue by segments:
|
Three Months Ended October 30, 2021 |
||||||||||||||||||||||||
|
High School |
||||||||||||||||||||||||
|
Commercial |
Live Events |
Park and Recreation |
Transportation |
International |
Total |
|||||||||||||||||||
|
Type of performance obligation |
||||||||||||||||||||||||
|
Unique configuration |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Limited configuration |
|
|
|
|
|
|
||||||||||||||||||
|
Service and other |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Timing of revenue recognition |
||||||||||||||||||||||||
|
Goods/services transferred at a point in time |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Goods/services transferred over time |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Six Months Ended October 30, 2021 |
||||||||||||||||||||||||
|
High School |
||||||||||||||||||||||||
|
Commercial |
Live Events |
Park and Recreation |
Transportation |
International |
Total |
|||||||||||||||||||
|
Type of performance obligation |
||||||||||||||||||||||||
|
Unique configuration |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Limited configuration |
|
|
|
|
|
|
||||||||||||||||||
|
Service and other |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Timing of revenue recognition |
||||||||||||||||||||||||
|
Goods/services transferred at a point in time |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Goods/services transferred over time |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Three Months Ended October 31, 2020 |
||||||||||||||||||||||||
|
High School |
||||||||||||||||||||||||
|
Commercial |
Live Events |
Park and Recreation |
Transportation |
International |
Total |
|||||||||||||||||||
|
Type of performance obligation |
||||||||||||||||||||||||
|
Unique configuration |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Limited configuration |
|
|
|
|
|
|
||||||||||||||||||
|
Service and other |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Timing of revenue recognition |
||||||||||||||||||||||||
|
Goods/services transferred at a point in time |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Goods/services transferred over time |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Six Months Ended October 31, 2020 |
||||||||||||||||||||||||
|
High School |
||||||||||||||||||||||||
|
Commercial |
Live Events |
Park and Recreation |
Transportation |
International |
Total |
|||||||||||||||||||
|
Type of performance obligation |
||||||||||||||||||||||||
|
Unique configuration |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Limited configuration |
|
|
|
|
|
|
||||||||||||||||||
|
Service and other |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Timing of revenue recognition |
||||||||||||||||||||||||
|
Goods/services transferred at a point in time |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Goods/services transferred over time |
|
|
|
|
|
|
||||||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
See "Note 5. Segment Reporting" for a disaggregation of revenue by geography.
Contract balances
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the customers in excess of revenue recognized to date.
The following table reflects the changes in our contract assets and liabilities:
|
October 30, |
May 1, |
Dollar |
Percent |
|||||||||||||
|
2021 |
2021 |
Change |
Change |
|||||||||||||
|
Contract assets |
$ |
|
$ |
|
$ |
|
|
% | ||||||||
|
Contract liabilities - current |
|
|
|
|
% | |||||||||||
|
Contract liabilities - noncurrent |
|
|
(
|
) |
(
|
)% | ||||||||||
The changes in our contract assets and contract liabilities from May 1, 2021 to October 30, 2021 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the construction and sports market seasonality. We had no impairments of contract assets for the six months ended October 30, 2021 .
For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for these contracts are included in the "Contract assets" and "Contract liabilities" line items in our condensed consolidated balance sheets. Changes in unearned service-type warranty contracts, net were as follows:
|
October 30, |
||||
|
2021 |
||||
|
Balance at beginning of period |
$ |
|
||
|
New contracts sold |
|
|||
|
Less: reductions for revenue recognized |
(
|
) | ||
|
Foreign currency translation and other |
|
|||
|
Balance at end of period |
$ |
|
||
As of October 30, 2021 and May 1, 2021 , our contracts in progress that were identified as loss contracts were immaterial. For these contracts, the provision for losses is included in the "Accrued expenses" line item in our condensed consolidated balance sheets.
