UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~January 27, 2018~~August 1, 2020

o ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___.

Commission File Number: 0-23246

Daktronics, Inc.

(Exact Name of Registrant as Specified in its Charter)



South Dakota			46-0306862
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

201 Daktronics Drive	Brookings,	SD		57006
(Address of Principal Executive Offices)					~~(Zip Code)~~

~~(605)~~ (605) 692-0200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	DAKT	NASDAQ Global Select Market
Preferred Stock Purchase Rights	DAKT	NASDAQ Global Select Market

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. Yesx No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yesx No ¨☐

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~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.



Large accelerated filero	☐	Accelerated filer	x
Non-accelerated filero ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting companyo	☐
		Emerging growth companyo	☐

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

The number of shares of the registrant’s common stock outstanding as of ~~February 26, 2018~~August 24, 2020 was ~~44,474,202.~~44,615,015.

DAKTRONICS, INC. AND SUBSIDIARIES

FORM 10-Q

For the Quarter Ended ~~January 27, 2018~~August 1, 2020

Table of Contents



		Page
Part I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~January 27, 2018 (unaudited)~~August 1, 2020 and ~~April 29, 2017~~May 2, 2020	1
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~January 27, 2018~~August 1, 2020 and ~~January 28, 2017 (unaudited)~~August 3, 2019	3
	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~January 27, 2018~~August 1, 2020 and ~~January 28, 2017 (unaudited)~~August 3, 2019	4
	Condensed Consolidated Statements of ~~Cash Flows~~Shareholders' Equity for the ~~Nine~~Three Months Ended ~~January 27, 2018~~August 1, 2020 and ~~January 28, 2017 (unaudited)~~August 3, 2019	5
	~~Notes to~~Condensed Consolidated Statements of Cash Flows for the ~~Consolidated Financial Statements~~Three Months Ended August 1, 2020 and August 3, 2019	67
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3029
Item 4.	Controls and Procedures	3129

Part II.	Other Information	3129
Item 1.	Legal Proceedings	3129
Item 1A.	Risk Factors	3229
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3229
Item 3.	Defaults Upon Senior Securities	3229
Item 4.	Mine Safety Disclosures	3330
Item 5.	Other Information	3330
Item 6.	Exhibits	3330

Signatures		3431
Index to Exhibits		3532

Table of contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)					DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)
	January 27, 2018		April 29, 2017
	(unaudited)					August 1, 2020		May 2, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	49,042	$	32,623		$	44,609	$	40,398
Restricted cash	28		216			96		14
Marketable securities	23,937		32,713			1,230		1,230
Accounts receivable, net	76,104		78,846			88,608		72,577
Inventories, net	70,451		66,486
Costs and estimated earnings in excess of billings	32,449		36,403
Inventories						81,435		86,803
Contract assets						33,261		35,467
Current maturities of long-term receivables	2,199		2,274			3,306		3,519
Prepaid expenses and other assets	7,333		7,553
Prepaid expenses and other current assets						7,595		9,629
Income tax receivables	2,726		611			260		548
Property and equipment and other assets available for sale						1,966		1,817
Total current assets	264,269		257,725			262,366		252,002

Property and equipment, net						66,059		67,484
Long-term receivables, less current maturities	1,948		2,616			739		1,114
Goodwill	8,469		7,812			8,048		7,743
Intangibles, net	4,174		4,705			3,070		3,354
Investment in affiliates and other assets	4,888		4,534			26,526		27,683
Deferred income taxes	7,983		11,292			13,312		13,271
	27,462		30,959
PROPERTY AND EQUIPMENT:
Land	2,172		2,099
Buildings	67,340		65,935
Machinery and equipment	88,143		84,189
Office furniture and equipment	5,799		5,604
Computer software and hardware	51,980		51,523
Equipment held for rental	287		374
Demonstration equipment	7,044		7,109
Transportation equipment	7,647		7,108
Property and equipment, net	230,412		223,941
Less accumulated depreciation	166,117		157,192
	64,295		66,749
TOTAL ASSETS	$	356,026	$	355,433		$	380,120	$	372,651

See notes to consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable						$	48,255	$	47,834
Contract liabilities						50,159		50,897
Accrued expenses						33,941		36,626
Warranty obligations						10,648		9,764
Income taxes payable						1,107		844
Total current liabilities						144,110		145,965

Long-term warranty obligations						16,412		15,860
Long-term contract liabilities						10,715		10,707
Other long-term obligations						21,469		22,105
Long-term income taxes payable						723		582
Deferred income taxes						469		452
Total long-term liabilities						49,788		49,706

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DAKTRONICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
(in thousands, except share data)

January 27,
2018 April 29,
2017
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY ��
CURRENT LIABILITIES:
Accounts payable $ 40,309
$ 51,499
Accrued expenses 27,578
25,033
Warranty obligations 13,291
13,578
Billings in excess of costs and estimated earnings 14,424
10,897
Customer deposits (billed or collected) 10,288
14,498
Deferred revenue (billed or collected) 13,906
12,137
Current portion of other long-term obligations 1,000
1,409
Income taxes payable 532
1,544
Total current liabilities 121,328
130,595

Long-term warranty obligations 15,909
14,321
Long-term deferred revenue (billed or collected) 6,916
5,434
Other long-term obligations 2,795
2,848
Long-term income tax payable 3,679
3,113
Deferred income taxes 984
836
Total long-term liabilities 30,283
26,552
TOTAL LIABILITIES 151,611
157,147

SHAREHOLDERS' EQUITY:

Common Stock, no par value, authorized 120,000,000 shares; 44,778,945 and 44,372,357 shares issued and outstanding at January 27, 2018 and April 29, 2017, respectively 54,725
52,530
Additional paid-in capital 39,671
38,004
Retained earnings 114,028
113,967
Treasury Stock, at cost, 303,957 shares at January 27, 2018 and April 29, 2017, respectively (1,834 ) (1,834 )
Accumulated other comprehensive loss (2,175 ) (4,381 )
TOTAL SHAREHOLDERS' EQUITY 204,415
198,286
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 356,026
$ 355,433

See notes to consolidated financial statements.

DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (in thousands, except per share data) (unaudited)

	August 1, 2020			May 2, 2020
SHAREHOLDERS' EQUITY:
Common Stock, no par value, authorized 115,000,000 shares; 45,913,210 and 45,913,209 shares issued at August 1, 2020 and May 2, 2020, respectively	60,010			60,010
Additional paid-in capital	45,192			44,627
Retained earnings	92,557			85,090
Treasury Stock, at cost, 1,343,281 and 1,343,281 shares at August 1, 2020 and May 2, 2020, respectively	(7,297		)	(7,470		)
Accumulated other comprehensive loss	(4,240		)	(5,277		)
TOTAL SHAREHOLDERS' EQUITY	186,222			176,980
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	380,120		$	372,651

See notes to condensed consolidated financial statements.

Table of contents

DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)													DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017			August 1, 2020			August 3, 2019
Net sales	$	130,316		$	115,719		$	472,353		$	442,857		$	143,644		$	180,256
Cost of goods sold	101,749			92,403			356,536			336,166
Cost of sales													107,883			134,751
Gross profit	28,567			23,316			115,817			106,691			35,761			45,505

Operating expenses:
Selling expense	15,271			14,678			45,560			45,828
Selling													11,556			18,297
General and administrative	8,335			8,599			26,138			26,007			7,124			9,093
Product design and development	8,299			6,973			26,294			21,142			7,532			10,500
	31,905			30,250			97,992			92,977			26,212			37,890
Operating (loss) income	(3,338		)	(6,934		)	17,825			13,714
Operating income													9,549			7,615

Nonoperating income (expense):
Nonoperating (expense) income:
Interest income	158			183			520			559			85			269
Interest expense	(40		)	(56		)	(173		)	(174		)	(73		)	(35		)
Other (expense) income, net	(487		)	(305		)	(429		)	(250		)	(627		)	193

(Loss) income before income taxes	(3,707		)	(7,112		)	17,743			13,849
Income tax expense (benefit)	2,482			(1,985		)	8,371			4,416
Net (loss) income	$	(6,189	)	$	(5,127	)	$	9,372		$	9,433
Income before income taxes													8,934			8,042
Income tax expense													1,467			1,012
Net income													$	7,467		$	7,030

Weighted average shares outstanding:
Basic	44,518			44,102			44,403			44,071			44,654			45,089
Diluted	44,518			44,102			44,798			44,206			44,751			45,261

(Loss) earnings per share:
Earnings per share:
Basic	$	(0.14	)	$	(0.12	)	$	0.21		$	0.21		$	0.17		$	0.16
Diluted	$	(0.14	)	$	(0.12	)	$	0.21		$	0.21		$	0.17		$	0.16

Cash dividends declared per share	$	0.07		$	0.07		$	0.21		$	0.24

See notes to consolidated financial statements.
See notes to condensed consolidated financial statements.

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DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

Three Months Ended Nine Months Ended
January 27, 2018 January 28,
2017 January 27,
2018 January 28,
2017

Net (loss) income $ (6,189 ) $ (5,127 ) $ 9,372
$ 9,433

Other comprehensive income (loss):
Cumulative translation adjustments 1,228
(47 ) 2,289
(1,487 )
Unrealized loss on available-for-sale securities, net of tax (50 ) (29 ) (83 ) (33 )
Total other comprehensive income (loss), net of tax 1,178
(76 ) 2,206
(1,520 )
Comprehensive (loss) income $ (5,011 ) $ (5,203 ) $ 11,578
$ 7,913

See notes to consolidated financial statements.

DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited)

	Three Months Ended
	August 1, 2020		August 3, 2019

Net income	$	7,467	$	7,030

Other comprehensive income (loss):
Cumulative translation adjustments	1,037		(526		)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		41
Total other comprehensive income (loss), net of tax	1,037		(485		)
Comprehensive income	$	8,504	$	6,545

See notes to condensed consolidated financial statements.

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DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Nine Months Ended
January 27,
2018 January 28,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,372
$ 9,433
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 13,335
13,941
Impairment of intangible assets —
830
(Gain) loss on sale of property, equipment and other assets (1,211 ) 23
Share-based compensation 1,978
2,204
Equity in loss of affiliate 401
78
Provision for doubtful accounts (55 ) 898
Deferred income taxes, net 3,429
(286 )
Change in operating assets and liabilities (296 ) 18,266
Net cash provided by operating activities 26,953
45,387

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (10,865 ) (6,709 )
Proceeds from sale of property, equipment and other assets 2,107
166
Purchases of marketable securities (5,211 ) (18,098 )
Proceeds from sales or maturities of marketable securities 13,751
14,594
Purchases of equity investment (1,027 ) (1,374 )
Net cash used in investing activities (1,245 ) (11,421 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on notes payable —
(8 )
Proceeds from exercise of stock options 514
343
Principal payments on long-term obligations (1,036 ) (912 )
Dividends paid (9,311 ) (10,566 )
Payments for common shares repurchased —
(1,825 )
Tax payments related to RSU issuances (311 ) (261 )
Net cash used in financing activities (10,144 ) (13,229 )

EFFECT OF EXCHANGE RATE CHANGES 667
(680 )
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 16,231
20,057

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period 32,839
28,526
End of period $ 49,070
$ 48,583

Supplemental disclosures of cash flow information:
Cash payments for:

Interest $ 161
$ 171
Income taxes, net of refunds 7,449
114

Supplemental schedule of non-cash investing and financing activities:

Demonstration equipment transferred to inventory 72
218
Purchase of property and equipment included in accounts payable 1,163
397
Contributions of common stock under the ESPP 1,681
840

See notes to 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 2, 2020	$	60,010	$	44,627	$	85,090	$	(7,470	)	$	(5,277	)	$	176,980
Net income	—		—		7,467		—			—			7,467
Cumulative translation adjustments	—		—		—		—			1,037			1,037
Share-based compensation	—		539		—		—			—			539
Treasury stock reissued	—		26		—		173			—			199
Balance as of August 1, 2020	$	60,010	$	45,192	$	92,557	$	(7,297	)	$	(4,240	)	$	186,222
See notes to condensed consolidated financial statements.

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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 April 27, 2019	$	57,699	$	42,561	$	93,593		$	(1,834	)	$	(4,356	)	$	187,663
Net income	—		—		7,030			—			—			7,030
Cumulative translation adjustments	—		—		—			—			(526		)	(526		)
Unrealized gain (loss) on available-for-sale securities, net of tax	—		—		—			—			41			41
Share-based compensation	—		643		—			—			—			643
Employee savings plan activity	779		—		—			—			—			779
Dividends declared ($0.05 per share)	—		—		(2,250		)	—			—			(2,250		)
Treasury stock purchase	—		—		—			(1,187		)	—			(1,187		)
Balance as of August 3, 2019	$	58,478	$	43,204	$	98,373		$	(3,021	)	$	(4,841	)	$	192,193
See notes to condensed consolidated financial statements.

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DAKTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

	Three Months Ended
	August 1, 2020			August 3, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,467		$	7,030
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	4,337			4,383
Loss on sale of property, equipment and other assets	(53		)	(26		)
Share-based compensation	539			643
Equity in loss of affiliates	529			118
Provision for doubtful accounts	1			5
Deferred income taxes, net	(4		)	(40		)
Change in operating assets and liabilities	(4,271		)	(30,331		)
Net cash provided by (used in) operating activities	8,545			(18,218		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(3,155		)	(5,856		)
Proceeds from sales of property, equipment and other assets	86			73
Proceeds from sales or maturities of marketable securities	—			14,510
Purchases of and loans to equity investment	(492		)	(455		)
Net cash (used in) provided by investing activities	(3,561		)	8,272

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations	(210		)	(1,221		)
Dividends paid	—			(2,250		)
Payments for common shares repurchased				(1,187		)
Net cash used in financing activities	(210		)	(4,658		)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(481		)	(37		)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	4,293			(14,641		)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period	40,412			35,742
End of period	$	44,705		$	21,101

Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest	$	43		$	33
Income taxes, net of refunds	786			491

Supplemental schedule of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable	969			786
Contributions of common stock under the ESPP	—			779
See notes to condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar amounts in thousands, except per share data)

(unaudited)

Note 1. Basis of Presentation ~~and Summary of Critical Accounting Policies~~

Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) isare 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 generally accepted accounting principles in the United States ("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 ~~footnote~~ disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet at ~~April 29, 2017~~May 2, 2020, has been derived from the audited financial statements at that date, but it does not include all of the information and ~~footnotes~~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 ~~April 29, 2017,~~May 2, 2020, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange ~~Commission.~~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- toor 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 ~~nine~~fiscal year ended May 1, 2021 will consist of 52 weeks and the fiscal year ended May 2, 2020 was a 53-week year; therefore, the three months ended ~~January 27, 2018 and January 28, 2017 contained~~August 1, 2020 contains operating results for 3913 weeks while the three months ended August 3, 2019 contains operating results for 14 weeks.

Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting. Investments in affiliates over which we do not have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities.

The ~~aggregate amount~~following table provides a reconciliation of ~~investments accounted for under~~cash, cash equivalents, and restricted cash reported within the ~~equity method was $3,303~~condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statement of cash flows:



	August 1, 2020		August 3, 2019
Cash and cash equivalents	$	44,609	$	20,762
Restricted cash	96		339
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows	$	44,705	$	21,101

Other Business Developments - Coronavirus Pandemic

During the first quarter of fiscal 2021, we continued to see the global spread of the coronavirus pandemic ("COVID-19"), which grew to create significant volatility, uncertainty and ~~$2,678 at January 27, 2018~~global economic disruption. As disclosed in our Current Report on Form 8-K filed on April 1, 2020, we are taking proactive steps to solidify our financial position and ~~April 29, 2017, respectively. The equity method requires us to report~~mitigate any adverse consequences. These steps include preserving liquidity by drawing down $15,000 of our ~~share~~existing line of ~~losses up to our equity investment amount. Cash paid for investments in affiliates~~credit, which is included in the ~~Purchases of equity investment~~"Other long-term obligations" line item in our condensed consolidated ~~statements~~balance sheets. In addition, we are pursuing other sources of ~~cash flows.~~financing, reducing investments in capital assets, reducing executive pay and board member compensation, and instituting initiatives to reduce other costs in the business. Our ~~proportional~~board of directors voted to suspend stock repurchases under our share repurchase program and to suspend dividends for the foreseeable future. We believe these measures are necessary to help preserve our ability to borrow for liquidity needs and help us be well positioned when the pandemic passes and economies begin to recover.

