Financial Data and Key Metrics Changes - Operating income for Q3 fiscal 2023 was $7.1 million, representing 3.8% of sales, while adjusted operating income was $11.7 million, or 6.3% of adjusted operating margin [3] - Net sales increased by 32.5% to $185 million in Q3 fiscal 2023 compared to $140 million in Q3 fiscal 2022 [3] - Gross profit as a percentage of net sales rose to 22.6% in Q3 fiscal 2023 from 16% a year earlier [4] - Operating expenses increased by 22.9% to $34.6 million in Q3 fiscal 2023 compared to $28 million in Q3 fiscal 2022 [20] Business Line Data and Key Metrics Changes - Orders for the third quarter of fiscal 2023 decreased by 30.9% compared to Q3 fiscal 2022, attributed to a decline in pent-up demand and timing differences in large project bookings [3][4] - The International Business Unit experienced lower orders due to softening markets influenced by exchange rates and geopolitical conditions [4] Market Data and Key Metrics Changes - The backlog at the end of Q3 fiscal 2023 was historically high at $429 million, supporting production stability [4][10] - The company noted that supply chain disruptions have started to ease, which is expected to normalize inventory levels in the coming quarters [5][21] Company Strategy and Development Direction - The company is focused on reducing backlog to improve lead times and selectively pricing projects to manage costs effectively [10][11] - Investments of $21.8 million in capital expenditures were made to expand manufacturing capacity and automation [9] - The company is exploring additional ways to improve its long-term liquidity profile through a review of structure and financing options [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about greater stability in production and overall business as the pandemic's impact lessens [10] - The company anticipates growth in the High School Park and Recreation business due to increased adoption of video displays [11] - Management acknowledged ongoing geopolitical uncertainties but expects reduced volatility in the coming months [11][12] Other Important Information - A noncash goodwill impairment charge of $4.6 million was recorded due to the carrying value of certain reporting units exceeding their fair values [20] - The working capital ratio was reported at 1.6:1, with a focus on cash management as part of the liquidity enhancement plan [21] Q&A Session Summary - No questions were raised during the Q&A session, and the conference call concluded without further inquiries [6][16]

Daktronics, Inc. (NASDAQ:DAKT) Q2 2023 Results Conference Call December 12, 2022 11:00 AM ET Company Participants Kevin McDermott - Lead Independent Director Reece Kurtenbach - Chairman, President and CEO Sheila Anderson - Chief Financial Officer Conference Call Participants Operator Good day, ladies and gentlemen, and welcome to Daktronics Fiscal Year 2023 Second Quarter Earnings Results Conference Call. As a reminder, this conference is being recorded today, Monday, December 12, and is available on the co ...

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows, with detailed notes for the periods ended October 29, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in millions) | ASSETS | October 29, 2022 | April 30, 2022 | | :--------------------------- | :------------------------------ | :---------------------------- | | Total current assets | $345.6 | $317.6 | | TOTAL ASSETS | $463.9 | $440.9 | | Total current liabilities | $227.1 | $213.7 | | Total long-term liabilities | $64.3 | $35.6 | | TOTAL SHAREHOLDERS' EQUITY | $172.5 | $191.6 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $463.9 | $440.9 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in millions) | Metric | Three Months Ended Oct 29, 2022 | Three Months Ended Oct 30, 2021 | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net sales | $187.4 | $164.5 | $359.4 | $309.2 | | Gross profit | $31.7 | $32.3 | $57.5 | $64.5 | | Operating income (loss) | $1.5 | $4.4 | $(4.0) | $10.0 | | Income (loss) before income taxes | $1.1 | $3.4 | $(5.3) | $8.3 | | Income tax expense | $14.0 | $1.0 | $13.0 | $2.2 | | Net (loss) income | $(13.0) | $2.4 | $(18.3) | $6.1 | | Basic EPS | $(0.29) | $0.05 | $(0.40) | $0.13 | | Diluted EPS | $(0.29) | $0.05 | $(0.40) | $0.13 | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Condensed Consolidated Statements of Comprehensive (Loss) Income (in millions) | Metric | Three Months Ended Oct 29, 2022 | Three Months Ended Oct 30, 2021 | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net (loss) income | $(13.0) | $2.4 | $(18.3) | $6.1 | | Total other comprehensive (loss), net of tax | $(1.5) | $(0.1) | $(2.2) | $(0.4) | | Comprehensive (loss) income | $(14.5) | $2.3 | $(20.5) | $5.6 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Condensed Consolidated Statements of Shareholders' Equity (in millions) | Shareholder's Equity | Balance as of April 30, 2022 | Balance as of October 29, 2022 | | :---------------------------------- | :--------------------------- | :----------------------------- | | Common Stock | $61.8 | $62.4 | | Additional Paid-In Capital | $48.4 | $49.2 | | Retained Earnings | $96.6 | $78.3 | | Treasury Stock | $(10.3) | $(10.3) | | Other Comprehensive Loss | $(4.9) | $(7.1) | | Total | $191.6 | $172.5 | - Total shareholders' equity decreased from **$191.6 million** as of April 30, 2022, to **$172.5 million** as of October 29, 2022, primarily due to net losses and cumulative translation adjustments[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Net cash (used in) operating activities | $(21.9) | $(8.5) | | Net cash (used in) investing activities | $(15.2) | $(9.9) | | Net cash provided by (used in) financing activities | $26.3 | $(0.4) | | Net decrease in cash, cash equivalents and restricted cash | $(10.9) | $(18.8) | | Cash, cash equivalents and restricted cash, End of period | $7.1 | $61.6 | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Basis of Presentation](index=11&type=section&id=Note%201.%20Basis%20of%20Presentation) - The company is an industry leader in designing and manufacturing electronic scoreboards, programmable display systems, and large screen video displays[30](index=30&type=chunk) - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern due to volatility in cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs driven by global economic conditions and supply chain disruptions[37](index=37&type=chunk)[40](index=40&type=chunk) - The company is pursuing additional liquidity through various means, including financing secured by a mortgage, sales-leaseback, leasing property and equipment, and reducing working capital, but these plans are not finalized and cannot be deemed probable to alleviate going concern doubt[40](index=40&type=chunk) [Note 2. Investments in Affiliates](index=12&type=section&id=Note%202.%20Investments%20in%20Affiliates) Investments in Affiliates (in millions) | Metric | October 29, 2022 | April 30, 2022 | | :-------------------- | :--------------- | :------------- | | Aggregate investments accounted for under equity method | $18.0 | $16.9 | - The company's share of losses from affiliates was **$0.8 million** for the three months ended October 29, 2022, and **$1.7 million** for the six months ended October 29, 2022[45](index=45&type=chunk) - During the six months ended October 29, 2022, the company invested **$2.9 million** in convertible notes and converted **$2.8 million** from notes to stock ownership[45](index=45&type=chunk) [Note 3. Earnings Per Share ("EPS")](index=13&type=section&id=Note%203.%20Earnings%20Per%20Share%20(%22EPS%22)) Earnings Per Share ("EPS") (per share) | EPS | Three Months Ended Oct 29, 2022 | Three Months Ended Oct 30, 2021 | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :-------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Basic | $(0.29) | $0.05 | $(0.40) | $0.13 | | Diluted | $(0.29) | $0.05 | $(0.40) | $0.13 | - Options to purchase **2,063 shares** (three months) and **2,082 shares** (six months) were anti-dilutive and excluded from diluted EPS calculation for the period ended October 29, 2022[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 4. Revenue Recognition](index=14&type=section&id=Note%204.%20Revenue%20Recognition) Revenue by Segment (in millions) | Revenue by Segment | Three Months Ended Oct 29, 2022 | Six Months Ended Oct 29, 2022 | | :-------------------------------- | :------------------------------ | :---------------------------- | | Commercial | $37.0 | $77.2 | | Live Events | $69.2 | $125.6 | | High School Park and Recreation | $42.0 | $77.8 | | Transportation | $16.7 | $36.2 | | International | $22.5 | $42.5 | | Total | $187.4 | $359.4 | Contract Balances (in millions) | Contract Balances | October 29, 2022 | April 30, 2022 | Dollar Change | Percent Change | | :------------------------------- | :--------------- | :------------- | :------------ | :------------- | | Contract assets | $39.3 | $41.7 | $(2.4) | (5.7)% | | Contract liabilities - current | $90.4 | $90.4 | $0.0 | — | | Contract liabilities - noncurrent | $12.3 | $11.0 | $1.3 | 11.9% | - As of October 29, 2022, the aggregate amount of transaction price allocated to remaining performance obligations was **$524.3 million**, with **$463.1 million** for product and **$61.2 million** for service agreements. Approximately **$467.5 million** is expected to be recognized over the next 12 months[59](index=59&type=chunk) [Note 5. Segment Reporting](index=17&type=section&id=Note%205.