During the
six
months ended
October 30, 2021
, we recognized revenue of $
Remaining performance obligations
As of
October 30, 2021
, the aggregate amount of the transaction price allocated to the remaining performance obligations was $
Note 5. Segment Reporting
The following table sets forth certain financial information for each of our
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
October 30, |
October 31, |
October 30, |
October 31, |
|||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
|
Net sales: |
||||||||||||||||
|
Commercial |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Live Events |
|
|
|
|
||||||||||||
|
High School Park and Recreation |
|
|
|
|
||||||||||||
|
Transportation |
|
|
|
|
||||||||||||
|
International |
|
|
|
|
||||||||||||
|
|
|
|
|
|||||||||||||
|
Gross profit: |
||||||||||||||||
|
Commercial |
|
|
|
|
||||||||||||
|
Live Events |
|
|
|
|
||||||||||||
|
High School Park and Recreation |
|
|
|
|
||||||||||||
|
Transportation |
|
|
|
|
||||||||||||
|
International |
|
|
|
|
||||||||||||
|
|
|
|
|
|||||||||||||
|
Operating expenses: |
||||||||||||||||
|
Selling |
|
|
|
|
||||||||||||
|
General and administrative |
|
|
|
|
||||||||||||
|
Product design and development |
|
|
|
|
||||||||||||
|
|
|
|
|
|||||||||||||
|
Operating income |
|
|
|
|
||||||||||||
|
Nonoperating income (expense): |
||||||||||||||||
|
Interest (expense) income, net |
(
|
) |
(
|
) |
|
(
|
) | |||||||||
|
Other (expense) income, net |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Income before income taxes |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Depreciation and amortization: |
||||||||||||||||
|
Commercial |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Live Events |
|
|
|
|
||||||||||||
|
High School Park and Recreation |
|
|
|
|
||||||||||||
|
Transportation |
|
|
|
|
||||||||||||
|
International |
|
|
|
|
||||||||||||
|
Unallocated corporate depreciation |
|
|
|
|
||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||
No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
October 30, |
October 31, |
October 30, |
October 31, |
|||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
|
Net sales: |
||||||||||||||||
|
United States |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Outside United States |
|
|
|
|
||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
October 30, |
May 1, |
|||||||
|
2021 |
2021 |
|||||||
|
Property and equipment, net of accumulated depreciation: |
||||||||
|
United States |
$ |
|
$ |
|
||||
|
Outside United States |
|
|
||||||
| $ |
|
$ |
|
|||||
We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services.
We have numerous raw material and component suppliers, and no supplier accounts for 10 percent or more of our cost of sales; however, we have a number of single-source suppliers that could limit our supply or cause delays in obtaining raw material and components needed in manufacturing.
Note 6. Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the six months ended October 30, 2021 were as follows:
|
Live Events |
Commercial |
Transportation |
International |
Total |
||||||||||||||||
|
Balance as of May 1, 2021 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
|
Foreign currency translation |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||
|
Balance as of October 30, 2021 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. Our annual analysis is performed during our third quarter of each fiscal year based on the goodwill amount as of the first business day of our third fiscal quarter. We performed our annual impairment test on November 2, 2020 and concluded goodwill impairment existed. We are currently in the process of completing our annual analysis as of the first business day of our third quarter of fiscal 2022, which began on October 31, 2021.
Note Financing Agreements
As of
October 30, 2021
, there were
no
advances under the loan portion of our line of credit, and the balance of letters of credit outstanding was approximately $
We are sometimes required to obtain bank guarantees or other financial instruments for display installations. If we are unable to meet the terms of the arrangement, our customer would draw on the banking arrangement, and the bank would subrogate its loss to Daktronics. As of
October 30, 2021
, we had $
As of October 30, 2021 , we were in compliance with all applicable bank loan covenants.
Note 8. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. For unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss will be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. We do not expect the ultimate liability of these unresolved legal proceedings or claims to have a material effect on our financial position, liquidity or capital resources.
Warranties: Changes in our warranty obligation for the six months ended October 30, 2021 consisted of the following:
|
October 30, |
||||
|
2021 |
||||
|
Beginning accrued warranty obligations |
$ |
|
||
|
Warranties issued during the period |
|
|||
|
Settlements made during the period |
(
|
) | ||
|
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations |
(
|
) | ||
|
Ending accrued warranty obligations |
$ |
|
||
Performance guarantees:
We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts. As of
October 30, 2021
, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $
Note 9. Income Taxes
The provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate to “ordinary” income or loss for the reporting period, adjusted for discrete items. Due to various factors, including our estimate of annual income, our effective tax rate is subject to fluctuation.
Our effective tax rate for the
three
and
six
months ended
October 30, 2021
was
We operate both domestically and internationally and, as of
October 30, 2021
, undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely. Additionally, as of
October 30, 2021
, we had $
Note 10. Fair Value Measurement
The following table sets forth by Level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at October 30, 2021 and May 1, 2021 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.
,
|
Fair Value Measurements |
||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
|
Balance as of October 30, 2021 |
||||||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Restricted cash |
|
|
|
|
||||||||||||
|
Derivatives - asset position |
|
|
|
|
||||||||||||
|
Derivatives - liability position |
|
(
|
) |
|
(
|
) | ||||||||||
| $ |
|
$ |
(
|
) | $ |
|
$ |
|
||||||||
|
Balance as of May 1, 2021 |
||||||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Restricted cash |
|
|
|
|
||||||||||||
|
Derivatives - asset position |
|
|
|
|
||||||||||||
|
Derivatives - liability position |
|
(
|
) |
|
(
|
) | ||||||||||
|
Acquisition-related contingent consideration |
|
|
(
|
) |
(
|
) | ||||||||||
| $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||
A roll forward of the Level 3 contingent liabilities, both short- and long-term, for the six months ended October 30, 2021 is as follows:
|
Acquisition-related contingent consideration as of May 1, 2021 |
$ |
|
||
|
Additions |
|
|||
|
Settlements |
(
|
) | ||
|
Interest |
|
|||
|
Acquisition-related contingent consideration as of October 30, 2021 |
$ |
|
There have been no changes in the valuation techniques used by us to value our financial instruments since the end of fiscal 2021 . For additional information, see our Annual Report on Form 10 -K for the fiscal year ended May 1, 2021 for the methods and assumptions used to estimate the fair value of each class of financial instrument.