During fiscal 2020, we offered special voluntary retirement and voluntary exit incentive program ("Offering") and during the first quarter of fiscal 2021, we conducted a reduction in force ("RIF") to adjust our capacity and reduce on-going expenses due to the ~~respective affiliate’s earnings or losses~~uncertainties created by the COVID-19 pandemic. Under the Offering, employees had until June 2020 to choose to participate. During the first quarter of fiscal 2021, 60 employees agreed to participate and completed employment in June 2020. The approximate cost of this Offering was $931. Under the RIF, employment was terminated with 108 employees with severance totaling $1,426.

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Various government programs have been announced which provide financial relief for affected businesses that suffered reductions in revenue resulting from the COVID-19 pandemic including the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada, the Australian JobKeeper subsidy in Australia, the Temporary COVID-19 Wage Subsidy in Ireland, and the Job Retention Program in the United Kingdom. During the first quarter of fiscal 2021, we received $812 in total governmental wage subsidies and recorded such as a reduction of compensation expense, which is mostly included in the ~~Other (expense) income, net~~"Costs of sales" line item in our condensed consolidated statements of operations. ~~For the nine months ended January 27, 2018, our share of the losses of our affiliates was $401.~~

The aggregate amount of investments accounted for under the cost method was $42 at January 27, 2018 and April 29, 2017, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value, and it is not practical to estimate their fair value.

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 2, 2020, other than described in the Accounting Standards Adopted section below.

Accounting Standards Adopted

In ~~August 2016,~~January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-15,~~ ~~Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments,~~ which reduces the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We early adopted ASU 2016-15 during the second quarter of fiscal 2018. Adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash,~~ which requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Accordingly, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statements of cash flows. We early adopted ASU 2016-18 during the second quarter of fiscal 2018 and applied its provisions retrospectively. Other than the change in presentation within the statements of cash flows, the adoption of ASU 2016-18 did not have an impact on our consolidated financial statements.

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~~Accounting Standards Not Yet Adopted~~

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the U.S. Tax Cuts and Jobs Act. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2018-02 will have on our consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU~~ 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019 and will require adoption on a prospective basis. We ~~are currently evaluating the effect that adopting~~adopted ASU 2017-04 ~~will~~during the first quarter of fiscal 2021 and the adoption did not have an impact on our condensed consolidated financial ~~statements and related disclosures.~~statements.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other than Inventory~~, which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party, which is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. This update eliminates the exception by requiring entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for us on April 29, 2018. We are currently evaluating the effect that adopting ASU 2016-16 will have on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement and recognition of credit impairment for certain financial assets. ASU 2016-13 improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, with early adoption ~~permitted.~~permitted, and will require adoption on a modified retrospective basis. We ~~are currently evaluating the effect that adopting~~adopted ASU 2016-13 ~~will have on our consolidated financial statements~~ and ~~related disclosures.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (that is, lessees and lessors). ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting ASU 2016-02 will have on our consolidated financial statements and related disclosures.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The FASB has also issued ASUs 2016-08, 2016-10, 2016-12, and 2016-20 to clarify guidance with respect to principal versus agent considerations and the identification of performance obligations and licensing, to issue guidance on certain narrow areas, and to add practical expedients. We will adopt ASU 2014-09 andits related guidance ~~under the modified retrospective method~~ during the first quarter of fiscal ~~2019. The implementation team has completed its evaluation~~2021 and the adoption did not have a material impact on our condensed consolidated financial statements.

We estimate an allowance for doubtful accounts using a loss rate method. We measure all expected credit losses for financial assets held

at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

A reconciliation of the ~~revenue arrangements, analyzed contracts~~beginning and ending allowance for doubtful accounts is as follows:



	Allowance for Doubtful Accounts:
Balance as of May 2, 2020	$	2,828
Charged to costs and expenses	735
Deductions (1)	(241		)
Balance as of August 1, 2020	$	3,322

(1) Includes accounts determined to ~~identify key~~be uncollectible and charged against reserves.

Accounting Standards Not Yet Adopted

There are no significant ASU's issued not yet adopted as of August 1, 2020.

Note 2. Investments in Affiliates

Investments in affiliates over which we have significant influence are accounted for under the equity method of accounting, recording the investment at cost and then subsequently adjusting to account for our share of the affiliates profit or losses, in accordance with the provisions ~~impacted by~~of Accounting Standards Codification ("ASC") ~~606, assessed the applicable accounting,~~323, Investments – Equity Method and ~~reviewed existing accounting policies and internal controls. We are~~Joint Ventures. Investments in ~~the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under ASC 606. As a result of the evaluation performed to date,~~affiliates over which we do not ~~anticipate~~have the ability to exert significant influence over the affiliate's operating and financing activities are accounted for under the cost method of accounting, recording the investment at cost and then subsequently adjusting for any changes in ownership or dividends, in accordance with the provisions of ASC 321, Investments – Equity Securities. We have evaluated our relationships with our affiliates and have determined that these entities are not variable interest entities. Cash paid for investments in affiliates and loans to affiliates are included in the "Purchases of and loans to equity investment" line item in our condensed consolidated statements of cash

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flows. Equity method investments as a whole are assessed for other-than-temporary impairments whenever events or changes in circumstances indicate that the ~~adoption will significantly change the timing or~~carrying amount of ~~revenue recognized, based upon~~the investment may not be recoverable.

The aggregate amount of investments accounted for under the equity method was $16,728 and $17,257 at August 1, 2020 and May 2, 2020, respectively. Our proportional share of the respective affiliates' earnings or losses is included in the "Other (expense) income, net" line item in our ~~current assessment~~condensed consolidated statements of ~~"point in time"~~operations. For the three months ended August 1, 2020 and ~~"over time" revenue recognition. Therefore, we do not anticipate that~~August 3, 2019, our share of the ~~adoption~~losses of ~~ASU 2014-09 will materially impact~~ our ~~consolidated results of operations~~affiliates was $529 and ~~financial statements, other than the additional disclosure requirements.~~$118, respectively.

Note 2.3. Earnings Per Share ("EPS")

~~Basic~~We follow the provisions of ASC 260, Earnings Per Share, where basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which share in our earnings.

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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 nine~~ months ended ~~January 27, 2018~~August 1, 2020 and ~~January 28, 2017:~~August 3, 2019:



	Net income		Shares	Per share income
For the three months ended August 1, 2020
Basic earnings per share	$	7,467	44,654	$	0.17
Dilution associated with stock compensation plans	—		97	—
Diluted earnings per share	$	7,467	44,751	$	0.17
For the three months ended August 3, 2019
Basic earnings per share	$	7,030	45,089	$	0.16
Dilution associated with stock compensation plans	—		172	—
Diluted earnings per share	$	7,030	45,261	$	0.16

Net (loss) income Shares Per share (loss) income
For the three months ended January 27, 2018
Basic (loss) earnings per share $ (6,189 ) 44,518
$ (0.14 )
    Dilution associated with stock compensation plans —
—
—
Diluted (loss) earnings per share $ (6,189 ) 44,518
$ (0.14 )
For the three months ended January 28, 2017
Basic (loss) earnings per share $ (5,127 ) 44,102
$ (0.12 )
    Dilution associated with stock compensation plans —
—
—
Diluted (loss) earnings per share $ (5,127 ) 44,102
$ (0.12 )
For the nine months ended January 27, 2018
Basic earnings per share $ 9,372
44,403
$ 0.21
    Dilution associated with stock compensation plans —
395
—
Diluted earnings per share $ 9,372
44,798
$ 0.21
For the nine months ended January 28, 2017
Basic earnings per share $ 9,433
44,071
$ 0.21
    Dilution associated with stock compensation plans —
135
—
Diluted earnings per share $ 9,433
44,206
$ 0.21

Options outstanding to purchase ~~1,203~~2,119 shares of common stock with a weighted average exercise price of $~~11.45~~9.96 for the three months ended ~~January 27, 2018~~August 1, 2020 and ~~1,354~~2,197 shares of common stock with a weighted average exercise price of $~~13.86~~10.03 for the three months ended ~~January 28, 2017 were not included in the computation of diluted (loss) earnings per share because the effects would be anti-dilutive.~~

Options outstanding to purchase 1,281 shares of common stock with a weighted average exercise price of $12.55 for the nine months ended January 27, 2018 and 2,380 shares of common stock with a weighted average exercise price of $13.27 for the nine months ended January 28, 2017August 3, 2019 were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.

Note ~~3. Share Repurchase Program~~4. Revenue Recognition

~~On June 17, 2016,~~Disaggregation of revenue

In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.

The following table presents our ~~Board~~disaggregation of ~~Directors approved~~revenue by segments:

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	Three Months Ended August 1, 2020
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	8,727	$	41,975	$	7,668	$	7,724	$	4,012	$	70,106
Limited configuration	22,555		5,419		20,688		6,266		8,653		63,581
Service and other	3,224		4,080		587		508		1,558		9,957
	$	34,506	$	51,474	$	28,943	$	14,498	$	14,223	$	143,644
Timing of revenue recognition
Goods/services transferred at a point in time	$	22,892	$	6,214	$	19,368	$	6,374	$	9,179	$	64,027
Goods/services transferred over time	11,614		45,260		9,575		8,124		5,044		79,617
	$	34,506	$	51,474	$	28,943	$	14,498	$	14,223	$	143,644



	Three Months Ended August 3, 2019
	Commercial		Live Events		High School Park and Recreation		Transportation		International		Total
Type of performance obligation
Unique configuration	$	12,965	$	45,587	$	6,030	$	11,897	$	15,678	$	92,157
Limited configuration	27,235		7,713		23,800		6,587		9,930		75,265
Service and other	3,835		6,006		635		534		1,824		12,834
	$	44,035	$	59,306	$	30,465	$	19,018	$	27,432	$	180,256
Timing of revenue recognition
Goods/services transferred at a point in time	$	27,703	$	9,120	$	22,599	$	6,697	$	10,188	$	76,307
Goods/services transferred over time	16,332		50,186		7,866		12,321		17,244		103,949
	$	44,035	$	59,306	$	30,465	$	19,018	$	27,432	$	180,256

See "Note 5. Segment Reporting" for a ~~stock repurchase program under~~disaggregation of revenue by geography.

Contract balances

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which ~~Daktronics, Inc. may purchase up~~represent an unconditional right to ~~$40,000~~payment subject only to the passage of ~~its outstanding shares~~time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the clients in excess of ~~common stock. Under~~revenue recognized to date.

The following table reflects the changes in our contract assets and liabilities:



	August 1, 2020		May 2, 2020		Dollar Change			Percent Change
Contract assets	$	33,261	$	35,467	$	(2,206	)	(6.2	)%
Contract liabilities - current	50,159		50,897		(738		)	(1.4	)
Contract liabilities - noncurrent	10,715		10,707		8			0.1

The changes in our contract assets and contract liabilities from May 2, 2020 to August 1, 2020 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no material impairments of contract assets for the three months ended August 1, 2020.

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For service-type warranty contracts, we allocate revenue to this ~~program, we may repurchase shares from~~performance obligation, recognize the revenue over time, ~~to time~~and recognize costs as incurred. Earned and unearned revenues for these contracts are included in ~~open market transactions~~the "Contract assets" and "Contract liabilities" line items in ~~privately negotiated transactions based on business, market, applicable legal requirements~~our condensed consolidated balance sheets. Changes in unearned service-type warranty contracts, net were as follows:



	August 1, 2020
Balance at beginning of period	$	24,490
New contracts sold	8,188
Less: reductions for revenue recognized	(9,115		)
Foreign currency translation and other	250
Balance at end of period	$	23,813

As of August 1, 2020 and ~~other considerations. The repurchase program does not require~~May 2, 2020, our contracts in progress that were identified as loss contracts were immaterial. For these contracts, the ~~repurchase of a specific number of shares and may be terminated at any time.~~ provision for losses are included in the "Accrued expenses" line item in our condensed consolidated balance sheets.

During the ~~first, second and third quarter~~three months ended August 1, 2020, we recognized revenue of ~~fiscal 2018, we had no repurchases~~$30,358 related to our contract liabilities as of ~~shares~~May 2, 2020.

Remaining performance obligations

As of August 1, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations was $245,756. We expect approximately $204,878 of our ~~outstanding common stock. During~~remaining performance obligations to be recognized over the ~~first quarter of fiscal 2017, we repurchased 284 shares of common stock~~next 12 months, with the remainder recognized thereafter. Remaining performance obligations related to product and service agreements at ~~a total~~August 1, 2020 are $191,717 and $54,039, respectively. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, ~~of $1,825,~~foreign currency exchange fluctuations and ~~there were no other purchases during fiscal 2017. As of January 27, 2018, we had $38,175 of~~project deferrals are reflected or excluded in the remaining ~~capacity under our current share repurchase program.~~performance obligation balance, as appropriate.

Note 4.5. Segment ~~Disclosure~~Reporting

We ~~have organized~~organize and manage our business ~~into~~ ~~five~~by the following 5 segments which meet the definition of reportable segments under ASC 280-10, Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type ~~of customer~~ or geography and are the same as our business units.

~~Our Commercial business unit primarily consists of sales of our video display systems, digital billboards, Galaxy~~^® ~~and Fuelight~~^™ product lines to resellers (primarily sign companies), Out-of-Home ("OOH") companies, national retailers, quick-serve restaurants, casinos and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales of our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy^® ~~displays and video display systems to primary and secondary education facilities. Our Transportation business unit primarily consists of sales of our Vanguard~~^® ~~and Galaxy~~^® product lines to governmental transportation departments, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus We evaluate segment performance based on ~~product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, and European transportation related products.~~

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~~Our segment reporting presents~~operating results through contribution margin, which is comprised of gross profit less selling costs. Gross profit is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-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 demos, and supplies. Segment profit excludesexpense. We exclude general and administration expense, product design and development ~~expense, interest income and~~ expense, non-operating income and expense, and income tax ~~expense. Assets are not allocated to~~expense in the ~~segments. Depreciation and amortization are allocated to each~~ segment ~~based on various~~analysis. Separate financial measures; however, some depreciation and amortization are corporate in nature and remain unallocated. Our segments follow the same accounting policies as those described in Note 1 of our Annual Report on Form 10-K for the fiscal year ended April 29, 2017. Unabsorbed manufacturing costs are allocated to the business unit benefiting most from that manufacturing location's production capabilities. Unabsorbed costs of domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures.

~~We do not maintain information on sales by products; therefore, disclosure of such~~ information is ~~not practical.~~

available and regularly evaluated by our chief operating decision-maker (CODM), who is our president and chief executive officer, in making resource allocation decisions for our segments.