%20Segment%20Reporting) Net Sales by Segment (in millions) | Net Sales by Segment | Three Months Ended Oct 29, 2022 | Three Months Ended Oct 30, 2021 | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Commercial | $37.0 | $34.5 | $77.2 | $67.2 | | Live Events | $69.2 | $59.4 | $125.6 | $111.8 | | High School Park and Recreation | $42.0 | $32.7 | $77.8 | $60.6 | | Transportation | $16.7 | $14.1 | $36.2 | $26.6 | | International | $22.5 | $23.8 | $42.5 | $42.9 | | Total | $187.4 | $164.5 | $359.4 | $309.2 | Gross Profit by Segment (in millions) | Gross Profit by Segment | Three Months Ended Oct 29, 2022 | Three Months Ended Oct 30, 2021 | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Commercial | $6.2 | $7.4 | $11.0 | $14.6 | | Live Events | $8.0 | $5.6 | $11.8 | $14.2 | | High School Park and Recreation | $11.8 | $10.7 | $21.8 | $20.3 | | Transportation | $4.1 | $4.4 | $9.9 | $8.2 | | International | $1.6 | $4.1 | $3.0 | $7.2 | | Total | $31.7 | $32.3 | $57.5 | $64.5 | - The United States accounts for the material amount of net sales and property and equipment, net of accumulated depreciation[63](index=63&type=chunk) [Note 6. Goodwill](index=18&type=section&id=Note%206.%20Goodwill) Goodwill by Segment (in thousands) | Goodwill by Segment | Balance as of April 30, 2022 | Foreign currency translation | Balance as of October 29, 2022 | | :--------------------------------- | :--------------------------- | :--------------------------- | :----------------------------- | | Live Events | $2.3 | $(20.0) | $2.3 | | Commercial | $3.3 | $(146.0) | $3.2 | | Transportation | $0.1 | $(20.0) | $0.0 | | International | $2.2 | $(104.0) | $2.1 | | Total | $7.9 | $(290.0) | $7.6 | - Despite a decrease in market capitalization and supply chain/labor uncertainty, no goodwill impairment was deemed necessary after evaluation[65](index=65&type=chunk) [Note 7. Financing Agreements](index=18&type=section&id=Note%207.%20Financing%20Agreements) - As of October 29, 2022, **$26.4 million** had been advanced under the line of credit, with **$6.9 million** in outstanding letters of credit, leaving **$11.7 million** available for borrowing[66](index=66&type=chunk) - On October 31, 2022, the line of credit was temporarily expanded by **$10.0 million** through January 31, 2023[66](index=66&type=chunk) - A sixth amendment to the credit agreement was entered into on December 9, 2022, clarifying deferred tax asset valuation allowance definitions, adding financial reporting requirements, negative covenants, and requiring lender approval for additional indebtedness[68](index=68&type=chunk) [Note 8. Commitments and Contingencies](index=19&type=section&id=Note%208.%20Commitments%20and%20Contingencies) - The company is a party to legal proceedings and claims in the ordinary course of business, but no material loss is currently believed to be reasonably probable[70](index=70&type=chunk) Warranty Obligations (in millions) | Warranty Obligations | October 29, 2022 | | :---------------------------------- | :--------------- | | Beginning accrued warranty obligations | $28.9 | | Warranties issued during the period | $6.0 | | Settlements made during the period | $(3.9) | | Changes in accrued warranty obligations for pre-existing warranties | $(1.2) | | Ending accrued warranty obligations | $29.8 | - As of October 29, 2022, outstanding letters of credit, bank guarantees, and surety bonds totaled **$6.9 million**, **$0.6 million**, and **$72.8 million**, respectively, related to performance guarantees on contracts[71](index=71&type=chunk) [Note 9. Income Taxes](index=19&type=section&id=Note%209.%20Income%20Taxes) Effective Tax Rate | Effective Tax Rate | Three Months Ended Oct 29, 2022 | Three Months Ended Oct 30, 2021 | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | | :----------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Effective Tax Rate | 1330.7% | 29.6% | (247.3)% | 27.0% | - The significant increase in the effective tax rate for the three and six months ended October 29, 2022, is primarily due to the requirement to record a full valuation allowance on deferred tax assets during the second quarter of fiscal 2023, related to GAAP accounting for income taxes and the company's going concern status[76](index=76&type=chunk) - As of October 29, 2022, undistributed earnings of foreign subsidiaries were considered indefinitely reinvested, and there were **$0.6 million** of unrecognized tax benefits[78](index=78&type=chunk) [Note 10. Fair Value Measurement](index=20&type=section&id=Note%2010.