Note 11. Subsequent Events
Effective on
November 19, 2021,
the Board approved a First Amendment to Rights Agreement, dated as of
November
19, 2021
(the "First Amendment "). The First Amendment amends the Rights Agreements dated as of
November 16, 2018 (
the "Original Rights Agreement") between the Company and the Rights Agent. The First Amendment extends the expiration date of the rights (the "Rights") under the Original Rights Agreement from the close of business on
November 19, 2021
to the close of business on
November 19, 2024
and changes the initial exercise price to $
The terms of the Rights are more fully described in Item 1.01 of the Company's Current Report 8 -K filed with the Securities and Exchange Commission on November 19, 2021, including the First Amendment filed as Exhibit 4.2 to such Current Report on Form 8 -K.
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 Company’s (i) financial condition during the period from the most recent fiscal year-end, May 1, 2021, to and including October 30, 2021 and (ii) results of operations 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 “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" 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 of our forward-looking statements in this report 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.
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; it is not possible for management to predict all of 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.
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended May 1, 2021 (including the information presented therein under Risk Factors), as well other publicly available information.
OVERVIEW
We are engaged principally in the design, market, and manufacture of a wide range of integrated electronic display systems and related products which are sold in a variety of markets throughout the world and the rendering of related maintenance and professional services. We focus our sales and marketing efforts on markets, geographical regions and products. Our five business segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and Canada.
The following selected financial data should be read in conjunction with our Annual Report on Form 10-K for the year ended May 1, 2021 and the consolidated financial statements, including the notes to consolidated financial statements included therein.
CORONAVIRUS ("COVID-19") PANDEMIC
The pandemic continues to evolve, as evidenced by the recent Omicron variant reports, impacting economic and business conditions. We continue to monitor guidance from international and domestic authorities regarding the COVID-19 pandemic and may take additional actions based on their requirements and recommendations. Since late fiscal 2021, our order and quoting activities have increased, creating a strong backlog and positive outlook; however, there is no assurance that this trend will continue in future quarters. Supply chain disruptions continue as a result of several factors including the pandemic, shipping container shortages, labor shortages, and the changes in global demand. Specifically, we are impacted by the global shortage of semiconductors and related electronic components, labor and other materials needed for production, and freight availability. We have experienced increased input costs including material, freight, and tariff costs and increased personal spend through the first half of the fiscal year. We expect continued disruptions in obtaining material, labor, and freight availability and an increase in inflation as the world economies react to and recover from the pandemic, which may cause volatility in our pricing, order and revenue cycles and production costs. In addition, regulatory requirements like those proposed by the US Occupational Safety and Health Administration ("OSHA"), may increase on-going compliance costs. Although we cannot predict the length or severity of these conditions, it is reasonably possible they will continue to have some impact on our operations throughout the remainder of fiscal 2022 and into fiscal 2023.
Refer to the COVID-19 related risk factors disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended May 1, 2020.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED October 30, 2021 and October 31, 2020
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 measures defined by accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts.
Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlights fluctuation caused by seasonality and our large project business. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. We believe order information is useful to investors because it provides an indication of our market share and provides of future revenues.
Our product order backlog as of October 30, 2021 was $282 million as compared to $201 million as of October 31, 2020 and $285 million at July 31, 2021, which was the end of our first quarter of fiscal 2022. We expect to fulfill the backlog as of October 30, 2021 within the next 24 months. The timing of backlog may be impacted by project delays resulting from the COVID-19 pandemic and supply chain delays.