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The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:



	Three Months Ended
	August 1, 2020			August 3, 2019
Net sales:
Commercial	$	34,506		$	44,035
Live Events	51,474			59,306
High School Park and Recreation	28,943			30,465
Transportation	14,498			19,018
International	14,223			27,432
	143,644			180,256

Gross profit:
Commercial	7,742			9,218
Live Events	9,354			12,737
High School Park and Recreation	10,476			10,187
Transportation	5,143			6,754
International	3,046			6,609
	35,761			45,505

Contribution margin: (1)
Commercial	4,441			4,084
Live Events	7,138			8,872
High School Park and Recreation	7,915			6,592
Transportation	4,381			5,452
International	330			2,208
	24,205			27,208

Non-allocated operating expenses:
General and administrative	7,124			9,093
Product design and development	7,532			10,500
Operating income	9,549			7,615

Nonoperating income (expense):
Interest income	85			269
Interest expense	(73		)	(35		)
Other (expense) income, net	(627		)	193

Income before income taxes	8,934			8,042
Income tax expense	1,467			1,012
Net income	$	7,467		$	7,030

Depreciation and amortization:
Commercial	$	772		$	974
Live Events	1,451			1,398
High School Park and Recreation	496			512
Transportation	237			264
International	693			524
Unallocated corporate depreciation	688			711
	$	4,337		$	4,383

Three Months Ended Nine Months Ended
January 27,
2018 January 28,
2017 January 27,
2018 January 28,
2017
Net sales:
    Commercial $ 35,483
$ 36,165
$ 102,723
$ 112,342
    Live Events 45,167
41,036
191,432
157,032
    High School Park and Recreation 11,463
12,653
69,602
68,977
    Transportation 11,189
9,130
46,577
39,517
    International 27,014
16,735
62,019
64,989
130,316
115,719
472,353
442,857

Gross profit:
    Commercial 7,546
7,711
21,085
27,418
    Live Events 9,747
6,629
43,056
30,430
    High School Park and Recreation 2,768
3,198
23,672
21,900
    Transportation 3,570
2,325
16,696
12,966
    International 4,936
3,453
11,308
13,977
28,567
23,316
115,817
106,691

Selling expense:
    Commercial 4,415
4,575
13,778
13,949
    Live Events 3,843
3,417
10,562
9,686
    High School Park and Recreation 2,726
2,581
8,073
7,532
    Transportation 945
952
3,084
3,461
    International 3,342
3,153
10,063
11,200
15,271
14,678
45,560
45,828

Non-allocated operating expenses:
    General and administrative 8,335
8,599
26,138
26,007
    Product design and development 8,299
6,973
26,294
21,142
Operating (loss) income (3,338 ) (6,934 ) 17,825
13,714

Nonoperating income (expense):
    Interest income 158
183
520
559
    Interest expense (40 ) (56 ) (173 ) (174 )
Other (expense) income, net (487 ) (305 ) (429 ) (250 )

(Loss) income before income taxes (3,707 ) (7,112 ) 17,743
13,849
Income tax expense (benefit) 2,482
(1,985 ) 8,371
4,416
Net (loss) income $ (6,189 ) $ (5,127 ) $ 9,372
$ 9,433

Depreciation, amortization and impairment:
    Commercial $ 1,550
$ 1,616
$ 4,628
$ 4,777
    Live Events 1,192
1,245
3,626
3,798
    High School Park and Recreation 401
421
1,245
1,310
    Transportation 281
311
860
957
    International 284
423
835
1,914
    Unallocated corporate depreciation 725
683
2,141
2,015
$ 4,433
$ 4,699
$ 13,335
$ 14,771

(1) Contribution margin consists of gross profit less selling expense.

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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
	August 1, 2020		August 3, 2019
Net sales:
United States	$	128,069	$	149,460
Outside United States	15,575		30,796
	$	143,644	$	180,256


	August 1, 2020		May 2, 2020
Property and equipment, net of accumulated depreciation:
United States	$	56,822	$	58,422
Outside United States	9,237		9,062
	$	66,059	$	67,484

Three Months Ended Nine Months Ended
January��27,
2018 January 28,
2017 January 27,
2018 January 28,
2017
Net sales:
United States $ 98,297
$ 94,174
$ 396,155
$ 363,766
Outside United States 32,019
21,545
76,198
79,091
$ 130,316
$ 115,719
$ 472,353
$ 442,857

January 27,
2018 April 29,
2017
Property and equipment, net of accumulated depreciation:

United States $ 58,333
$ 62,425

Outside United States 5,962
4,324

$ 64,295
$ 66,749

We have numerous customers worldwide for sales of our products and ~~services;~~services, and no customer accounted for 10% 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 except~~services.

We have numerous raw material and component suppliers, and no supplier accounts for 10% 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. Marketable Securities

We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with ~~respect~~the provisions of ASC 320, Investments – Debt and Equity Securities. Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of August 1, 2020, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.

As of August 1, 2020 and May 2, 2020, our ~~dependence~~available-for-sale securities consisted of the following:



	Amortized Cost		Unrealized Losses		Fair Value
Balance as of August 1, 2020
Certificates of deposit	$	1,230	$	—	$	1,230
	$	1,230	$	—	$	1,230
Balance as of May 2, 2020
Certificates of deposit	$	1,230	$	—	$	1,230
	$	1,230	$	—	$	1,230

Realized gains or losses on ~~two major digital billboard customers~~investments are recorded in our ~~Commercial business unit.~~ condensed consolidated statements of operations as "Other (expense) income, net." Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the three months ended August 1, 2020 and August 3, 2019, the reclassifications from accumulated other comprehensive loss to net earnings were immaterial.

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All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of August 1, 2020 were as follows:



	Less than 12 months		Total
Certificates of deposit	$	1,230	$	1,230
	$	1,230	$	1,230

Note 7. Goodwill

The changes in the carrying amount of goodwill related to each reportable segment for the three months ended August 1, 2020 were as follows:



	Live Events		Commercial		Transportation		International		Total
Balance as of May 2, 2020	$	2,266	$	3,144	$	38	$	2,295	$	7,743
Foreign currency translation	13		91		13		188		305
Balance as of August 1, 2020	$	2,279	$	3,235	$	51	$	2,483	$	8,048

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 4, 2019 and concluded no goodwill impairment existed. We plan to complete our annual analysis as of the first business day of our third quarter of fiscal 2021, which will begin on November 2, 2020.

In March 2020, we began to see the impacts from the COVID-19 pandemic that could have a negative impact on our forecasted revenue and profitability and stock price declines. This, along with other market conditions, led us to perform an interim goodwill impairment analysis in the fourth quarter of fiscal 2020. After evaluating our results, events and circumstances, we determined no goodwill impairment was necessary. Although the COVID-19 pandemic continues to cause uncertainty, in the first quarter of fiscal 2021, we considered if any new events had occurred or if circumstances had changed such that it was more likely than not that the fair value of any of our reporting units was below its carrying amount, and we did not identify any further impairment indicators; therefore, we did not perform an additional interim impairment analysis.

Note 8. Selected Financial Statement Data

Inventories consisted of the following:



	August 1, 2020		May 2, 2020
Raw materials	$	33,076	$	35,306
Work-in-process	9,943		12,102
Finished goods	38,416		39,395
	$	81,435	$	86,803

Property and equipment, net consisted of the following:



	August 1, 2020		May 2, 2020
Land	$	2,183	$	2,183
Buildings	69,967		68,804
Machinery and equipment	105,188		104,157
Office furniture and equipment	6,174		6,151
Computer software and hardware	53,691		53,441
Equipment held for rental	287		287
Demonstration equipment	8,368		8,473
Transportation equipment	7,783		7,944
	253,641		251,440
Less accumulated depreciation	187,582		183,956
	$	66,059	$	67,484

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Note 9. Receivables

We invoice customers based on a billing schedule as established in our contracts. We sometimes have the ability to file a contractor’s lien against the product installed as collateral and to file claims against surety bonds to protect our interest in receivables. Foreign sales are at times secured by irrevocable letters of credit or bank guarantees. Accounts receivable are reported net of an allowance for doubtful accounts of $3,322 and $2,828 at August 1, 2020 and May 2, 2020, respectively. Included in accounts receivable as of August 1, 2020 and May 2, 2020 was $741 and $687, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.

In some contracts with customers, we agree to installment payments exceeding 12 months. The present value of these contracts is recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts, including accrued interest and current maturities, was $4,045 and $4,633 as of August 1, 2020 and May 2, 2020, respectively. Contract receivables bearing annual interest rates of 5.0 to 9.0 percent are due in varying annual installments through 2024. The face value of long-term receivables was $4,327 as of August 1, 2020 and $5,166 as of May 2, 2020.

We evaluated our receivable and contract assets as of August 1, 2020 and reserved for anticipated losses. Due to the uncertainty created by the COVID-19 pandemic, this loss may materially change from this estimate.

Note ~~5. Marketable Securities~~10. Share Repurchase Program

~~We have~~On June 17, 2016, our Board of Directors approved a ~~cash management~~stock repurchase program under which ~~provides~~we may purchase up to $40,000 of the Company's outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time.

During the three months ended August 1, 2020, we had 0 repurchases of shares of our outstanding common stock. During the three months ended August 3, 2019, we repurchased 187 shares of common stock at a total cost of $1,187. As of August 1, 2020, we had $32,539 of remaining capacity under our current share repurchase program.

As part of our COVID-19 response, on April 1, 2020, our Board of Directors voted to suspend stock repurchases under our share repurchase program for the ~~investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320,~~ ~~Investments – Debt and Equity Securities.~~ Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of January 27, 2018, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value. foreseeable future.

~~As of January 27, 2018 and April 29, 2017, our available-for-sale securities consisted of the following:~~

Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Balance as of January 27, 2018
Certificates of deposit $ 8,918
$ —
$ —
$ 8,918
U.S. Government sponsored entities 9,104
—
(73 ) 9,031
Municipal bonds 6,001
—
(13 ) 5,988
$ 24,023
$ —
$ (86 ) $ 23,937
Balance as of April 29, 2017

Certificates of deposit $ 12,487
$ —
$ —
$ 12,487
U.S. Government securities 400
—
—
400
U.S. Government sponsored entities 12,260
—
(22 ) 12,238
Municipal bonds 7,574
14
—
7,588
$ 32,721
$ 14
$ (22 ) $ 32,713

Realized gains or losses on investments are recorded in our consolidated statements of operations as other income (expense), net. Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the nine months ended January 27, 2018 and January 28, 2017, the reclassifications from accumulated other comprehensive loss to earnings were immaterial.

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Less than 12 months 1-5 Years Total
Certificates of deposit $ 5,207
$ 3,711
$ 8,918
U.S. Government sponsored entities 999
8,032
9,031
Municipal bonds 2,598
3,390
5,988
$ 8,804
$ 15,133
$ 23,937

~~Note 6. Business Combinations~~

~~ADFLOW Acquisition~~

We have a contingent liability related to a prior year acquisition of ADFLOW Networks, Inc. ("ADFLOW"), on March 15, 2016. For more information related to the ADFLOW acquisition, see "Note 4. Business Combinations" of our Annual Report on Form 10-K for the fiscal year ended April 29, 2017. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted cash flows. Projecting future cash flows requires us to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable. See "Note 13. Fair Value Measurement" for more information.

~~Note 7. Sale of Non-Digital Division~~

In September 2017, we sold our non-digital division assets, primarily consisting of inventory, non-digital manufacturing equipment, patented and unpatented technology and know-how, customer lists, and backlog, net of warranty obligations and accounts payable with a net book value of $517. We recorded a gain of $1,267 on the disposal, which is included in cost of goods sold in the International business unit.

~~Note 8. Goodwill~~

~~The changes in the carrying amount of goodwill related to each reportable segment for the nine months ended January 27, 2018 were as follows:~~

Live Events Commercial Transportation International Total
Balance as of April 29, 2017 $ 2,274
$ 3,199
$ 45
$ 2,294
$ 7,812
Foreign currency translation 38
258
38
323
657
Balance as of January 27, 2018 $ 2,312
$ 3,457
$ 83
$ 2,617
$ 8,469

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. We performed our annual analysis based on the goodwill amount as of the first business day of our third quarter in fiscal 2018, which was October 29, 2017. The result of the analysis indicated no goodwill impairment existed as of that date.

~~Note 9. Inventories~~

~~Inventories consisted of the following:~~

January 27,
2018 April 29,
2017
Raw materials $ 26,833
$ 24,801
Work-in-process 11,813
7,366
Finished goods 31,805
34,319
$ 70,451
$ 66,486

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~~Note 10. Receivables~~

~~Accounts receivable are reported net of an allowance for doubtful accounts of~~ ~~$2,311~~ ~~and~~ ~~$2,610~~ at January 27, 2018 and April 29, 2017, respectively. Included in accounts receivable as of January 27, 2018 and April 29, 2017 was $2,044 and $1,857, respectively, of retainage on construction-type contracts, all of which is expected to be collected within one year.

In connection with certain sales transactions, we have entered into sales contracts with installment payments exceeding twelve months and sales-type leases. The present value of these contracts and leases are recorded as a receivable as the revenue is recognized in accordance with GAAP, and profit is recognized to the extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts and lease receivables, including accrued interest and current maturities, was ~~$4,147~~ ~~and~~ ~~$4,890~~ ~~as of January 27, 2018 and April 29, 2017, respectively. Contract and lease receivables bearing annual interest rates of~~ ~~4.8~~ to ~~10.0~~ ~~percent are due in varying annual installments through August 2024. The face amount of long-term receivables was~~ ~~$4,547~~ ~~and~~ ~~$5,201~~ ~~as of January 27, 2018 and April 29, 2017, respectively.~~

Note 11. Commitments and Contingencies

Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. We do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, ~~Contingencies - Loss Contingencies. Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.~~

As of ~~January 27, 2018~~August 1, 2020 and ~~April 29, 2017,~~May 2, 2020, $2,118 and $2,072, respectively, were included in the "Accrued expenses" line item in our condensed consolidated balance sheets for a probable and reasonably estimated cost to settle a patent litigation claim.

For other unresolved legal proceedings or claims, we ~~did~~do not believe there ~~was~~is a reasonable probability that any material loss ~~for these various claims or legal actions, including reviews, inspections or other legal proceedings, if any,~~ would be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. ~~In the opinion of management,~~We do not expect the ultimate liability of ~~all~~these unresolved legal proceedings ~~is not expected~~or claims to have a material effect on our financial position, liquidity or capital resources.

Warranties: ~~We offer a standard parts coverage warranty for periods varying from~~ ~~one~~ to ~~five~~ years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of warranties on some installations can vary from ~~one~~ to 10 years. The specific terms and conditions of these warranties vary primarily depending on the type of product sold. We estimate the costs which may be incurred under the contractual warranty obligations and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly.

During fiscal 2016, we discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH applications built prior to fiscal 2013. The device failure causes a visual defect in the display. Over the past three years, we have deployed preventative maintenance to sites impacted and repaired the defective devices in our repair center. When certain site locations have exceeded an acceptable failure rate, we have refurbished the display to meet customers’ expectations under contractual obligations. During fiscal 2017, 2016, and 2015 we recognized warranty expense for probable and reasonably estimated costs to remediate this issue of $1,766, $9,174, and $1,168, respectively. We recognized warranty expense related to this issue of $4,034 during the nine months ended January 27, 2018. This increased expense level is not the result of a new issue, but is primarily based on our decision to preserve our market leadership. We elected to expand the refurbishments for customer relationship purposes. As of January 27, 2018, we had $3,066 remaining in accrued warranty obligations for the estimate of probable future claims related to this issue. Although many of our contractual warranty arrangements are nearing expiration for products with this issue, we may incur additional discretionary costs to maintain customer relationships or for higher than expected failure rates. Accordingly, it is possible that the ultimate cost to resolve this matter may increase and be materially different from the amount of the current estimate and accrual.

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Changes in our warranty obligation for the ~~nine~~three months ended ~~January 27, 2018~~August 1, 2020 consisted of the following:



	August 1, 2020
Beginning accrued warranty obligations	$	25,624
Warranties issued during the period	2,800
Settlements made during the period	(1,056		)
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations	(308		)
Ending accrued warranty obligations	$	27,060

Amount
Beginning accrued warranty obligations $ 27,899
      Warranties issued during the period 9,652
      Settlements made during the period (13,581 )
      Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations 5,230
Ending accrued warranty obligations $ 29,200

Performance guarantees: We have entered into standby letters of credit and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily ~~construction type~~construction-type contracts. As of ~~January 27, 2018,~~August 1, 2020, we had outstanding letters of credit and surety bonds in the amount of $~~13,396~~14,788 and $~~8,330~~35,079, respectively. Performance guarantees are issued to certain customers

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to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms ~~which~~but are generally one year. We enter into written agreements with our customers, and those agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss. We make efforts to negotiate reasonable caps and limitations on the recovery of such damages. As of August 1, 2020, we were not aware of any indemnification claim from a customer.