%20Fair%20Value%20Measurement) Financial Assets (in millions) | Financial Assets | October 29, 2022 | April 30, 2022 | | :------------------------------ | :--------------- | :------------- | | Cash and cash equivalents | $6.4 | $17.1 | | Restricted cash | $0.7 | $0.9 | | Marketable securities | $0.5 | $4.0 | | Derivatives - asset position | $1.2 | $0.9 | | Derivatives - liability position | — | $(0.3) | | Total | $8.8 | $22.7 | - There have been no changes in the valuation techniques used for financial instruments since the end of fiscal 2022[80](index=80&type=chunk) [Note 11. Subsequent Events](index=21&type=section&id=Note%2011.%20Subsequent%20Events) - On December 9, 2022, the company entered into the sixth amendment to its credit agreement, as detailed in Note 7[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and liquidity, highlighting the impacts of global economic conditions and supply chain disruptions [FORWARD-LOOKING STATEMENTS](index=22&type=section&id=FORWARD-LOOKING%20STATEMENTS) - The report contains forward-looking statements reflecting current views on future events and financial performance, subject to uncertainties and factors that could cause actual results to differ materially[85](index=85&type=chunk)[86](index=86&type=chunk) [OVERVIEW](index=22&type=section&id=OVERVIEW) - Daktronics designs, markets, and manufactures integrated electronic display systems and related products globally, operating through five business segments: Commercial, Live Events, High School Park and Recreation, Transportation (all domestic), and International[89](index=89&type=chunk) [CURRENT CONDITIONS](index=22&type=section&id=CURRENT%20CONDITIONS) - Supply chain disruptions, including semiconductor shortages, labor issues, and COVID-19 related shutdowns, continue to impact capacity, increase input costs, and extend lead times, though some easing has begun[91](index=91&type=chunk)[93](index=93&type=chunk) - The company has responded by increasing prices, redesigning products for component flexibility, and carrying higher inventory levels to stabilize production and fulfill backlog[93](index=93&type=chunk)[94](index=94&type=chunk) - Macroeconomic events like high inflation, tightening financial conditions, and geopolitical conflicts are expected to negatively impact fiscal 2023, leading to a focus on cash flow, liquidity, productivity, and margin improvement[95](index=95&type=chunk)[96](index=96&type=chunk) [RESULTS OF OPERATIONS](index=23&type=section&id=RESULTS%20OF%20OPERATIONS) [Comparison of the Three Months Ended October 29, 2022 and October 30, 2021](index=23&type=section&id=COMPARISON%20OF%20THE%20THREE%20MONTHS%20ENDED%20OCTOBER%2029,%202022%20AND%20OCTOBER%2030,%202021) [Product Order Backlog](index=23&type=section&id=Product%20Order%20Backlog) Product Order Backlog (in millions) | Metric | October 29, 2022 | October 30, 2021 | April 30, 2022 | | :------------------- | :--------------- | :--------------- | :------------- | | Product order backlog | $463.1 | $281.6 | $471.6 | - The backlog increased by **$181.5 million** year-over-year due to record order volume and slower conversion to sales from supply challenges[101](index=101&type=chunk) - Backlog is expected to be fulfilled within the next 24 months, though timing may be affected by supply chain disruptions[102](index=102&type=chunk) [Net Sales](index=24&type=section&id=Net%20Sales) Net Sales (in millions) | Net Sales | Oct 29, 2022 | Oct 30, 2021 | Dollar Change | Percent Change | | :----------------------- | :----------- | :----------- | :------------ | :------------- | | Commercial | $37.0 | $34.5 | $2.6 | 7.5% | | Live Events | $69.2 | $59.4 | $9.8 | 16.6% | | High School Park and Recreation | $42.0 | $32.7 | $9.3 | 28.3% | | Transportation | $16.7 | $14.1 | $2.6 | 18.7% | | International | $22.5 | $23.8 | $(1.4) | (5.7)% | | Total | $187.4 | $164.5 | $23.0 | 14.0% | - Net sales increased by **$23.0 million (14.0%)** to **$187.4 million**, driven by fulfilling backlog despite supply chain disruptions and labor shortages[105](index=105&type=chunk) - Order volume increased, primarily in Live Events, but declined in Commercial (normalizing