Net Sales
The following table shows information regarding net sales for the three months ended October 30, 2021 and October 31, 2020:
|
Three Months Ended |
||||||||||||||||
|
October 30, |
October 31, |
Dollar |
Percent |
|||||||||||||
|
(in thousands) |
2021 |
2020 |
Change |
Change |
||||||||||||
|
Net sales: |
||||||||||||||||
|
Commercial |
$ | 34,463 | $ | 30,356 | $ | 4,107 | 13.5 | % | ||||||||
|
Live Events |
59,396 | 37,822 | 21,574 | 57.0 | ||||||||||||
|
High School Park and Recreation |
32,747 | 27,578 | 5,169 | 18.7 | ||||||||||||
|
Transportation |
14,053 | 15,323 | (1,270 | ) | (8.3 | ) | ||||||||||
|
International |
23,818 | 16,288 | 7,530 | 46.2 | ||||||||||||
| $ | 164,477 | $ | 127,367 | $ | 37,110 | 29.1 | % | |||||||||
|
Orders: |
||||||||||||||||
|
Commercial |
$ | 58,358 | $ | 32,590 | $ | 25,768 | 79.1 | % | ||||||||
|
Live Events |
40,501 | 40,684 | (183 | ) | (0.4 | ) | ||||||||||
|
High School Park and Recreation |
25,651 | 20,117 | 5,534 | 27.5 | ||||||||||||
|
Transportation |
14,699 | 11,633 | 3,066 | 26.4 | ||||||||||||
|
International |
24,498 | 30,642 | (6,144 | ) | (20.1 | ) | ||||||||||
| $ | 163,707 | $ | 135,666 | $ | 28,041 | 20.7 | % | |||||||||
For the fiscal 2022 second quarter, net sales were $164.5 million, an increase of $37.1 million from the prior year's second quarter. The year-over-year growth was driven by increased orders. Material supply shortages are creating an increase in lead times and extending the timing of converting some orders to sales in the near-term.
Order volume increased in the second quarter of fiscal 2022, reflecting the continued recovery from the impact of the global pandemic among our customers, despite longer lead times. The Commercial business unit saw the largest increase in order bookings, while the order bookings in Live Events remained similar to those in the prior year second quarter. The High School Park and Recreation business unit performed well throughout the pandemic and continues to perform well driven by the adoption of video displays at the high school level. Transportation order levels increased as project planning and approval activities resumed for displays used in intelligent transportation systems and mass transit venues, while the International business unit saw a decrease in orders this quarter compared to the same quarter in 2021 fiscal year.
Gross Profit and Contribution Margin
|
Three Months Ended |
||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||
|
As a Percent |
As a Percent |
|||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Amount |
of Net Sales |
||||||||||||
|
Gross Profit: |
||||||||||||||||
|
Commercial |
$ | 7,445 | 21.6 | % | $ | 8,578 | 28.3 | % | ||||||||
|
Live Events |
5,585 | 9.4 | 7,300 | 19.3 | ||||||||||||
|
High School Park and Recreation |
10,749 | 32.8 | 8,497 | 30.8 | ||||||||||||
|
Transportation |
4,404 | 31.3 | 5,312 | 34.7 | ||||||||||||
|
International |
4,081 | 17.1 | 3,627 | 22.3 | ||||||||||||
| $ | 32,264 | 19.6 | % | $ | 33,314 | 26.2 | % | |||||||||
The decrease in gross profit percentage is largely related to increased input costs, including material, freight, tariffs, and outsourced installation costs. Gross profit was also impacted by sales mix differences between periods. During the second quarter of fiscal 2022, we had more large project sales which generally have lower gross profit because of the competitive nature of large projects. During the second quarter of fiscal 2021, we earned a higher rate of gross profit on our service agreements due to reduced stand ready services conducted during the quarter. This was due to lower on-site demand as events were not being held during the various pandemic shutdowns. Total warranty costs as a percent of sales for the three months ended October 30, 2021 compared to the same period one year ago increased to 1.4 percent from 0.6 percent .
|
Three Months Ended |
||||||||||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||||||||||
|
As a Percent |
Dollar |
Percent |
As a Percent |
|||||||||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Change |
Change |
Amount |
of Net Sales |
||||||||||||||||||
|
Contribution Margin: |
||||||||||||||||||||||||
|
Commercial |
$ | 3,409 | 9.9 | % | $ | (1,372 | ) | (28.7 | )% | $ | 4,781 | 15.7 | % | |||||||||||
|
Live Events |
3,324 | 5.6 | (1,557 | ) | (31.9 | ) | 4,881 | 12.9 | ||||||||||||||||
|
High School Park and Recreation |
7,836 | 23.9 | 1,885 | 31.7 | 5,951 | 21.6 | ||||||||||||||||||
|
Transportation |
3,510 | 25.0 | (936 | ) | (21.1 | ) | 4,446 | 29.0 | ||||||||||||||||
|
International |
1,703 | 7.2 | 1,102 | 183.4 | 601 | 3.7 | ||||||||||||||||||
| $ | 19,782 | 12.0 | % | $ | (878 | ) | (4.2 | )% | $ | 20,660 | 16.2 | % | ||||||||||||
Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, facility-related costs for sales and service offices, bad debt expenses, third-party commissions and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demonstrations, customer relationship management systems, and supplies.
Contribution margin was impacted by the previously discussed sales levels and impacts within gross profit.