~~Leases:~~ We lease vehicles, office space and equipment for various global sales and service locations, including manufacturing space in the United States and China. Some of these leases, including the lease for manufacturing facilities in Sioux Falls, South Dakota, include provisions for extensions or purchase. The lease for the facilities in Sioux Falls, South Dakota, can be extended for an additional five years past its current term, which ends March 31, 2022, and it contains an option to purchase the property subject to the lease from March 31, 2017 to March 31, 2022 for ~~$9,000, which approximates fair value. If the lease is extended, the purchase option increases to~~ ~~$9,090~~ ~~for the year ending March 31, 2023 and~~ ~~$9,180~~ ~~for the year ending March 31, 2024. Rental expense for operating leases was~~ ~~$2,568~~ ~~and~~ ~~$2,358~~ ~~for the nine months ended January 27, 2018 and January 28, 2017, respectively.~~

Future minimum payments under noncancelable operating leases, excluding executory costs such as management and maintenance fees, with initial or remaining terms of one year or more consisted of the following at January 27, 2018:

Fiscal years ending Amount
2018 $ 775
2019 2,624
2020 2,101
2021 1,771
2022 1,437
Thereafter 544
$ 9,252

Purchase commitments: From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year. As of ~~January 27, 2018,~~August 1, 2020, we were obligated under the following ~~conditional and~~ unconditional purchase ~~commitments, which included~~ ~~$350~~ ~~in conditional purchase~~ commitments:



Fiscal years ending	Amount
2021	$	2,831
2022	2,750
2023	1,755
2024	148
2025	113
Thereafter	40
	$	7,637

Fiscal years ending Amount
2018 $ 665
2019 2,675
2020 1,898
2021 313
2022 143
Thereafter 380
$ 6,074

Note 12. Income Taxes

We ~~are subject to U.S. Federal income tax as well as~~calculate the provision for income taxes during interim reporting periods by applying an estimate of ~~multiple state and foreign jurisdictions.~~the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to various factors and operating in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation. ~~As a result~~

Our effective tax rate for the three months ended August 1, 2020 was 16.4 percent as compared to 12.6 percent for the three months ended August 3, 2019. The quarterly effective tax rate was primarily driven by the benefit of estimated tax credits proportionate to estimated pre-tax earnings similar to the ~~expiration~~previous period.

We are subject to U.S. federal income tax as well as income taxes of ~~statutes of limitations, our~~multiple state and foreign jurisdictions. Fiscal years 2017, 2018, 2019 and 2020 remain open to federal tax examinations, and fiscal years ~~2015,~~ 2016, 2017, 2018, 2019 and ~~2017 are the remaining years~~2020 remain open ~~under statutes of limitations~~ for ~~federal and~~various state income tax examinations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal ~~2008.~~2009. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our condensed consolidated statement of operations.

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As of ~~January 27, 2018,~~August 1, 2020, undistributed earnings of our foreign subsidiaries are considered to be reinvested indefinitely. Additionally, we had ~~$3,179~~$723 of unrecognized tax benefits which would reduce our effective tax rate if recognized.

On December 22, 2017, President Trump signed the U.S. Tax Cuts and Jobs Act (the “Tax Act”) into law. The Tax Act makes broad and complex changes to the U.S. tax code. Some of the most significant provisions of the Tax Act impacting us include a reduction of the U.S. federal corporate income tax rate from 35% to 21%, a one-time "deemed repatriation" tax on previously untaxed accumulated earnings and profits of certain subsidiaries in non-U.S. jurisdictions, and a transition of U.S. international taxation from a worldwide tax system to a territorial tax system.

GAAP accounting for income taxes requires us to record the impact of any tax law change in the quarter the law change is enacted. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 which provides additional guidance allowing companies to record provisional amounts during a measurement period, not to exceed one year from the enactment date of the Tax Act, to account for the impacts of the Tax Act in their financial statements when companies do not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for the effects of the changes in the Tax Act. We have accounted for the impacts of the Tax Act to the extent a reasonable estimate could be made during the quarter ended January 27, 2018. We will continue to refine our estimates throughout the measurement period or until the accounting is complete, and the impact of the Tax Act may differ from these estimates, possibly materially, due to, among other things, changes in estimates and assumptions that we have made.

As a result, we have recorded a provisional reduction to our net deferred tax asset (which represents future tax benefits) of $3,679 which resulted in a corresponding increase to income tax expense for the quarter ended January 27, 2018. The revaluation of our net deferred tax asset is subject to further adjustments during the measurement period due to the complexity of determining our net deferred tax asset as of the enactment date of the Tax Act. Some of the information necessary to determine the accounting impacts of the tax rate change includes finalization of our fiscal 2018 tax return as well as refining the analysis of which existing deferred balances at the enactment date will reverse in fiscal 2018 and which deferred balances will reverse after fiscal 2018.

Additionally, we have recorded a provisional increase to income tax expense of $601 for the one-time deemed repatriation tax. The estimate of the deemed repatriation tax is based, in part, on the amount of cash and other specified assets anticipated to be held by Daktronics’ foreign subsidiaries as of April 28, 2018. As a result, the final amount may change as the amounts are finalized. We plan to pay the tax payable in installments in accordance with the Tax Act.

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Note 13. Fair Value Measurement

~~ASC 820,~~ ~~Fair Value Measurement,~~ defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three levels of inputs which may be utilized when measuring fair value.

~~Level 1~~ ~~- Quoted prices in active markets for identical assets or liabilities.~~

~~Level 2~~ - Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).

~~Level 3~~ ~~- Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.~~

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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 ~~January 27, 2018~~August 1, 2020 and ~~April 29, 2017~~May 2, 2020 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 August 1, 2020
Cash and cash equivalents	$	44,609	$	—		$	—		$	44,609
Restricted cash	96		—			—			96
Available-for-sale securities:
Certificates of deposit	—		1,230			—			1,230
Derivatives - asset position	—		36			—			36
Derivatives - liability position	—		(242		)	—			(242		)
Acquisition-related contingent consideration	—		—			(401		)	(401		)
	$	44,705	$	1,024		$	(401	)	$	45,328
Balance as of May 2, 2020
Cash and cash equivalents	$	40,398	$	—		$	—		$	40,398
Restricted cash	14		—			—			14
Available-for-sale securities:
Certificates of deposit	—		1,230			—			1,230
Derivatives - asset position	—		261			—			261
Derivatives - liability position	—		(17		)	—			(17		)
Acquisition-related contingent consideration	—		—			(761		)	(761		)
	$	40,412	$	1,474		$	(761	)	$	41,125

Fair Value Measurements
Level 1 Level 2 Level 3 Total
Balance as of January 27, 2018
Cash and cash equivalents $ 49,042
$ —
$ —
$ 49,042
Restricted cash 28
—
—
28
Available-for-sale securities:

Certificates of deposit —
8,918
—
8,918
U.S. Government sponsored entities —
9,031
—
9,031
Municipal bonds —
5,988
—
5,988
Derivatives - asset position —
64
—
64
Derivatives - liability position —
(720 ) —
(720 )
Contingent liability —
—
(1,034 ) (1,034 )
$ 49,070
$ 23,281
$ (1,034 ) $ 71,317
Balance as of April 29, 2017

Cash and cash equivalents $ 32,623
$ —
$ —
$ 32,623
Restricted cash 216
—
—
216
Available-for-sale securities:

Certificates of deposit —
12,487
—
12,487
U.S. Government securities 400
—
—
400
U.S. Government sponsored entities —
12,238
—
12,238
Municipal bonds —
7,588
—
7,588
Derivatives - asset position —
64
—
64
Derivatives - liability position —
(277 ) —
(277 )
Contingent liability —
—
(1,891 ) (1,891 )
$ 33,239
$ 32,100
$ (1,891 ) $ 63,448

A roll forward of the Level 3 contingent ~~liability,~~liabilities, both short- and long-term, for the ~~nine~~three months ended ~~January 27, 2018~~August 1, 2020 is as follows:



Acquisition-related contingent consideration as of May 2, 2020	$	761
Additions	33
Settlements	(400		)
Interest	7
Acquisition-related contingent consideration as of August 1, 2020	$	401

Contingent liability as of April 29, 2017 $ 1,891
Settlements (1,009 )
Interest 30
Foreign currency translation 122
Contingent liability as of January 27, 2018 $ 1,034

~~The following methods and assumptions were used to estimate the fair value of each class of financial instrument.~~ There have been no changes in the valuation techniques used by us to value our financial ~~instruments.~~

~~Cash~~instruments since the end of fiscal 2020. For additional information, see our Annual Report on Form 10-K for the fiscal year ended May 2, 2020 for the methods and ~~cash equivalents~~: Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value.

~~Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts~~assumptions used to ~~secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value.~~

~~Certificates of deposit~~: Consists of time deposit accounts with original maturities of less than three years and various yields. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments from a third-party financial institution. The carrying amount approximates fair value.

~~U.S. Government securities~~:Consists of U.S. Government treasury bills, notes, and bonds with original maturities of less than three years and various yields. The fair value of these securities was measured using quoted market prices in active markets.

~~U.S. Government sponsored entities~~: Consists of Fannie Mae and Federal Home Loan Bank investment grade debt securities trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments. The contractual maturities of these investments vary from one month to three years.

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~~Municipal bonds~~: Consist of investment grade municipal bonds trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The contractual maturities of these investments vary from two to three years. The fair value of these bonds was measured based on valuations observed in less active markets than Level 1 investments.

~~Derivatives – currency forward contracts~~: Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 14. Derivative Financial Instruments" for more information regarding our derivatives.

~~Contingent liability: Consists of~~estimate the fair value of ~~a liability measured on expected future payments relating to a business acquisition if future~~each class of financial performance measures are achieved. The contingent liability was calculated by estimating the discounted present value of expected future payments for estimated performance measure attainment. To estimate future performance measure attainment, we utilized significant unobservable inputs as of January 27, 2018 and April 29, 2017. The unobservable inputs included management expectations and forecasts for business performance and an estimated discount rate based on current borrowing interest rates. To the extent that these assumptions changed or actual results differed from these estimates, the fair value of the contingent consideration liability could change. The contingent liability is presented in other long-term obligations in our consolidated balance sheets.instrument.

~~Non-recurring measurements:~~ The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Certain long-lived assets such as goodwill, intangible assets and property and equipment are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

~~Other measurements using fair value~~: Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, costs and earnings in excess of billings and billings in excess of costs, accounts payable, warranty obligations, customer deposits, deferred revenue, and other long-term obligations, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

Note 14. Derivative Financial Instruments

We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives onin the condensed consolidated balance ~~sheet~~sheets within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of ~~January 27, 2018~~August 1, 2020 and ~~April 29, 2017,~~May 2, 2020, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in ~~other~~the "Other (expense) income, ~~(expense), net.~~net" line item in the condensed consolidated statements of operations.

The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at ~~January 27, 2018~~August 1, 2020 and ~~April 29, 2017~~May 2, 2020 were as follows:

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January 27, 2018 April 29, 2017
U.S. Dollars Foreign
Currency U.S.
Dollars Foreign
Currency
Foreign Currency Exchange Forward Contracts:
U.S. Dollars/Australian Dollars 2,615
3,408
7,984
10,669
U.S. Dollars/Canadian Dollars 1,424
1,864
256
345
U.S. Dollars/British Pounds 6,402
4,778
4,936
3,959
U.S. Dollars/Singapore Dollars 237
312
605
844
U.S. Dollars/Euros (1,277 ) (1,061 ) 528
491
U.S. Dollars/Swiss Franc 998
989
—
—



	August 1, 2020		May 2, 2020
	U.S. Dollars	Foreign Currency	U.S. Dollars	Foreign Currency
Foreign Currency Exchange Forward Contracts:
U.S. Dollars/Australian Dollars	5,406	7,839	2,235	3,323
U.S. Dollars/Canadian Dollars	—	—	452	648
U.S. Dollars/British Pounds	2,149	1,650	3,160	2,424
U.S. Dollars/Euros	—	—	1,881	1,689

As of ~~January 27, 2018,~~August 1, 2020, there was an asset and liability of ~~$64~~$36 and $~~720~~242, ~~respectively,~~respectively; and as of ~~April 29, 2017,~~May 2, 2020, there was an asset and liability of ~~$64~~$261 and $~~277~~17, respectively, representing the fair value of foreign currency exchange forward contracts, which were determined using Level 2 inputs from a third-party bank. As of August 1, 2020, all contracts mature within 17 months.

Note 15. Subsequent Events

On ~~March 1, 2018,~~August 28, 2020, we entered into the third amendment to our ~~Board of Directors declared~~credit agreement and a ~~regular quarterly dividend of $0.07 per share on our common stock payable on March 22, 2018 to holders of record of our common stock on March 12, 2018.~~security agreement over certain assets. The third amendment adds a liquidity covenant and revises other financial covenants.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (including exhibits and any information incorporated by reference herein) contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions and strategies for the future. These statements appear in a number of places in this Report and include all statements that are not historical statements of fact regarding the intent, belief or current expectations with respect to, among other things: (i.) our competition; (ii.) our financing ~~plans;~~plans and ability to maintain adequate liquidity; (iii.) trends affecting our financial condition or results of operations; (iv.) our growth ~~strategy~~ and operating ~~strategy;~~strategies; (v.) the declaration and payment of dividends; (vi.) the timing and magnitude of future contracts; (vii.) raw material shortages and lead times; (viii.) fluctuations in margins; (ix.) the seasonality of our business; (x.) the introduction of new products and technology; (xi.) the amount and frequency of warranty claims; (xii.) our ability to manage the impact that new or adjusted tariffs may have on the cost of raw materials and ~~(xii.~~components and our ability to sell product internationally; (xiii.) the resolution of litigation contingencies; (xiv.) the timing and magnitude of any acquisitions or ~~dispositions.~~dispositions; (xv.) the impact of governmental laws, regulations, and orders, including as a result of the COVID-19 pandemic caused by the coronavirus; and (xvi.) disruptions to our business caused by geopolitical events, military actions, work stoppages, natural disasters, or international health emergencies, such as the COVID-19 pandemic. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” ~~“plans”~~“plan” and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein, including those discussed in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended ~~April 29, 2017~~May 2, 2020 in the section entitled ~~“Item~~“Part I, Item 1A. Risk Factors” and ~~"Item~~“Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,"” and those factors discussed in detail in our other filings with the Securities and Exchange Commission.

The following discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements included in this Report. The preparation of these condensed financial statements requires us to make estimates and judgments affecting the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate our estimates, including those related to total costs on long-term construction-type contracts, costs to be incurred for product warranties and extended maintenance contracts, bad debts, excess and obsolete inventory, income taxes, share-based compensation, goodwill impairment and contingencies. Our estimates are based on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.

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OVERVIEW

We design, manufacture and sell a wide range of display systems to customers throughout the world. 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. Disclosures related to our business segments are provided in "Note 4.5. Segment ~~Disclosure"~~Reporting" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report.

Our net sales and profitability historically have fluctuated due to the impact of ~~large project~~uniquely configured orders, such as display systems for professional sports facilities, colleges and universities, and spectacular projects in the commercial area, as well as the seasonality of the sports market. ~~Large project~~Uniquely configured orders can include several displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules per the customer's needs. ~~Net~~Our third fiscal quarter sales and ~~gross~~ profit ~~percentages also have fluctuated~~levels are lighter than other quarters due to ~~other seasonal factors, including~~ the ~~impact~~seasonality of our sports business, construction cycles, and the reduced number of production days due to holidays ~~which primarily affects our third fiscal~~in the quarter.

Our gross margins ~~on large custom and large standard orders~~ tend to fluctuate more on uniquely configured orders than on ~~small standard~~limited configured orders. ~~Large product~~Uniquely configured orders involving competitive bidding and substantial ~~subcontract~~subcontracting work for product installation generally have lower gross margins. Although we follow the ~~percentage of completion~~over time method of recognizing revenues for ~~large custom~~uniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.