after record fiscal 2022) and International (due to economic outlook, geopolitical events, and currency headwinds)[106](index=106&type=chunk) [Gross Profit and Contribution Margin](index=25&type=section&id=Gross%20Profit%20and%20Contribution%20Margin) Gross Profit (in millions) | Gross Profit | Oct 29, 2022 | % of Net Sales | Oct 30, 2021 | % of Net Sales | | :-------------------------- | :----------- | :------------- | :----------- | :------------- | | Commercial | $6.2 | 16.7% | $7.4 | 21.6% | | Live Events | $8.0 | 11.5% | $5.6 | 9.4% | | High School Park and Recreation | $11.8 | 28.1% | $10.7 | 32.8% | | Transportation | $4.1 | 24.5% | $4.4 | 31.3% | | International | $1.6 | 7.3% | $4.1 | 17.1% | | Total | $31.7 | 16.9% | $32.3 | 19.6% | - Gross profit percentage declined to **16.9%** from **19.6%** due to inflationary material, freight, and personnel costs, and factory inefficiencies from supply chain disruptions[110](index=110&type=chunk) - Total warranty costs as a percent of sales increased to **2.7%** from **1.4%**, including a **$1.0 million** expense for a component and manufacturing quality issue[111](index=111&type=chunk) [Other Income and Expenses](index=26&type=section&id=Other%20Income%20and%20Expenses) Other Income/Expense (in thousands) | Other Income/Expense | Oct 29, 2022 | Oct 30, 2021 | Dollar Change | Percent Change | | :---------------------------------- | :----------- | :----------- | :------------ | :------------- | | Interest (expense) income, net | $(263.0) | $(59.0) | $(204.0) | 345.8% | | Other expense, net | $(208.0) | $(952.0) | $744.0 | (78.1)% | - Net interest expense increased significantly due to utilizing the line of credit for strategic inventory investments[118](index=118&type=chunk) - Other expense, net, decreased primarily due to lower losses from equity method affiliates and reduced foreign currency volatility[119](index=119&type=chunk) [Income Taxes](index=26&type=section&id=Income%20Taxes) - The effective tax rate for the second quarter of fiscal 2023 was **1330.7%**, a substantial increase from **29.6%** in the prior year, primarily due to recording a full valuation allowance on net deferred tax assets[120](index=120&type=chunk) [Comparison of the Six Months Ended October 29, 2022 and October 30, 2021](index=27&type=section&id=COMPARISON%20OF%20THE%20SIX%20MONTHS%20ENDED%20OCTOBER%2029,%202022%20AND%20OCTOBER%2030,%202021) [Net Sales](index=27&type=section&id=Net%20Sales) Net Sales (in millions) | Net Sales | Oct 29, 2022 | Oct 30, 2021 | Dollar Change | Percent Change | | :----------------------- | :----------- | :----------- | :------------ | :------------- | | Commercial | $77.2 | $67.2 | $9.9 | 14.8% | | Live Events | $125.6 | $111.8 | $13.8 | 12.4% | | High School Park and Recreation | $77.8 | $60.6 | $17.2 | 28.3% | | Transportation | $36.2 | $26.6 | $9.6 | 36.1% | | International | $42.5 | $42.9 | $(0.4) | (0.9)% | | Total | $359.4 | $309.2 | $50.2 | 16.2% | - Net sales for the first six months of fiscal 2023 increased by **$50.2 million (16.2%)** to **$359.4 million**, driven by fulfilling backlog and strong order bookings, despite ongoing supply chain and labor challenges[123](index=123&type=chunk) - Order volume increased overall, with strong bookings in Live Events, while International markets experienced softening demand due to inflation and geopolitical events[124](index=124&type=chunk) [Gross Profit and Contribution Margin](index=28&type=section&id=Gross%20Profit%20and%20Contribution%20Margin) Gross Profit (in millions) | Gross Profit | Oct 29, 2022 | % of Net Sales | Oct 30, 2021 | % of Net Sales | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Commercial | $11.0 | 14.3% | $14.6 | 21.7% | | Live Events | $11.8 | 9.4% | $14.2 | 12.7% | | High School Park and Recreation | $21.8 | 28.0% | $20.3 | 33.4% | | Transportation | $9.9 | 27.4% | $8.2 | 30.6% | | International | $3.0 | 7.1% | $7.2 | 16.9% | | Total | $57.5 | 16.0% | $64.5 | 20.8% | - Gross profit percentage declined to **16.0%** from **20.8%** due to inflationary costs, supply chain disruptions (including the Shanghai factory closure), and a **$0.5 million** provision for estimated losses on contracts[126](index=126&type=chunk) - Total warranty costs as a percent of sales increased to **2.2%** from **1.3%**, including a **$1.0 million** expense for a component and manufacturing quality issue[127](index=127&type=chunk) [Other Income and Expenses](index=29&type=section&id=Other%20Income%20and%20Expenses) Other Income/Expense (in thousands) | Other