Reconciliation from non-GAAP contribution margin to operating margin GAAP measure is as follows:
|
Three Months Ended |
||||||||||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||||||||||
|
As a Percent |
Dollar |
Percent |
As a Percent |
|||||||||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Change |
Change |
Amount |
of Net Sales |
||||||||||||||||||
|
Contribution margin |
$ | 19,782 | 12.0 | % | $ | (878 | ) | (4.2 | )% | $ | 20,660 | 16.2 | % | |||||||||||
|
General and administrative |
8,201 | 5.0 | 937 | 12.9 | 7,264 | 5.7 | ||||||||||||||||||
|
Product design and development |
7,196 | 4.4 | 459 | 6.8 | 6,737 | 5.3 | ||||||||||||||||||
|
Operating income |
$ | 4,385 | 2.7 | % | $ | (2,274 | ) | (34.1 | )% | $ | 6,659 | 5.2 | % | |||||||||||
General and administrative expenses in the second quarter of fiscal 2022 increased as compared to the same period one year ago primarily due to increases in personnel related expenses.
Product design and development expenses in the second quarter of fiscal 2022 increased as compared to the same period one year ago primarily due to an increase in personnel related expenses.
Decreased contribution margin and increased spend in general and administrative and product development led to a lower operating income for the quarter compared to the prior year quarter.
Other Income and Expenses
|
Three Months Ended |
||||||||||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||||||||||
|
As a Percent |
Dollar |
Percent |
As a Percent |
|||||||||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Change |
Change |
Amount |
of Net Sales |
||||||||||||||||||
|
Interest (expense) income, net |
$ | (59 | ) | (0.0 | )% | $ | (41 | ) | 227.8 | % | $ | (18 | ) | (0.0 | )% | |||||||||
|
Other (expense) income, net |
$ | (952 | ) | (0.6 | )% | $ | (115 | ) | 13.7 | % | $ | (837 | ) | (0.7 | )% | |||||||||
Interest (expense) income, net: The change in interest income and expense, net for the second quarter of fiscal 2022 compared to the same period one year ago was primarily due to the reduction of interest expense, as we have no outstanding drawings on the line of credit this year as compared to $15.0 million last year and adjustments to long-term receivable interest.
Other (expense) income, net: The change in other income and expense, net for the second quarter of fiscal 2022 as compared to the same period one year ago was primarily due to losses recorded for equity method affiliates and foreign currency volatility.
Income Taxes
We have recorded an effective tax rate of 29.6 percent for the second quarter of fiscal 2022 as compared to 41.1 percent for the second quarter of fiscal 2021. The decrease in tax rate is primarily driven by a decrease in estimated tax credits proportionate to an increase in estimated pre-tax earnings in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2022.
RESULTS OF OPERATIONS
COMPARISON OF THE Six MONTHS ENDED October 30, 2021 and October 31, 2020
Net Sales
The following table shows information regarding net sales for the six months ended October 30, 2021 and October 31, 2020:
|
Six Months Ended |
||||||||||||||||
|
October 30, |
October 31, |
Dollar |
Percent |
|||||||||||||
|
(in thousands) |
2021 |
2020 |
Change |
Change |
||||||||||||
|
Net sales: |
||||||||||||||||
|
Commercial |
$ | 67,244 | $ | 64,862 | $ | 2,382 | 3.7 | % | ||||||||
|
Live Events |
111,783 | 89,296 | 22,487 | 25.2 | ||||||||||||
|
High School Park and Recreation |
60,641 | 56,521 | 4,120 | 7.3 | ||||||||||||
|
Transportation |
26,611 | 29,821 | (3,210 | ) | (10.8 | ) | ||||||||||
|
International |
42,930 | 30,511 | 12,419 | 40.7 | ||||||||||||
| $ | 309,209 | $ | 271,011 | $ | 38,198 | 14.1 | % | |||||||||
|
Orders: |
||||||||||||||||
|
Commercial |
$ | 96,687 | $ | 58,123 | $ | 38,564 | 66.3 | % | ||||||||
|
Live Events |
90,187 | 82,544 | 7,643 | 9.3 | ||||||||||||
|
High School Park and Recreation |
71,362 | 48,216 | 23,146 | 48.0 | ||||||||||||
|
Transportation |
36,044 | 24,722 | 11,322 | 45.8 | ||||||||||||
|
International |
51,173 | 44,214 | 6,959 | 15.7 | ||||||||||||
| $ | 345,453 | $ | 257,819 | $ | 87,634 | 34.0 | % | |||||||||
Sales and orders increased, as demand was up across most markets in the six months ended October 30, 2021 compared to the prior year six-month periods. Sales decreased for the Transportation business unit during the first six months of fiscal year 2022 compared to the first six months of fiscal 2021, but demand is strong as orders have increased by 45.8%. During the six months ended October 31, 2020, sales and orders in all business units were negatively impacted as a result of the economic downturn caused by the COVID-19 pandemic.