Our ~~backlog consists~~remaining performance obligations ("backlog") consist of contractually binding sales agreements or purchase orders for integrated electronic display systems and related products and service. Orders are included in backlog when we ~~expect to fill within the next 24 months. Orders, which we define as a~~are in receipt of an executed contract and any required deposits ~~are booked and included in backlog.~~or security. As a result, certain orders for which we have received binding letters of intent or contracts will not be ~~booked~~included in backlog until all required contractual documents and deposits are received. ~~In addition,~~Backlog can fluctuate due to large order bookings ~~can vary significantly on a quarterly basis as a result of~~and the timing and seasonality of ~~large orders.~~net sales. Because order backlog fluctuates and may be subject to extended delivery schedules, orders may be canceled and ~~orders~~ have varied estimated

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~~profitability, our~~ profitability. Our backlog is not necessarily indicative of future net sales or net income. ~~Backlog can fluctuate due to large order booking timing and seasonality.~~ Backlog is not a measure defined by GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts.

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 and Summary of Critical Accounting Policies" of the Notes to the Consolidated Financial Statements included elsewhere in this Report.

GENERAL

Our mission is to be the world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We ~~measure our success through estimated market share based~~organize into business units to focus on ~~estimated market demand for digital displays~~customer loyalty over time to earn new and generating profits over the long-term. Our success is contingent on the depth and quality of our products, including related control systems, the depth of our service offerings and our technology serving these market demands. These qualities are important for our long-term successreplacement business because our products have a finite ~~lifetimes,~~lifetime. See "Note 5. Segment Reporting" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report for further information. Our strategies include the creation of a comprehensive line of innovative solutions and ~~we strive~~systems and our ability to ~~win replacement business from existing customers.~~create and leverage platform designs and technologies. These strategies align us to effectively deliver value to our varied customers and their market needs, while serving our stakeholders over the long-term. We focus on creating local capabilities for sales, service, and manufacturing in geographies with expected digital market opportunities. We believe consistently generating profitable growth will provide value to our stakeholders (customers, employees, shareholders, suppliers, and communities).

~~Increases in user adoption, the acceptance of~~We measure our success using a variety of measures including:

our percentage of market share by comparing our estimated revenue to the total estimated global digital ~~solutions,~~display revenue,

our order growth compared to the overall digital market order change,

financial metrics such as annual order volume and profit change as compared to our previous financial results,

customer retention and expansion rates, and

our ability to generate profits over the long-term to provide a shareholder return.

Certain factors impact our ability to succeed in these strategies and impact our business units to varying degrees. For example, the overall cost to manufacture and the selling prices of our products have decreased over the years and are expected to continue to decrease in the future. Our competitors outside the U.S. are impacted differently by the global trade environment allowing them to avoid tariff costs or reduce prices. As a result, additional competitors have entered the market, and each year we must sell more product to generate the same or greater level of net sales as in previous fiscal years. However, the decline of digital solution pricing over the years ~~has~~and increased user adoption and applications have increased the size of the global market. ~~With this positive demand, strong competition exists across all of our business units, which causes margin constraints.~~

Competitor offerings, actions and reactions also can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attracts competition, and competitors can use marketing or other tactics to win business.

Each business unit's long-term performance can be impacted by economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in

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severe economic downturns with social changes causing decreases in sporting event revenues, the sports business can also ~~attract competition, which generally reduces profitability.~~be seriously impacted.

Outlook: The COVID-19 pandemic has created disruptions since its initial outbreak, first impacting our China operations. Beginning in February, we created COVID-19 response teams to manage our local and global response activities. Using the guidance from the U.S. Centers for Disease Control and Prevention, the World Health Organization, and other applicable regulatory agencies, we enhanced or implemented robust health, safety, and cleaning protocols across our organization.

Throughout the first quarter of fiscal 2021, employees are working from home where possible, and we have limited travel for the time being. When unable to work safely or within the various regulations in certain geographies and locations and because demand decreased, our sales, manufacturing and field service teams have reduced capacity and furloughed employees.

Our sales teams have continued to engage our customers to promote our value, mostly virtually, across our diverse markets and geographies. However, our customers reduced their spend on audio-visual systems and related services during the first quarter as they work through the economic and business implications of COVID-19. We took corresponding actions to reduce all operating expenses to align with expected order and sales declines expected through the year. These expense reductions vary in permanency and may change throughout the fiscal year.

Our supply chain team has remained alert to potential short supply situations and shipping disruptions, and, if necessary, we are utilizing alternative sources and shipping methods.

We ~~organize around customer segments~~expect the COVID-19 pandemic to have an adverse impact on our revenue and ~~geographic regions~~our results of operations, the size and duration of which we are currently unable to predict. The global impact of COVID-19 continues to rapidly evolve. The extent to which COVID-19 will impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as ~~further described in "Note 4. Segment Disclosure"~~the ultimate severity and spread of the ~~Notes~~disease, the duration of the pandemic, travel restrictions and social distancing requirements in the United States and other countries, the pace and extent of the economic recovery, and any change in trends and practices in how people gather. Given the speed and frequency of continuously evolving developments with respect to this pandemic, we cannot reasonably estimate the magnitude of the impact to our business.

As we continue through fiscal 2021, our operating results are going to be challenged due this crisis. We continue to manage our cost structure to meet the uncertain demand, while taking additional cost reductions actions as needed. Our customers' businesses are subject to the ~~Consolidated Financial Statements included elsewhere~~fluctuations in ~~this Report. Each~~global economic cycles and conditions and other business ~~segment also has~~risk factors which may impact their ability to operate their businesses. The performance and financial condition of our customers may cause us to alter our business terms or to cease doing business with a particular customer. Further, the potential impact of the COVID-19 pandemic on their businesses could adversely impact our customers' ability to pay us for work performed and increase our future estimate of credit losses.

In addition to the COVID-19 impacts noted above, the outlook and unique key growth drivers and ~~challenges.~~challenges by our business units include:

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Commercial Business Unit: In the near-term, our customers who rely on advertising revenues for Out-of-Home ("OOH") advertising or who are reliant on customer foot-traffic to drive sales have been adversely impacted by stay-at-home or quarantine orders which started in March 2020 with varied or no published expiration. These customers are expected to delay their discretionary capital spending through the COVID-19 economic recovery. Business using our displays for self-promotion or on-premise advertising may have reduced budgets for the foreseeable future or choose to utilize displays as part of their recovery, both actions creating an impact to the Commercial near-term outlook. We cannot reasonably estimate the magnitude or length of time our Commercial business will be adversely impacted.

Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including:

Standard display product market growth due to market adoption and lower product costs, which drive marketplace expansion. Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit. We utilize a reseller network to distribute our standard products.

National accounts standard display market opportunities due to customers' desire to communicate their message, advertising and content consistently across the country. Increased demand is possible from national retailers, quick serve restaurants, petroleum ~~businesses,~~retailers, and other nationwide organizations.

Additional standard display offerings using micro-light emitting diode ("LED") designs.

Increasing use of LED technologies replacing signage previously using liquid crystal display ("LCD") technology by existing and new customers.

Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and Times Square type locations.

Dynamic messaging systems demand growth due to market adoption and ~~marketplace expansion.~~expanded use of this technology.

The use of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building.

The continued deployment of digital billboards as ~~Out-of-Home ("OOH")~~OOH advertising companies continue developing new sites and replacing digital billboards ~~which are~~ reaching end of life. This is dependent on ~~there being~~ no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, ~~of billboards,~~ as well as maintaining our current market share ~~of the~~in a business that is concentrated in a few large OOH companies.

Replacement cycles within each of these areas.

Live Events Business Unit: In the near-term, our customers who rely on advertising and event revenues are expected to delay spending on projects because of the COVID-19 pandemic. Changes to the way people gather may change the long-term usage of our systems.

Over the long-term, we believe growth in the Live Events business unit will result from a number of factors, including:

Facilities spending more on larger display systems to enhance the game-day and event experience for attendees.

Lower product costs, driving an expansion of the marketplace.

Our product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry.

The competitive nature of sports teams, which strive to out-perform their competitors with display systems.

The desire for high-definition video displays, which typically drives larger displays or higher resolution displays, both of which increase the average transaction size.

Dynamic messaging ~~systems~~system needs throughout a sports facility.

Increasing use of LED technologies replacing signage previously using LCD technology in and surrounding live events facilities.

Replacement cycles within each of these areas.

High School Park and Recreation Business Unit: In the near-term, our customers who rely on advertising revenue for sports installations or who may be impacted by governmental tax revenue availability may choose to delay spending on projects because of the COVID-19 pandemic.

Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including:

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Increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays ~~versus~~compared to traditional ~~scoreboards.~~scoreboards and these systems' ability to provide or enhance academic curriculum offerings for students.

Increased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community.

~~The~~Lower system costs driving the use of more sophisticated displays in school athletic facilities, such as large integrated video systems.

Expanding control system options tailored for the markets' needs.

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Transportation Business Unit: In the near term, customers in the mass-transit and airport part of the market are expected to delay spending as a result of the limited use of this infrastructure during the COVID-19 pandemic. In the long-term, roadway projects may be impacted due to reduced tax revenues. That impact will increase as the duration of the reduction in infrastructure usage continues.

Over the long-term, we believe growth in the Transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications. Effective use of the United States transportation infrastructure requires intelligent transportation systems. This growth is highly dependent on government spending, primarily by state and federal governments, along with the continuing acceptance of private/public partnerships as an alternative funding source. Growth is also expected in dynamic messaging systems for advertising and wayfinding use in public transport and airport terminals due to expanded market usage and displays, with LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.

International Business Unit: In the near-term, our customers who rely on advertising, retail, event revenues and governmental tax revenue availability are expected to delay spending on projects due to the COVID-19 pandemic. Changes to the ways people gather may change the long-term usage of our systems.

Over the long-term, we believe growth in the International business unit will result from achieving greater penetration in various geographies and building products more suited to individual markets. We continue to broaden our product offerings into the transportation segment in Europe and the Middle East. We also focus on sports facility, spectacular-type, OOH advertising products, and ~~third-party advertising~~architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada. Additional opportunities exist with expanded market usage of LED technology due to price considerations, usage of LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.

Each of our business units is impacted by adverse economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business also can be seriously impacted. Our Commercial and International business units are highly dependent on economic conditions in general.

RESULTS OF OPERATIONS

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 fiscal year ended May 1, 2021 will consist of 52 weeks and the fiscal year ended May 2, 2020 was a 53-week year; therefore, the three months ended August 1, 2020 contains operating results for 13 weeks while the three months ended August 3, 2019 contains operating results for 14 weeks.

COMPARISON OF THE THREE MONTHS ENDED ~~JANUARY 27, 2018~~AUGUST 1, 2020 AND ~~JANUARY 28, 2017~~AUGUST 3, 2019

Net Sales


	Three Months Ended									Three Months Ended
(in thousands)	January 27, 2018		January 28, 2017		Dollar Change			Percent Change		August 1, 2020		August 3, 2019		Dollar Change			Percent Change
Net sales:
Commercial	$	35,483	$	36,165	$	(682	)	(1.9	)%	$	34,506	$	44,035	$	(9,529	)	(21.6	)%
Live Events	45,167		41,036		4,131			10.1		51,474		59,306		(7,832		)	(13.2	)
High School Park and Recreation	11,463		12,653		(1,190		)	(9.4	)	28,943		30,465		(1,522		)	(5.0	)
Transportation	11,189		9,130		2,059			22.6		14,498		19,018		(4,520		)	(23.8	)
International	27,014		16,735		10,279			61.4		14,223		27,432		(13,209		)	(48.2	)
	$	130,316	$	115,719	$	14,597		12.6	%	$	143,644	$	180,256	$	(36,612	)	(20.3	)%
Orders:
Commercial	$	28,745	$	32,595	$	(3,850	)	(11.8	)%	$	25,533	$	38,648	$	(13,115	)	(33.9	)%
Live Events	39,911		51,590		(11,679		)	(22.6	)	41,860		66,969		(25,109		)	(37.5	)
High School Park and Recreation	13,451		14,178		(727		)	(5.1	)	28,099		30,552		(2,453		)	(8.0	)
Transportation	14,641		19,621		(4,980		)	(25.4	)	13,089		22,215		(9,126		)	(41.1	)
International	29,405		25,329		4,076			16.1		13,572		29,079		(15,507		)	(53.3	)
	$	126,153	$	143,313	$	(17,160	)	(12.0	)%	$	122,153	$	187,463	$	(65,310	)	(34.8	)%

~~Commercial:~~ ~~The decrease~~Sales and orders in ~~net sales for~~all business units were impacted as a result of the economic downturn caused by the COVID-19 pandemic as well as the three months ended ~~January 27, 2018~~August 3, 2019 included 14 weeks compared to the ~~same period one year ago was~~more common 13 weeks. The three months ended August 1, 2020 contained 13 weeks.

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For net sales, during the first three months ended August 1, 2020, we achieved a $11.1 million per week average run rate as compared to $12.9 million per week during the first three months ended August 3, 2019, or an approximate 14% decrease. The change in sales primarily relates to fluctuations in the timing of order bookings, and related conversion to sales.

For orders, during the first three months ended August 1, 2020, we achieved a $9.4 million per week average run rate as compared to $13.4 million per week during the first three months ended August 3, 2019, or an approximate 30% decrease. The change in orders primarily relates to timing of large contract orders which cause lumpiness, and due to lower ~~order volumes~~market activity in light of the on-premise niche and the timing of delivery of large projects in the spectacular niche, which were partially offset by an increase in the billboard niche shipment activity due to changes of timing of customer demand as compared to last year.COVID-19 pandemic.

The decrease in orders for the three months ended January 27, 2018 compared to the same period one year ago was the net result of decreases in the billboard niche and decreases in the on-premise niche due to a number of factors, including competitive market pricing, a delay of national account-based opportunities, and the natural volatility of large project timing.

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~~Live Events:~~ The increase in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to continued demand and the timing of customer needs. This year, net sales were impacted by projects for professional baseball facilities renovation and construction project timeliness.

~~Orders decreased for the three months ended January 27, 2018 compared to the same period one year ago due to variability in order timing.~~

~~High School Park and Recreation:~~ ~~The decrease in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to the timing of customer demand.~~

Orders decreased for the three months ended January 27, 2018 compared to the same period one year ago due to fewer video project orders which have larger average selling prices in this segment during the period.

~~Transportation:~~ The increase in net sales for the three months ended January 27, 2018 compared to the same period one year ago was primarily due to higher delivery needs from state transportation authorities during the quarter this year as compared to last year.

~~Orders for the three months ended January 27, 2018 compared to the same period one year ago decreased primarily due to variability caused by large order timing.~~

~~International:~~ ~~Net sales for the three months ended January 27, 2018 compared to the same period one year ago increased primarily due to increased market demand in OOH.~~

~~Orders increased for the three months ended January 27, 2018 compared to the same period one year ago primarily due to the volatility of large order timing.~~

Product Order Backlog

The product order backlog as of ~~January 27, 2018~~August 1, 2020 was ~~$151~~$192 million as compared to ~~$170~~$207 million as of ~~January 28, 2017~~August 3, 2019 and ~~$155~~$212 million at the end of the ~~second~~fourth quarter of fiscal ~~2018.~~2020. Historically, our product order backlog varies due to the seasonality of our business, the timing of large projects, and customer delivery schedules for these orders. The product order backlog as of ~~January 27, 2018 decreased from January 28, 2017 in our Commercial, Live Events and Transportation business units,~~August 1, 2020 increased in ~~our International business unit, and remained relatively flat in our~~the High School Park and Recreation and Transportation business ~~unit.~~units and decreased in the Commercial, Live Events, and International business units from August 3, 2019.

Gross Profit


	Three Months Ended								Three Months Ended
	January 27, 2018				January 28, 2017				August 1, 2020				August 3, 2019
	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
(in thousands)	Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales
Commercial	$	7,546	21.3	%	$	7,711	21.3	%	$	7,742	22.4	%	$	9,218	20.9	%
Live Events	9,747		21.6		6,629		16.2		9,354		18.2		12,737		21.5
High School Park and Recreation	2,768		24.1		3,198		25.3		10,476		36.2		10,187		33.4
Transportation	3,570		31.9		2,325		25.5		5,143		35.5		6,754		35.5
International	4,936		18.3		3,453		20.6		3,046		21.4		6,609		24.1
	$	28,567	21.9	%	$	23,316	20.1	%	$	35,761	24.9	%	$	45,505	25.2	%

Gross profit is net sales less cost of ~~goods sold.~~sales. Cost of ~~goods sold~~sales consists primarily of inventory, logistics related costs including tariffs and duties, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.

The ~~increase~~decrease in our gross profit percentage for the three months ended ~~January 27, 2018~~August 1, 2020 compared to the same period one year ago was ~~primarily due~~mostly related to ~~higher~~lower sales volumes over relatively fixed infrastructure costs. We continued to see the global spread of the coronavirus pandemic (COVID-19) impact order volumes and took various steps to solidify our financial position and reduce expenses. During the first quarter of fiscal 2021, we completed a special voluntary retirement and voluntary exit offering with 60 employees and we conducted a reduction in force of 108 employees to adjust our capacity and reduce on-going expenses due to the uncertainties created by the COVID-19 pandemic. The ~~following describes~~approximate cost of these programs included in the ~~overall impact~~"Costs of sales" line item in our condensed consolidated statements of operations was $1.2 million, which was offset by ~~business unit:~~$0.6 million of governmental wage subsidies.

~~Commercial:~~ ~~The~~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. We believe this higher gross profit level will not be sustained in future quarters. Total warranty as a percent of sales for the three months ended ~~January 27, 2018~~August 1, 2020 compared to the same period one year ago remained relatively flat.

~~Live Events:~~ The ~~gross profit percent increase~~following describes the overall impact by business unit for the three months ended ~~January 27, 2018~~August 1, 2020 compared to the same period one year ~~ago was~~ago:

The gross profit percent increased in the High School Park and Recreation business unit primarily due to ~~an increased volume of~~product mix, which was partially offset by lower sales volumes over relatively fixed infrastructure ~~costs and lower warranty expenses.~~

~~Table of contents~~

~~High School Park and Recreation:~~ costs. The gross profit percent ~~decrease for~~increased in the ~~three months ended January 27, 2018 as compared~~Commercial business unit primarily due to lower warranty expense and product mix. The gross profit percent decreased in the ~~same period one year ago was~~Live Events business unit primarily due to lower sales volumes over relatively fixed infrastructure costs, ~~and a change in sales mix.~~

~~Transportation:~~ which was partially offset by lower warranty expense. The gross profit percent ~~increase for~~decreased in the ~~three months ended January 27, 2018~~International business unit primarily due to higher warranty expense and lower sales volumes over relatively fixed infrastructure costs, which was partially offset by governmental wage subsidy. The gross profit percent remained relatively flat in the Transportation business unit compared to the same period one year ~~ago was primarily due to higher sales volumes over relatively fixed infrastructure costs.~~ago.

~~International:~~ The gross profit percent decrease for the three months ended January 27, 2018 compared to the same period one year ago was primarily the result of higher warranty expenses and an unfavorable sales mix, which were offset by increased volume of sales over relatively fixed infrastructure costs.

~~Selling Expense~~

Table of contents

Contribution Margin


	Three Months Ended													Three Months Ended
	January 27, 2018								January 28, 2017					August 1, 2020									August 3, 2019
	Amount		As a Percent of Net Sales			Percent Change			Amount			As a Percent of Net Sales		Amount			As a Percent of Net Sales			Percent Change			Amount				As a Percent of Net Sales
(in thousands)	Amount					Percent Change						As a Percent of Net Sales		Amount			As a Percent of Net Sales			Percent Change			Amount				As a Percent of Net Sales
Commercial	$	4,415	As a Percent of Net Sales		12.4	%		(3.5	Amount		)%		$	4,575		12.7	%	$	4,441			12.9	%		8.7	%		$	4,084	9.3	%
Live Events	3,843		8.5			12.5			3,417			8.3		7,138			13.9			(19.5	)		8,872				15.0
High School Park and Recreation	2,726		23.8			5.6			2,581			20.4		7,915			27.3			20.1			6,592				21.6
Transportation	945		8.4			(0.7	)		952			10.4		4,381			30.2			(19.6	)		5,452				28.7
International	3,342		12.4			6.0			3,153			18.8		330			2.3			(85.1	)		2,208				8.0
	$	15,271	11.7	%		4.0	%		$	14,678		12.7	%	$	24,205		16.9	%		(11.0	)%		$	27,208			15.1	%

Contribution margin consists of gross profit less selling expenses. Selling expenses consist primarily of salaries, other employee-related costs, travel and entertainment expenses, ~~facilities-related~~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 ~~demos,~~demonstrations, customer relationship management systems, and supplies.

~~Selling expense~~All areas of selling expenses were impacted as a result of the economic downturn caused by the COVID-19 pandemic as well as the three months ended August 3, 2019 included 14 weeks compared to the more common 13 weeks. The three months ended August 1, 2020 contained 13 weeks. Contribution margin is impacted by the previously discussed sales and gross margin for each business unit. Each business unit's contribution margin was impacted by a decrease in ~~our Commercial business unit for~~selling expenses in the ~~third~~first quarter of fiscal ~~2018 decreased~~2021 compared to the same quarter a year ago due to ~~decreases~~a decrease in personnel ~~expenses. Selling expense~~related expenses offset by severance costs for reductions in ~~our Live Events business unit increased~~force, as well as reductions in the third quarter of fiscal 2018 compared to the same quarter a year ago due to increases in conventions/advertising expenses and higher bad debt expenses. Selling expense in our High School Park and Recreation business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to travel and entertainment ~~expenses~~ and ~~conventions/advertising expenses. Selling expense remained relatively flat~~ in our Transportation business unit in the third quarter of fiscal 2018 compared to the same quarter a year ago. Selling expense in our International business unit increased in the third quarter of fiscal 2018 compared to the same quarter a year ago due to increases in personnel expensesmarketing and ~~third-party commissions~~convention related expenses.

Other Operating Expenses


	Three Months Ended										Three Months Ended
	January 27, 2018						January 28, 2017				August 1, 2020						August 3, 2019
	Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales
(in thousands)	Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales		Amount		As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales
General and administrative	$	8,335	6.4	%	(3.1	)%	$	8,599	7.4	%	$	7,124	5.0	%	(21.7	)%	$	9,093	5.0	%
Product design and development	$	8,299	6.4	%	19.0	%	$	6,973	6.0	%	$	7,532	5.2	%	(28.3	)%	$	10,500	5.8	%

All areas of operating expenses were impacted as a result of the economic downturn caused by the COVID-19 pandemic as well as the three months ended August 3, 2019 included 14 weeks compared to the more common 13 weeks. The three months ended August 1, 2020 contained 13 weeks.

General and administrative expenses consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the ~~costs~~cost of supplies.

General and administrative expensesin the ~~third~~first quarter of fiscal ~~2018~~2021 decreased as compared to the same period one year ago primarily due to ~~decreases~~a decrease in personnel ~~expenses.~~related expenses offset by severance costs for reductions in force.

Product design and development expenses consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product design and development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through ~~all~~our design efforts, we focus on standardizing display components and control systems for both single site and network displays.

~~Table of contents~~

Our costs for product design and development represent an allocated amount of costs based on time charges, professional services, ~~materials~~material costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product design and development, while the rest is allocated to large contract work and is included in cost of ~~goods sold.~~sales.

Product design and development expenses in the ~~third~~first quarter of fiscal ~~2018 increased~~2021 decreased as compared to the same period one year ago primarily due to ~~increased~~decreased labor costs and professional services assigned to product design and development projects ~~relating~~as a result of our response to ~~our strategy to accelerate the deployment~~COVID-19.

Table of products and solutions to our markets. To deliver value to our customers and serve the markets' expectations, we plan to increase the level of expenditures for new or enhanced customer solutions for the remainder of fiscal 2018 as compared to prior years.contents

Other Income and Expenses


	Three Months Ended												Three Months Ended
	January 27, 2018							January 28, 2017					August 1, 2020							August 3, 2019
	Amount			As a Percent of Net Sales		Percent Change		Amount			As a Percent of Net Sales		Amount			As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales
(in thousands)	Amount			As a Percent of Net Sales		Percent Change		Amount			As a Percent of Net Sales		Amount			As a Percent of Net Sales		Percent Change		Amount		As a Percent of Net Sales
Interest income, net	$	118		0.1	%	(7.1	)%	$	127		0.1	%	$	12		—	%	(94.9	)%	$	234	0.1	%
Other (expense) income, net	$	(487	)	(0.4	)%	59.7	%	$	(305	)	(0.3	)%	$	(627	)	(0.4	)%	(424.9	)%	$	193	0.1	%

Interest income, ~~(expense),~~ net: We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term ~~marketing~~ obligations.

~~Interest~~The change in interest income, net infor the ~~third~~first quarter of fiscal ~~2018~~2021 compared to the same period one year ago ~~remained relatively flat. As a result of~~was primarily due to the change in investment levels caused by the volatility of working capital needs and ~~changes in investing and financing activities, along with changes in the~~ interest ~~rate environment, it is difficult to project changes in interest income.~~payments from our existing line of credit.

Other (expense) income, net: The change in other income and expense, net for the ~~third~~first quarter of fiscal ~~2018~~2021 as compared to the same period one year ago was primarily due to foreign currency volatility and the losses recorded from an equity method ~~affiliate.~~affiliates.

Income Taxes

~~The current-year rate was significantly impacted~~We calculate the provision for income taxes during interim reporting periods by applying an estimate of the ~~Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income~~annual effective tax rate for ~~corporations from 35% to 21%. Because we file our tax return based on our~~the full fiscal year ~~the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition~~ to ~~the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense~~“ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the ~~estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries~~reporting period. Due to various factors, including operations in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"). Excluding the impact of this one-time expense,multiple jurisdictions worldwide, our effective tax rate ~~was 46.9% for the three months ended January 27, 2018.~~ is subject to fluctuation.

We ~~expect our effective tax rate to be approximately 30% for the remainder of our fiscal year. In fiscal 2019, we expect~~have recorded an effective tax rate of ~~approximately 21%, exclusive of any SAB 118 changes in estimate.~~

~~COMPARISON OF THE NINE MONTHS ENDED JANUARY 27, 2018 AND JANUARY 28, 2017~~

~~Net Sales~~

~~Table of contents~~

Nine Months Ended
(in thousands) January 27,
2018 January 28,
2017 Dollar Change Percent Change
Net sales:
    Commercial $ 102,723
$ 112,342
$ (9,619 ) (8.6 )%
    Live Events 191,432
157,032
34,400
21.9
    High School Park and Recreation 69,602
68,977
625
0.9
    Transportation 46,577
39,517
7,060
17.9
    International 62,019
64,989
(2,970 ) (4.6 )
$ 472,353
$ 442,857
$ 29,496
6.7 %
Orders:
    Commercial $ 97,816
$ 114,326
$ (16,510 ) (14.4 )%
    Live Events 145,246
135,520
9,726
7.2
    High School Park and Recreation 60,368
61,055
(687 ) (1.1 )
    Transportation 38,155
46,290
(8,135 ) (17.6 )
    International 79,909
78,164
1,745
2.2
$ 421,494
$ 435,355
$ (13,861 ) (3.2 )%

~~Commercial:~~ ~~Net sales~~16.4 percent for the nine months ended January 27, 2018 compared to the same period one year ago decreased as a result of lower order volumes in the on-premise niche and the timing of delivery of large projects in the spectacular niche, partially offset by an increase in the billboard niche.

The decrease in orders for the nine months ended January 27, 2018 compared to the same period one year ago was the net result of decreases in the on-premise and spectacular niches due to a number of factors including competitive market pricing, a delay of national account-based opportunities during the nine months ended January 27, 2018 as compared to the same period last year, and the natural volatility of large project timing.

~~Live Events:~~ The increase in net sales for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to continued demand and the timing of the demand for upgraded or new solutions for arenas, professional sports, and colleges and universities.

~~Orders increased for the nine months ended January 27, 2018 compared to the same period one year ago due to an increased number of projects in professional sport arenas.~~

~~High School Park and Recreation:~~ ~~Net sales for the nine months ended January 27, 2018 compared to the same period one year ago remained relatively flat.~~

~~Orders decreased for the nine months ended January 27, 2018 compared to the same period one year ago due to fewer large sports video projects awarded during the third~~first quarter of fiscal ~~2018 compared to the third quarter of fiscal 2017.~~

~~Transportation:~~ ~~The increase in net sales for the nine months ended January 27, 2018 compared to the same period one year ago was related to the variability caused by large order production timing.~~

~~Orders decreased for the nine months ended January 27, 2018 compared to the same period one year ago primarily due to variability caused by large order timing.~~

~~International:~~ ~~Net sales decreased in our International business unit for the nine months ended January 27, 2018 compared to the same period one year ago mainly due to timing of revenue recognition.~~

~~Orders increased for the nine months ended January 27, 2018 compared to the same period one year ago primarily due to the volatility of large order timing.~~

~~Table of contents~~

~~Gross Profit~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Amount As a Percent of Net Sales
(in thousands)
Commercial $ 21,085
20.5 % $ 27,418
24.4 %
Live Events 43,056
22.5
30,430
19.4
High School Park and Recreation
23,672
34.0
21,900
31.7
Transportation 16,696
35.8
12,966
32.8
International 11,308
18.2
13,977
21.5
$ 115,817
24.5 % $ 106,691
24.1 %

~~Gross profit~~ is net sales less cost of goods sold. Cost of goods sold consists primarily of inventory, consumables, salaries, other employee-related costs, facilities-related costs for manufacturing locations, machinery and equipment maintenance and depreciation, site sub-contractors, warranty costs, and other service delivery expenses.

~~The increase in our gross profitpercentage for the nine months ended January 27, 2018 compared to the same period one year ago was the net result of the changes described below:~~

~~Commercial:~~ The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of higher warranty expenses and lower sales volumes over relatively fixed infrastructure costs.

~~Live Events:~~ The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was the result of an increased volume of sales over relatively fixed infrastructure costs, improved performance on large projects as compared to original estimates.

~~High School Park and Recreation:~~ ~~The gross profit percent increase for the nine months ended January 27, 2018 as compared to the same period one year ago primarily was due to a favorable sales mix and improved productivity.~~

~~Transportation:~~ The gross profit percent increase for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to an increased volume of sales over relatively fixed infrastructure costs.

~~International:~~ The gross profit percent decrease for the nine months ended January 27, 2018 compared to the same period one year ago was primarily the result of lower sales volumes over a relatively fixed cost structure and higher warranty expenses, which were offset by the $1.2 million gain from the sale of our non-digital assets.

~~Selling Expense~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Commercial $ 13,778
13.4 % (1.2 )% $ 13,949
12.4 %
Live Events 10,562
5.5
9.0
9,686
6.2
High School Park and Recreation 8,073
11.6
7.2
7,532
10.9
Transportation 3,084
6.6
(10.9 ) 3,461
8.8
International 10,063
16.2
(10.2 ) 11,200
17.2
$ 45,560
9.6 % (0.6 )% $ 45,828
10.3 %

~~Selling expenses~~ consist primarily of salaries, other employee-related costs, travel and entertainment expenses, facilities-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 demos, and supplies.

~~Table of contents~~

Selling expense in our Commercial business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to third-party commission expenses. Selling expense in our Live Events business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to increased conventions/advertising expenses, bad debt expenses, and travel and entertainment expenses. Selling expense in our High School Park and Recreation business unit increased in the nine months ended January 27, 2018 compared to the same period one year ago due to increases in personnel expenses. Selling expense in our Transportation business unit decreased in the nine months ended January 27, 2018 compared to the same period one year ago primarily due to lower bad debt expense. Selling expense in our International business unit declined in the nine months ended January 27, 2018 compared to the same period one year ago due to lower bad debt expenses, lower third-party commissions expenses and a $0.2 million intangible asset impairment that had been incurred in the first nine months of fiscal 2017 that was not incurred in the first nine months of fiscal 2018.