Net sales during the six months ended October 30, 2021 increased by 14.1% overall due to the conversion to sales of the higher order volume during the first half of the year including several large multimillion-dollar orders ("large orders") in both Live Events and International. The timing of large orders conversions create volatility in comparisons between quarters. Material supply and labor shortages are creating an increase in lead times, extending the timing of converting some orders to sales in the near-term.
For orders, during the first six months ended October 30, 2021, economic recovery post-pandemic continued to improve, leading to increased orders year-over-year in all business units. The two segments that showed the largest order growth over last year are Commercial and High School Park and Recreation.
Gross Profit and Contribution Margin
|
Six Months Ended |
||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||
|
As a Percent |
As a Percent |
|||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Amount |
of Net Sales |
||||||||||||
|
Gross Profit: |
||||||||||||||||
|
Commercial |
$ | 14,623 | 21.7 | % | $ | 16,320 | 25.2 | % | ||||||||
|
Live Events |
14,167 | 12.7 | 16,654 | 18.7 | ||||||||||||
|
High School Park and Recreation |
20,258 | 33.4 | 18,973 | 33.6 | ||||||||||||
|
Transportation |
8,155 | 30.6 | 10,455 | 35.1 | ||||||||||||
|
International |
7,249 | 16.9 | 6,673 | 21.9 | ||||||||||||
| $ | 64,452 | 20.8 | % | $ | 69,075 | 25.5 | % | |||||||||
The decrease in gross profit percentage in all the business units is primarily related to increased input costs, including the costs of material, freight, tariffs, outsourced installation, and staffing levels to increase capacity for the higher order volumes. During the first half of fiscal year 2022, we had more large project sales which generally have lower gross profit because of their competitive nature. During the first half of fiscal 2021, we earned a higher rate of gross profit on our service agreements due to reduced stand ready services conducted during the quarter because of the pandemic. Total warranty cost as a percent of sales for the six months ended October 30, 2021 compared to the same period one year ago decreased to 1.3 percent from 1.4 percent .
|
Six Months Ended |
||||||||||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||||||||||
|
As a Percent |
Dollar |
Percent |
As a Percent |
|||||||||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Change |
Change |
Amount |
of Net Sales |
||||||||||||||||||
|
Contribution Margin: |
||||||||||||||||||||||||
|
Commercial |
$ | 6,926 | 10.3 | % | $ | (2,296 | ) | (24.9 | )% | $ | 9,222 | 14.2 | % | |||||||||||
|
Live Events |
9,652 | 8.6 | (2,367 | ) | (19.7 | ) | 12,019 | 13.5 | ||||||||||||||||
|
High School Park and Recreation |
14,601 | 24.1 | 735 | 5.3 | 13,866 | 24.5 | ||||||||||||||||||
|
Transportation |
6,364 | 23.9 | (2,463 | ) | (27.9 | ) | 8,827 | 29.6 | ||||||||||||||||
|
International |
2,632 | 6.1 | 1,701 | 182.7 | 931 | 3.1 | ||||||||||||||||||
| $ | 40,175 | 13.0 | % | $ | (4,690 | ) | (10.5 | )% | $ | 44,865 | 16.6 | % | ||||||||||||
Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, facility-related costs for sales and service offices, bad debt expenses, third-party commissions, and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demonstrations, customer relationship management systems, and supplies.
Contribution margin in the six months ended October 30, 2021 was impacted by the previously discussed sales levels and impacts within gross profit.
Reconciliation from non-GAAP contribution margin to operating margin GAAP measure is as follows:
|
Six Months Ended |
||||||||||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||||||||||
|
As a Percent |
Dollar |
Percent |
As a Percent |
|||||||||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Change |
Change |
Amount |
of Net Sales |
||||||||||||||||||
|
Contribution margin |
$ | 40,175 | 13.0 | % | $ | (4,690 | ) | (10.5 | )% | $ | 44,865 | 16.6 | % | |||||||||||
|
General and administrative |
15,772 | 5.1 | 1,384 | 9.6 | 14,388 | 5.3 | ||||||||||||||||||
|
Product design and development |
14,358 | 4.6 | 89 | 0.6 | 14,269 | 5.3 | ||||||||||||||||||
|
Operating income |
$ | 10,045 | 3.2 | % | $ | (6,163 | ) | (38.0 | )% | $ | 16,208 | 6.0 | % | |||||||||||
General and administrative expenses for the six months ended October 30, 2021 increased as compared to the same period one year ago primarily due to increases in personnel related expenses.
Product design and development expenses in the six months ended October 30, 2021 stayed relatively steady as compared to the same period one year ago.
Operating income was lower than the previous year due to a lower contribution margin and an increase in personnel expense to match the increase in orders discussed above.