~~Other Operating Expenses~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
General and administrative $ 26,138
5.5 % 0.5 % $ 26,007
5.9 %
Product design and development $ 26,294
5.6 % 24.4 % $ 21,142
4.8 %

~~General and administrative expenses~~ consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, and the costs of supplies.

~~General and administrative expenses~~in the nine months ended January 27, 2018 increased as compared to the same period one year ago primarily due to increases in personnel expenses and information technology software and hardware expenses.

~~Product design and development expenses~~ consist primarily of salaries, other employee-related costs, professional services, facilities costs and equipment-related costs and supplies. Product development investments in the near term are focused on developing or improving our video technology over a wide range of pixel pitches for both indoor and outdoor applications. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points. We plan to make continued investments in our software and controller capabilities throughout our various product offerings. Through all design efforts, we focus on standardizing display components and control systems for both single site and network displays.

Our costs for product development represent an allocated amount of costs based on time charges, professional services, materials costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product development, while the rest is allocated to large contract work and is included in cost of goods sold.

Product development expenses in the nine months ended January 27, 2018 as compared to the same period one year ago increased primarily due to increased labor costs and professional services assigned to product development projects relating to our strategy to accelerate the deployment of products and solutions to our markets. To deliver value to our customers and serve the markets' expectations, we plan to increase the level of expenditures for new or enhanced customer solutions for the remainder of fiscal 2018 as compared to prior years.

~~Other Income and Expenses~~

Nine Months Ended
January 27, 2018 January 28, 2017
Amount As a Percent of Net Sales Percent Change Amount As a Percent of Net Sales
(in thousands)
Interest income, net $ 347
0.1 % (9.9 )% $ 385
0.1 %
Other (expense) income, net $ (429 ) (0.1 )% 71.6 % $ (250 ) (0.1 )%

~~Interest income (expense), net:~~ We generate interest income through short-term cash investments, marketable securities, and product sales on an installment basis or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term marketing obligations.

~~Table of contents~~

Interest income, net in the nine months ended January 27, 2018 compared to the same period one year ago decreased as a result of lower long-term receivables which bear imputed interest rates. As a result of the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.

~~Other (expense) income, net:~~ The change in other income and expense, net for the nine months ended January 27, 2018 compared to the same period one year ago was primarily due to foreign currency volatility, the losses recorded from an equity method affiliate, and an income tax penalty incurred on a late filing.

~~Income Taxes~~

~~Our effective tax rate was 47.2 percent for the nine months ended January 27, 2018~~2021 as compared to an effective tax rate of ~~31.9~~12.6 percent for the ~~nine months ended January 28, 2017.~~

first quarter of fiscal 2020. The current-year rate was significantly impacted by the Tax Act, which was signed into law on December 22, 2017. Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35% to 21%. Because we file our tax return based on our fiscal year, the statutory tax rate for our 2018 tax return will be a blended rate of approximately 30.4%. In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $3.7 million one-time expense for the estimated re-measurement of our net deferred tax asset and a $0.6 million estimated one-time transition tax on certain undistributed earnings of our foreign subsidiaries in the quarter ended January 27, 2018. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB 118. Excluding the impact of this one-time expense, ourquarterly effective tax rate was ~~23% for~~primarily driven by the ~~nine months ended January 27, 2018, and we expect our effective~~benefit of estimated tax ~~rate~~credits proportionate to ~~be approximately 48% for~~estimated pre-tax earnings similar to the ~~remainder of our fiscal year. In fiscal 2019, we expect an effective tax rate of approximately 21%, exclusive of any SAB 118 changes in estimate.~~previous period.

~~Table of contents~~

LIQUIDITY AND CAPITAL RESOURCES


	Nine Months Ended								Three Months Ended
	January 27, 2018			January 28, 2017			Percent Change		August 1, 2020			August 3, 2019			Percent Change
(in thousands)	January 27, 2018			January 28, 2017			Percent Change		August 1, 2020			August 3, 2019			Percent Change
Net cash (used in) provided by:
Net cash provided by (used in):
Operating activities	$	26,953		$	45,387		(40.6	)%	$	8,545		$	(18,218	)	(146.9	)%
Investing activities	(1,245		)	(11,421		)	(89.1	)	(3,561		)	8,272			(143.0	)
Financing activities	(10,144		)	(13,229		)	(23.3	)	(210		)	(4,658		)	(95.5	)
Effect of exchange rate changes on cash	667			(680		)	(198.1	)	(481		)	(37		)	1,200.0
Net (decrease) increase in cash, cash equivalents and restricted cash	$	16,231		$	20,057		(19.1	)%
Net increase in cash, cash equivalents and restricted cash									$	4,293		$	(14,641	)	(129.3	)%

Cash increased by $4.3 million for the first three months of fiscal 2021 as compared to a decrease of $14.6 million in the first three months of fiscal 2020, which is primarily due to cash generation of operations.

Net cash provided by (used in) operating activities: Operating cash flows consist primarily of net income adjusted for non-cash items, including depreciation and amortization, stock-based compensation, deferred income taxes, and the effect of changes in operating assets and liabilities.

~~Net cash provided by operating activities~~ was $27.0 million for the first nine months of fiscal 2018 compared to net cash provided by operating activities of $45.4 million in the first nine months of fiscal 2017. The $18.4 million decrease in cash from operating activities from the first nine months of fiscal 2017 to the first nine months of fiscal 2018 was the net result of Overall, changes in net operating assets and liabilities of $18.6 million, a $1.4 million decrease in depreciation, amortization and impairment, a $1.2 million gain on the sale of our non-digital division, a $0.9 million decrease in the provision for doubtful accounts, and a $0.1 million decrease in net income, adjusted by an increase of $3.7 million in deferred income taxes and a $0.1 million increase in other non-cash items, net.

~~The changes in operating assets and liabilities consisted of the following:~~

Nine Months Ended
January 27,
2018 January 28,
2017
(Increase) decrease:
Accounts receivable $ 2,797
$ 5,020
Long-term receivables 752
1,991
Inventories (4,462 ) 7,790
Costs and estimated earnings in excess of billings 3,954
(3,004 )
Prepaid expenses and other current assets 221
500
Income tax receivables (2,115 ) 4,556
Investment in affiliates and other assets 272
139
Increase (decrease):
Current marketing obligations and other payables (385 ) (106 )
Accounts payable (9,829 ) (4,744 )
Customer deposits (billed or collected) (4,210 ) (1,529 )
Accrued expenses 4,220
2,859
Warranty obligations (242 ) (1,717 )
Billings in excess of costs and estimated earnings 3,532
1,719
Long-term warranty obligations 1,588
707
Income taxes payable (447 ) 1,525
Deferred revenue (billed or collected) 3,251
1,391
Long-term marketing obligations and other payables 807
1,169
$ (296 ) $ 18,266

~~Overall, changes in~~ operating assets and liabilities can be impacted by the timing of cash flows on large orders, which can cause significant short-term and seasonal fluctuations in inventory, accounts receivables, accounts payable, ~~customer deposits, costs~~contract assets and ~~earnings in excess of billings,~~liabilities, and various other operating assets and liabilities. Variability in ~~costs~~contract assets and ~~earnings in excess of billings and billings in excess of costs~~liabilities relates to the timing of billings on construction-type contracts and revenue recognition, which can vary significantly depending on contractual payment terms and build and installation schedules. Balances are also impacted by the seasonality of the sports ~~markets.~~

market.

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Net cash provided by (used in) operating activities was $8.5 million for the first three months of fiscal 2021 compared to net cash used in operating activities of $18.2 million in the first three months of fiscal 2020. The $26.7 million increase in cash provided by operating activities from the first three months of fiscal 2020 to the first three months of fiscal 2021 was the result of changes in net operating assets and liabilities of $26.1 million, $0.4 million increase in net income, and $0.2 million in other non-cash items.

Year-to-date cash provided from operations differed as compared to last year primarily due to order volatility, which accounted for most of the changes in accounts receivable, inventory, contract assets, accounts payable, and contract liabilities as compared to last year.

The changes in operating assets and liabilities consisted of the following:



	Three Months Ended
	August 1, 2020			August 3, 2019
(Increase) decrease:
Accounts receivable	$	(15,514	)	$	(30,973	)
Long-term receivables	693			(2,298		)
Inventories	5,826			(6,763		)
Contract assets	2,378			(9,180		)
Prepaid expenses and other current assets	2,122			(1,296		)
Income tax receivables	308			52
Investment in affiliates and other assets	211			(53		)
Increase (decrease):
Accounts payable	1,240			12,535
Contract liabilities	(1,095		)	6,341
Accrued expenses	(2,026		)	206
Warranty obligations	881			158
Long-term warranty obligations	550			823
Income taxes payable	398			461
Long-term marketing obligations and other payables	(243		)	(344		)
	$	(4,271	)	$	(30,331	)

Net cash (used in) provided by investing activities:Net cash used in investing activities:~~Net cash used in investing activities~~ totaled ~~$1.2~~$3.6 million in the first ~~nine~~three months of fiscal ~~2018~~2021 compared to ~~$11.4~~net cash provided by investing activities of $8.3 million in the first ~~nine~~three months of fiscal ~~2017. The change~~2020. We had no proceeds from sales or maturities of marketable securities in the ~~amount~~first three months of ~~cash used in investing activities was the result of a net increase in marketable securities of $12.0~~fiscal 2021 as compared to $14.5 million in the first ~~nine~~three months of fiscal ~~2018 as compared~~2020. Net proceeds of marketable securities in fiscal 2020 were utilized to ~~the first nine months of fiscal 2017.~~cover working capital needs for changes in operating assets and liabilities described above. Purchases of property and equipment totaled ~~$10.9~~$3.2 million in the first ~~nine~~three months of fiscal ~~2018~~2021 compared to ~~$6.7~~$5.9 million in the first ~~nine~~three months of fiscal ~~2017. Proceeds from the sale~~2020. Purchases of ~~property, equipment~~ and ~~other assets~~loans to an equity investment totaled ~~$2.1~~$0.5 million in the first ~~nine~~three months of fiscal ~~2018~~2021 as compared to ~~$0.2~~$0.5 million in the first ~~nine~~three months of fiscal ~~2017; this was mostly related to the sale of our non-digital division.~~2020.

Net cash used in financing activities: Net cash used in financing activities was ~~$10.1~~$0.2 million for the ~~nine~~three months ended ~~January 27, 2018~~August 1, 2020 compared to ~~$13.2~~$4.7 million in the same period one year ago. ~~Dividends~~Principal payments on long-term obligations for the first three months of ~~$9.3~~fiscal 2021 were $0.2 million ~~or $0.21 per share, were paid~~compared to ~~Daktronics shareholders~~$1.2 million during the first ~~nine~~three months of fiscal ~~2018, as compared~~2020, which was mostly related to ~~dividends~~contingent liability payments. Dividends of ~~$10.6~~$2.3 million, or ~~$0.24~~$0.05 per share, paid to Daktronics shareholders during the first ~~nine~~three months of fiscal ~~2017. In~~2020, while there were no dividends paid during the first ~~nine~~three months of fiscal ~~2017,~~2021. During the first three months of fiscal 2020, we ~~used $1.8~~repurchased $1.2 million ~~to purchase our common~~of shares as part of the $40.0 million share repurchase plan authorized by our Board of ~~Directors, and there have been~~Directors. There were no ~~purchases~~share repurchases in the ~~nine~~first three months ~~ended January 27, 2018.~~of fiscal 2021. As part of our COVID-19 response, our Board of Directors has suspended dividends and stock repurchases for the foreseeable future.

Other Liquidity and Capital Resources Discussion: ~~We have $6.6 million~~ The timing and amounts of ~~retainage on long-term contracts included in receivables~~working capital changes, dividend payments, stock repurchase program, and ~~costs in excess of billings as of January 27, 2018, which we expect to collect within one year.~~capital spending impact our liquidity.

Working capital was $~~142.9~~118.3 million and ~~$127.1~~$106.0 million at ~~January 27, 2018~~August 1, 2020 and ~~April 29, 2017,~~May 2, 2020, respectively. The changes in working capital, particularly changes in accounts receivable, accounts payable, inventory, and ~~costs in excess of billings~~contract assets and ~~billings in excess of costs,~~liabilities, and the ~~seasonality of the~~ sports market 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. ~~We have historically financed working capital needs through a combination of cash flow from operations and borrowings under bank credit agreements.~~

~~We have used and expect to continue to use cash balances to meet our short-term working capital requirements.~~ On ~~large product~~multimillion-dollar orders, the time between order acceptance and project completion may extend up to ~~and~~or exceed 2412 months or more depending on the amount of custom work and a customer’s delivery needs. We often receive down payments or progress payments on these ~~product~~ orders. ~~To the extent~~

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We had $5.7 million of retainage on long-term contracts included in receivables and contract assets as of August 1, 2020, which has an impact on our liquidity. We expect to collect these ~~payments are not sufficient to fund the costs and other expenses associated with these orders, we use~~amounts within one year. When working capital is needed, we have historically financed our cash needs through a combination of cash flow from operations and borrowings under bank ~~borrowings to finance these cash requirements.~~credit agreements.

On November 15, ~~2016,~~2019, we entered into aan amendment to extend the maturity date of our credit agreement and a related revolving bank note ~~with a U.S. bank. The~~from November 15, 2019 to November 15, 2022 and to modify certain other terms and financial covenants. On August 28, 2020, we entered into the third amendment to our credit agreement and ~~note have~~ a ~~maturity date of November 15, 2019.~~security agreement over certain assets. The third amendment adds a liquidity covenant and revises other financial covenants. The revolving amount of the agreement and note isremains at $35.0 million, including up to $15.0 million for commercial and standby letters of ~~credits.~~credit. The ~~interest rate ranges from LIBOR plus 145 basis points~~credit agreement and amendments require us to ~~LIBOR plus 195 basis points depending on~~be in compliance with certain financial ratios and other covenants and contain customary events of default, including failure to comply with covenants, failure by us to pay or discharge material judgments and taxes, bankruptcy, failure pay loans and fees, and change of control. The occurrence of an event of default would permit the ~~ratio~~lenders to terminate their commitments and accelerate loans repayment, obtain securitized assets, and require collateralization of our interest-bearing debt to EBITDA. EBITDA is defined as net income before deductions for interest expense, income taxes, depreciation and amortization, all as determined in accordance with GAAP. The effective interest rate was 3.0 percent at January 27, 2018. We are assessed a loan fee equal to 0.125 percent per annum on any unused portionoutstanding letters of ~~the loan.~~credit. As of ~~January 27, 2018, there were no advances~~August 1, 2020, $15.0 million had been advanced to us under the loan portion of the line of credit, and the balance of letters of credit outstanding was approximately ~~$10.7~~$6.8 million.

~~The credit agreement is unsecured and requires us to be in compliance with the following financial ratios:~~

A minimum fixed charge coverage ratio of at least 2 to 1 at the end of any fiscal year. The ratio is equal to (a) EBITDA less dividends or other distributions (with the exception of any U.S. bank approved special cash dividend), a capital expenditure reserve of $6 million, and income tax expenses paid in cash, but excluding cash used to repurchase any Daktronics, Inc. stock over (b) all principal and interest payments with respect to debt, excluding principal payments on the line of credit; and

~~A ratio of interest-bearing debt, excluding any marketing obligations, to EBITDA of less than 1 to 1 at the end of any fiscal quarter.~~

On November 15, 2016, we entered into an amended and restated loan agreement and a continuing and unlimited guaranty agreement with another U.S. bank which supports our credit needs outside of the United States. The loan and guaranty have a maturity date of November 15, 2019. The revolving amount of the loan is $20.0 million. We intend to use the borrowings under the agreement to support credit needs for general corporate purposes outside the United States. This credit agreement is unsecured. It contains the same covenants as the credit agreement on the line of credit and contains an inter creditor agreement whereby the debt has a cross default provision with the primary credit agreement. Total credit allowed between the two credit agreements is limited to $40.0 million. The interest rate is equal to LIBOR plus 1.5 percent. As of ~~January 27, 2018, there were no advances outstanding under the loan agreement and approximately $2.7 million in bank guarantees under this line of credit.~~

~~As of January 27, 2018,~~August 1, 2020, we were in compliance with all applicable bank loan covenants.

We are sometimes required to obtain bank guarantees or other financial instruments for display installations and utilize ~~cash~~a global bank to provide such instruments. If we are unable to complete the installation work, our customer would draw on ~~hand~~the banking arrangement, and the bank would subrogate its loss to ~~pay dividends to our investors. The following table summarizes the quarterly dividends declared and/or paid since the prior fiscal year end~~Daktronics. As of ~~April 29, 2017:~~August 1, 2020, we had $8.0 million of such instruments outstanding.

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~~Date Declared~~	~~Record Date~~	~~Payment Date~~	~~Amount per Share~~
~~June 1, 2017~~	~~June 13, 2017~~	~~June 23, 2017~~	~~$0.07~~
~~August 31, 2017~~	~~September 11, 2017~~	~~September 22, 2017~~	~~$0.07~~
~~November 30, 2017~~	~~December 11, 2017~~	~~December 21, 2017~~	~~$0.07~~
~~March 1, 2018~~	~~March 12, 2018~~	~~March 22, 2018~~	~~$0.07~~

~~Although we expect to continue to pay dividends for the foreseeable future, the nature and amounts of dividends will be reviewed regularly and declared by the Board at its discretion.~~

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. At ~~January 27, 2018,~~August 1, 2020, we had $~~8.3~~35.1 million of bonded work outstanding against this line.

Our business growth and profitability improvement strategies depend on investments in capital ~~expenditures.~~expenditures and strategic investments. We are projecting capital expenditures to be ~~less than $20~~approximately $15 million for fiscal ~~2018 for purchases of~~2021. 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. We also evaluate and may invest in new technologies or acquire companies aligned with our business strategy.

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 our growth extends beyond current expectations, ~~profitability does not continue,~~ or if we make ~~any~~significant strategic investments, we may need to utilize and possibly increase our credit facilities or seek other means of financing. We anticipate we will be able to obtain any needed funds under commercially reasonable terms from our current lenders or other sources, although ~~there~~this availability cannot be guaranteed.

We believe the audio-visual industry fundamentals will drive long-term growth for our business, but the near-term outlook shows contraction and greater volatility overall. We expect our customers will continue to have disruptions in revenue caused by COVID-19 throughout the current fiscal year. While 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 have or are taking proactive steps to solidify our financial position and mitigate any adverse consequences. These steps include:

preserving liquidity by drawing down $15 million from our existing line of credit and pursuing other sources of financing;

reducing investments in capital assets; we estimate approximately $15 million in capital expenses in fiscal year 2021;

reducing executive pay and Board member compensation;

utilizing tax and other government opportunities to improve liquidity;

temporarily furloughing and permanently reducing our staffing and reducing salaries, where necessary, to maintain a right-sized skilled workforce;

instituting other cost reductions across the business;

suspending stock repurchases under our share repurchase program; and

suspending dividend declarations for the foreseeable future.

We believe these measures are necessary to help preserve our ability to borrow for liquidity needs and provide adequate working capital to weather the economic downturn caused by the COVID-19 pandemic. However, no assurance can be made that we will be able to secure such financing, if needed, on favorable terms or at all, or that these strategies will be successful. We continue to carefully monitor this crisis, its impact on market demand, and our expense structure and will take additional actions as needed.

Off-Balance Sheet Arrangements and Contractual Obligations

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There has been no ~~guarantee~~material change in our off-balance sheet arrangements and contractual obligations since the end of ~~such.~~ our 2020 fiscal year on May 2, 2020. For additional information, see our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

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 2, 2020. 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 2, 2020. In the first quarter of fiscal 2021, we adopted Accounting Standards Update ("ASU") 2017-04, Intangibles-Goodwill and Other (Topic 350) andASU 2016-13, Measurement of Credit Losses on Financial Instruments, as described in "Note 1. Basis of Presentation" of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report. There have been no other significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2020.

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

~~Foreign Currency Exchange Rates~~

~~Through January 27, 2018, most of~~We are exposed to certain interest rate, foreign currency, and commodity risks as disclosed in our ~~net sales were denominated~~Annual Report on Form 10-K for the fiscal year ended May 2, 2020. There have been no material changes in ~~U.S. dollars, and~~ our exposure to ~~foreign currency exchange rate changes on net sales had not been significant. For~~these risks during the ~~nine~~first three months ~~ended January 27, 2018, net sales originating outside the United States were~~ ~~16.1 percent~~of total net sales, of which a portion was denominated in Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, Brazilian reais or other currencies. We manufacture our products in the United States, China, Belgium, and Ireland. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. If we believed currency risk in any foreign location is significant, we would utilize foreign exchange hedging contracts to manage our exposure to the currency fluctuations. fiscal 2021.

Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. In addition, we may fund our foreign subsidiaries’ operating cash needs in the form of loans denominated in U.S. dollars. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $1.1 million. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area. We will continue to monitor and minimize our exposure to currency fluctuations and, when appropriate, use financial hedging techniques, including foreign currency forward contracts and options, to minimize the effect of these fluctuations. However, exchange rate fluctuations as well as differing economic conditions, changes in political climates, differing tax structures and other rules and regulations could adversely affect our ability to effectively hedge exchange rate fluctuations in the future.

We have foreign currency forward agreements in place to offset changes in the value of contracts with customers denominated in a foreign currency. The notional amount of these derivatives is $10.4 million, and all contracts mature within 19 months. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 14. Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements included elsewhere in this Report for further details.

~~Interest Rate Risks~~

Our exposure to market rate risk for changes in interest rates relates primarily to our marketing obligations and long-term accounts receivable. As of January 27, 2018, our outstanding marketing obligations were ~~$0.5 million, all of which were in fixed rate obligations.~~

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In connection with the sale of certain display systems, we have entered into various types of financing with customers. The aggregate amounts due from customers include an imputed interest element. The majority of these financings carry fixed rates of interest. As of January 27, 2018, our outstanding long-term receivables were ~~$4.1 million. Each 25 basis point increase in interest rates would have an associated immaterial annual opportunity cost.~~

~~The following table provides maturities and weighted average interest rates on our financial instruments sensitive to changes in interest rates.~~

Fiscal Years (dollars in thousands)

2018 2019 2020 2021 2022 Thereafter
Assets:
Long-term receivables, including current maturities:
Fixed-rate $ 572
$ 2,030
$ 689
$ 447
$ 341
$ 68
Average interest rate 8.9 % 8.7 % 8.7 % 8.5 % 9.0 % 9.0 %
Liabilities:

Long- and short-term debt:

Fixed-rate $ 379
$ 575
$ 1,013
$ —
$ —
$ —
Average interest rate 5.5 % 4.5 % 3.3 % — % — % — %
Long-term marketing obligations, including current portion:

Fixed-rate $ 131
$ 200
$ 109
$ 10
$ —
$ —
Average interest rate 8.6 % 7.8 % 9.0 % 9.0 % — % — %

~~Of our $49.0 million in cash balances at January 27, 2018,~~ ~~$40.8 million~~ were denominated in U.S. dollars of which $3.7 million is held by our foreign subsidiaries. We have an additional $8.2 million in cash balances denominated in foreign currencies of which $7.1 million are maintained in accounts of our foreign subsidiaries. A portion of the cash held in foreign accounts is used to collateralize outstanding bank guarantees issued by our foreign subsidiaries.

~~Commodity Risk~~

We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our operations. Our financial results could be affected by the availability and changes in prices of these materials. Some of these materials are sourced from a limited number of suppliers or only a single supplier. These materials are also key source materials for our competitors. Therefore, if demand for these materials rises, we may experience increased costs and/or limited or unavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could impact our ability to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise suddenly and result in significantly higher costs of production. Our sourcing group works to implement strategies to mitigate these risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We have been impacted by longer lead times because of worldwide shortages; however, we believe that we have adequate sources of supply for our key materials.

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 ~~January 27, 2018,~~August 1, 2020, 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 ~~January 27, 2018,~~August 1, 2020, 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 ~~January 27, 2018,~~August 1, 2020, 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.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Not applicable.

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Item 1A. RISK FACTORS

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 ~~April 29, 2017.~~May 2, 2020. 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 ~~nine~~three months ended ~~January 27, 2018,~~August 1, 2020, we did not repurchase any shares of our common stock.

Item 3. DEFAULTS UPON SENIOR SECURITIES

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Not applicable.

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Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

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.

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SIGNATURES

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:	~~March 2, 2018~~August 28, 2020

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Index to Exhibits

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.

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3.1	Amended and Restated Articles of Incorporation of the ~~Company~~Company. (Incorporated by reference to Exhibit 3.1 ~~filed with our Quarterly~~of the Current Report on Form ~~10-Q~~10-Q/A (Amendment No. 1) of Daktronics, Inc. filed on ~~August 30, 2013)~~December 21, 2018).
3.2	Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.4 filed with our Annual Report on Form 10-K on June 12, 2013).
~~10.1~~4.1	Rights Agreement dated as of November 16, 2018 between Daktronics, Inc. and Equiniti Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of Daktronics, Inc. filed on November 16, 2018).
10.1	Credit Agreement dated November 15, 2016 by and between the Company and U.S. Bank National Association (Incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K filed on November 16, 2016).
10.2	Revolving Note dated November 15, 2016 issued by the Company to U.S. Bank National Association (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K filed on November 16, 2016).
10.3	~~Amended and Restated Loan~~Second Amendment to Credit Agreement dated as of November 15, ~~2016~~2019 by and between the Company and U.S. Bank ~~of America, N.A.~~National Association (Incorporated by reference to Exhibit ~~10.3~~10.1 filed with our Current Report on Form 8-K filed on November ~~16, 2016)~~15, 2019).
10.4	~~Continuing and Unconditional Guaranty~~Third Amendment to Credit Agreement dated ~~November 15, 2016~~as of August 28, 2020 by and between the Company and U.S. Bank ~~of America, N.A. (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K filed on November 16, 2016)~~National Association (1).
10.5	~~Amended and Restated Loan~~Security Agreement dated ~~May 5, 2017~~as of August 28, 2020 by and between the Company and U.S. Bank ~~of America, N.A. (Incorporated by reference to Exhibit 10.6 filed with our Annual Report on Form 10-K filed on June 9, 2017)~~National Association (1).
10.6	Daktronics, Inc. 2015 Stock Incentive Plan ("2015 Plan"). (Incorporated by reference to Exhibit A to the Company's Definitive Proxy Statement on Schedule 14A filed on July 14, 2015).
10.7	Form of Restricted Stock Award Agreement under the 2015 Plan (Incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K on September 3, 2015).
10.8	Form of Non-Qualified Stock Option Agreement Terms and Conditions under the 2015 Plan (Incorporated by reference to Exhibit 10.3 filed with our Current Report on Form 8-K on September 3, 2015).
10.9	Form of Incentive Stock Option Terms and Conditions under the 2015 Plan (Incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K on September 3, 2015).
10.10	Form of Restricted Stock Unit Terms and Conditions under the 2015 Plan (Incorporated by reference to Exhibit 10.5 filed with our Current Report on Form 8-K on September 3, 2015).
31.1	Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
31.2	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). (1)
101	The following financial information from our Quarterly Report on Form 10-Q for the period ended ~~January 27, 2018~~August 1, 2020 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements, and (vii) document and entity information. (1)
	(1)	Filed herewith electronically.

3533



	Net (loss) income			Shares	Per share (loss) income
For the three months ended January 27, 2018
Basic (loss) earnings per share	$	(6,189	)	44,518	$	(0.14	)
Dilution associated with stock compensation plans	—			—	—
Diluted (loss) earnings per share	$	(6,189	)	44,518	$	(0.14	)
For the three months ended January 28, 2017
Basic (loss) earnings per share	$	(5,127	)	44,102	$	(0.12	)
Dilution associated with stock compensation plans	—			—	—
Diluted (loss) earnings per share	$	(5,127	)	44,102	$	(0.12	)
For the nine months ended January 27, 2018
Basic earnings per share	$	9,372		44,403	$	0.21
Dilution associated with stock compensation plans	—			395	—
Diluted earnings per share	$	9,372		44,798	$	0.21
For the nine months ended January 28, 2017
Basic earnings per share	$	9,433		44,071	$	0.21
Dilution associated with stock compensation plans	—			135	—
Diluted earnings per share	$	9,433		44,206	$	0.21



	Three Months Ended				Nine Months Ended
	January��27, 2018		January 28, 2017		January 27, 2018		January 28, 2017
Net sales:
United States	$	98,297	$	94,174	$	396,155	$	363,766
Outside United States	32,019		21,545		76,198		79,091
	$	130,316	$	115,719	$	472,353	$	442,857


	January 27, 2018		April 29, 2017
Property and equipment, net of accumulated depreciation:
United States	$	58,333	$	62,425
Outside United States	5,962		4,324
	$	64,295	$	66,749



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Balance as of January 27, 2018
Certificates of deposit	$	8,918	$	—	$	—		$	8,918
U.S. Government sponsored entities	9,104		—		(73		)	9,031
Municipal bonds	6,001		—		(13		)	5,988
	$	24,023	$	—	$	(86	)	$	23,937
Balance as of April 29, 2017
Certificates of deposit	$	12,487	$	—	$	—		$	12,487
U.S. Government securities	400		—		—			400
U.S. Government sponsored entities	12,260		—		(22		)	12,238
Municipal bonds	7,574		14		—			7,588
	$	32,721	$	14	$	(22	)	$	32,713



	Less than 12 months		1-5 Years		Total
Certificates of deposit	$	5,207	$	3,711	$	8,918
U.S. Government sponsored entities	999		8,032		9,031
Municipal bonds	2,598		3,390		5,988
	$	8,804	$	15,133	$	23,937



	Amount
Beginning accrued warranty obligations	$	27,899
Warranties issued during the period	9,652
Settlements made during the period	(13,581		)
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations	5,230
Ending accrued warranty obligations	$	29,200



Fiscal years ending	Amount
2018	$	775
2019	2,624
2020	2,101
2021	1,771
2022	1,437
Thereafter	544
	$	9,252



Contingent liability as of April 29, 2017	$	1,891
Settlements	(1,009		)
Interest	30
Foreign currency translation	122
Contingent liability as of January 27, 2018	$	1,034



	January 27, 2018				April 29, 2017
	U.S. Dollars		Foreign Currency		U.S. Dollars	Foreign Currency
Foreign Currency Exchange Forward Contracts:
U.S. Dollars/Australian Dollars	2,615		3,408		7,984	10,669
U.S. Dollars/Canadian Dollars	1,424		1,864		256	345
U.S. Dollars/British Pounds	6,402		4,778		4,936	3,959
U.S. Dollars/Singapore Dollars	237		312		605	844
U.S. Dollars/Euros	(1,277	)	(1,061	)	528	491
U.S. Dollars/Swiss Franc	998		989		—	—



	Fiscal Years (dollars in thousands)
	2018			2019			2020			2021			2022			Thereafter
Assets:
Long-term receivables, including current maturities:
Fixed-rate	$	572		$	2,030		$	689		$	447		$	341		$	68
Average interest rate	8.9		%	8.7		%	8.7		%	8.5		%	9.0		%	9.0		%
Liabilities:
Long- and short-term debt:
Fixed-rate	$	379		$	575		$	1,013		$	—		$	—		$	—
Average interest rate	5.5		%	4.5		%	3.3		%	—		%	—		%	—		%
Long-term marketing obligations, including current portion:
Fixed-rate	$	131		$	200		$	109		$	10		$	—		$	—
Average interest rate	8.6		%	7.8		%	9.0		%	9.0		%	—		%	—		%