Other Income and Expenses
|
Six Months Ended |
||||||||||||||||||||||||
|
October 30, 2021 |
October 31, 2020 |
|||||||||||||||||||||||
|
As a Percent |
Dollar |
Percent |
As a Percent |
|||||||||||||||||||||
|
(in thousands) |
Amount |
of Net Sales |
Change |
Change |
Amount |
of Net Sales |
||||||||||||||||||
|
Interest (expense) income, net |
$ | 78 | 0.0 | % | $ | 84 | (1400.0 | )% | $ | (6 | ) | (0.0 | )% | |||||||||||
|
Other (expense) income, net |
$ | (1,820 | ) | (0.6 | )% | $ | (356 | ) | 24.3 | % | $ | (1,464 | ) | (0.5 | )% | |||||||||
Interest (expense) income, net: The change in interest income and expense, net for the six months ended October 30, 2021 compared to the same period one year ago was primarily due to the reduction of interest expense, as we have no outstanding drawings on the line of credit this year as compared to $15.0 million last year.
Other (expense) income, net: The change in other income and expense, net for the six months ended October 30, 2021 as compared to the same period one year ago was primarily due to losses recorded for equity method affiliates and foreign currency volatility.
Income Taxes
We have recorded an effective tax rate of 27.0 percent for the six months ended October 30, 2021 as compared to 26.2 percent for the six months ended October 31, 2020. The difference in tax rates is primarily driven by a decrease in estimated tax credits proportionate to an increase in estimated pre-tax earnings in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2022.
LIQUIDITY AND CAPITAL RESOURCES
|
Six Months Ended |
||||||||||||
|
October 30, |
October 31, |
Percent |
||||||||||
|
(in thousands) |
2021 |
2020 |
Change |
|||||||||
|
Net cash (used in) provided by: |
||||||||||||
|
Operating activities |
$ | (8,534 | ) | $ | 39,975 | (121.3 | )% | |||||
|
Investing activities |
(9,876 | ) | (6,091 | ) | 62.1 | |||||||
|
Financing activities |
(396 | ) | (345 | ) | 14.8 | |||||||
|
Effect of exchange rate changes on cash |
8 | (498 | ) | (101.6 | ) | |||||||
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
$ | (18,798 | ) | $ | 33,041 | (156.9 | )% | |||||
Cash decreased by $18.8 million for the first six months of fiscal 2022 primarily due to investing cash in affiliates and capital assets and due to the use of cash for increases in accounts receivable and inventory required to support the increased order volume. Cash increased by $33.0 million in the first six months of fiscal 2021 because of cash conservation measures during the pandemic, including: reductions in operating asset levels, decreases in capital expenditures, and suspension of our dividend and share repurchase program.
Net cash (used in) provided by operating activities: Net cash used in operating activities was $8.5 million for the first six months of fiscal 2022 compared to net cash provided by operating activities of $40.0 million in the first six months of fiscal 2021. The $48.5 million decrease in cash provided by operating activities was primarily the result of changes in net operating assets and liabilities.
The changes in operating assets and liabilities consisted of the following:
|
Six Months Ended |
||||||||
|
October 30, |
October 31, |
|||||||
|
2021 |
2020 |
|||||||
|
(Increase) decrease: |
||||||||
|
Accounts receivable |
$ | (26,914 | ) | $ | (1,558 | ) | ||
|
Long-term receivables |
334 | 1,694 | ||||||
|
Inventories |
(20,509 | ) | 16,143 | |||||
|
Contract assets |
(7,542 | ) | 8,967 | |||||
|
Prepaid expenses and other current assets |
(3,450 | ) | 2,130 | |||||
|
Income tax receivables |
409 | 439 | ||||||
|
Investment in affiliates and other assets |
6 | 425 | ||||||
|
Increase (decrease): |
||||||||
|
Accounts payable |
25,045 | (9,663 | ) | |||||
|
Contract liabilities |
5,863 | (4,178 | ) | |||||
|
Accrued expenses |
3,194 | (2,961 | ) | |||||
|
Warranty obligations |
(178 | ) | 616 | |||||
|
Long-term warranty obligations |
(2 | ) | 356 | |||||
|
Income taxes payable |
253 | 2,207 | ||||||
|
Long-term marketing obligations and other payables |
(163 | ) | 3,726 | |||||
| $ | (23,654 | ) | $ | 18,343 | ||||
Net cash used in investing activities: Net cash used in investing activities totaled $9.9 million in the first six months of fiscal 2022 compared to net cash used in investing activities of $6.1 million in the first six months of fiscal 2021. Purchases of property and equipment totaled $4.5 million in the first six months of fiscal 2022 compared to $5.8 million in the first six months of fiscal 2021. Purchases of and loans to affiliates accounted for by the equity investment method totaled $6.1 million in the first six months of fiscal 2022 as compared to $0.9 million in the first six months of fiscal 2021.
Net cash used in financing activities: Net cash used in financing activities was $0.4 million for the six months ended October 30, 2021 compared to $0.3 million in the same period one year ago due to principal payments on long-term obligations and tax payments related to issuances of restricted stock units ("RSUs").
Other Liquidity and Capital Resources Discussion: The timing and amounts of working capital changes, dividend payments, stock repurchases, and capital spending impact our liquidity.
Working capital was $125.2 million and $118.4 million at October 30, 2021 and May 1, 2021, respectively. The changes in working capital, particularly changes in accounts receivable, accounts payable, inventory, contract assets and liabilities, and the sports market and construction seasonality can have a significant impact on the amount of net cash provided by operating activities largely due to the timing of payments and receipts. On multimillion-dollar orders, the time between order acceptance and project completion may extend up to or exceed 12 months depending on the amount of custom work and a customer’s delivery needs. We often receive down payments or progress payments on these orders. We expect to use cash in operations as our business returns to pre-pandemic levels.
We had $8.9 million of retainage on long-term contracts included in receivables and contract assets as of October 30, 2021, which has an impact on our liquidity. We expect to collect these amounts within one year. We have historically financed our cash needs through a combination of cash flow from operations and borrowings under bank credit agreements.
The Board of Directors suspended dividends and share repurchases during fiscal 2020 as part of our cash conservations measures through the pandemic. The timing of the future reinstatement of dividends and share repurchases is at the discretion of the Board of Directors. Future dividends are also impacted by the limitations imposed in our credit facility, as further described in "Note 7. Financing Agreements" as described in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.
We are sometimes required to obtain bank guarantees or other financial instruments for display installations and utilize a global bank to provide such instruments. If we are unable to complete the installation work, our customer would draw on the banking arrangement, and the bank would subrogate its loss to Daktronics' restricted cash accounts. As of October 30, 2021, we had $0.7 million of such instruments outstanding.
We are sometimes required to obtain performance bonds for display installations, and we have a bonding line available through a surety company for an aggregate of $150.0 million in bonded work outstanding. 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 October 30, 2021, we had $52.2 million of bonded work outstanding against this line.
Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting total capital expenditures to be a pproximately $25 million for fiscal 2022. Projected capital expenditures include manufacturing equipment for new or enhanced product production, expanded capacity, investments in quality and reliability equipment, and continued information infrastructure investments. 2022. We also evaluate and may invest in new technologies or acquire companies aligned with our business strategy.
We believe the audiovisual industry fundamentals will drive long-term growth for our business; however, for the near-term outlook, we expect our customers may continue to have disruptions and may continue to reduce or increase their spend on audiovisual systems and related services as they work through the economic and business implications of COVID-19 and related supply chain challenges. Although it is difficult to estimate the longevity and severity of the COVID-19 pandemic impact to the economy and to our financial position, operating results, and cash flows, we believe our working capital available from all sources will be adequate to meet the cash requirements of our operations and strategies in the foreseeable future. If the pandemic impact or long-term growth extends beyond current expectations, or if we make significant strategic investments, we may need to utilize and possibly increase our credit facilities or seek other means of financing.
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 our Annual Report on Form 10-K for the fiscal year ended May 1, 2021. We discuss our critical accounting estimates in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2021.
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 elsewhere in this Report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021. There have been no material changes in our exposure to these risks during the first six months of fiscal 2022.
Item 4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as of October 30, 2021, which is the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of October 30, 2021, our disclosure controls and procedures were effective.
Based on the evaluation described in the foregoing paragraph, our Chief Executive Officer and Chief Financial Officer concluded that during the quarter ended October 30, 2021, there was no change in our internal control over financial reporting which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Not applicable.
The discussion of our business and operations included in this Quarterly Report on Form 10-Q should be read together with the risk factors described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended May 1, 2021. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this Report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial condition or financial results.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Repurchases
During the six months ended October 30, 2021, we did not repurchase any shares of our common stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Not applicable.
A list of exhibits required to be filed as part of this report is set forth in the Index of Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.
Certain of the following exhibits are incorporated by reference from prior filings. The form with which each exhibit was filed and the date of filing are as indicated below; the reports described below are filed as Commission File No. 0-23246 unless otherwise indicated.
| 4.2 | First Amendment to Rights Agreement dated as of November 19, 2021 between Daktronics, Inc. and Equiniti Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K of Daktronics, Inc. filed on November 19, 2021). | |
| 10.5 | Fourth Amendment to Credit Agreement dated as of March 11, 2021 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.5 filed with our Annual Report on Form 10-K on June 11, 2021). | |
|
101.INS |
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
|
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
|
(1) |
Filed herewith electronically. |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
/s/ Sheila M. Anderson |
||
|
Daktronics, Inc. |
||
|
Sheila M. Anderson |
||
|
Chief Financial Officer |
||
|
(Principal Financial Officer and |
||
|
Principal Accounting Officer) |
||
|
Date: |
December 1, 2021 |