Income/Expense | Oct 29, 2022 | Oct 30, 2021 | Dollar Change | Percent Change | | :---------------------------------- | :----------- | :----------- | :------------ | :------------- | | Interest (expense) income, net | $(323.0) | $78.0 | $(401.0) | (514.1)% | | Other expense, net | $(955.0) | $(1,820.0) | $865.0 | (47.5)% | - Net interest expense increased significantly due to increased borrowings on the line of credit for inventory investments[133](index=133&type=chunk) - Other expense, net, decreased due to lower losses from equity method affiliates and reduced foreign currency volatility[134](index=134&type=chunk) [Income Taxes](index=29&type=section&id=Income%20Taxes) - The effective tax rate for the six months ended October 29, 2022, was **(247.3)%**, a significant change from **27.0%** in the prior year, primarily due to recording a full valuation allowance on net deferred tax assets[135](index=135&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=30&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Cash Flow (in millions) | Cash Flow | Six Months Ended Oct 29, 2022 | Six Months Ended Oct 30, 2021 | Dollar Change | | :----------------------- | :---------------------------- | :---------------------------- | :------------ | | Operating activities | $(21.9) | $(8.5) | $(13.4) | | Investing activities | $(15.2) | $(9.9) | $(5.3) | | Financing activities | $26.3 | $(0.4) | $26.7 | | Net decrease in cash | $(10.9) | $(18.8) | $7.9 | - Net cash used in operating activities increased to **$21.9 million** from **$8.5 million**, primarily due to investments in inventory to support backlog conversion and a net loss in fiscal 2023[137](index=137&type=chunk)[138](index=138&type=chunk) - Net cash provided by financing activities was **$26.3 million**, driven by draws on the line of credit to fund operations and capital expenditures, including **$16.2 million** for property and equipment[141](index=141&type=chunk)[142](index=142&type=chunk) - Working capital increased to **$118.6 million** as of October 29, 2022, from **$103.9 million** as of April 30, 2022, influenced by seasonality and inventory management[146](index=146&type=chunk) - The company has a **$35.0 million** line of credit expiring in April 2025, with **$26.4 million** advanced and **$6.9 million** used for letters of credit as of October 29, 2022, and an additional **$10.0 million** temporary expansion through January 31, 2023[147](index=147&type=chunk) - The company projects total capital expenditures of approximately **$30 million** for fiscal 2023, focusing on manufacturing equipment, capacity expansion, automation, and information infrastructure[153](index=153&type=chunk) [Significant Accounting Policies and Estimates](index=32&type=section&id=Significant%20Accounting%20Policies%20and%20Estimates) - There have been no material changes in significant accounting policies or critical accounting estimates since the end of fiscal 2022[156](index=156&type=chunk) [New Accounting Pronouncements](index=32&type=section&id=New%20Accounting%20Pronouncements) - There are no significant ASUs issued that the Company has not yet adopted as of October 29, 2022[44](index=44&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the company's exposure to market risks, including interest rate, foreign currency, and commodity risks, noting no material changes since the last annual report - The company is exposed to interest rate, foreign currency, and commodity risks, but there have been no material changes in these exposures during the first six months of fiscal 2023[159](index=159&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures, identifying material weaknesses in internal control over financial reporting related to the going concern assessment and its income tax implications [Evaluation of Disclosure Controls and Procedures](index=33&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management concluded that disclosure controls and procedures were not effective as of October 29, 2022, due to material weaknesses in internal control over financial reporting[160](index=160&type=chunk) - Despite material weaknesses, the unaudited condensed consolidated financial statements fairly present the financial position, results of operations, and cash flows[161](index=161&type=chunk) [Background](index=33&type=section&id=Background) - A material adjustment of **$14.8 million** was recorded because the income tax implications of the going concern assessment were not considered[162](index=162&type=chunk) [Material Weaknesses](index=33&type=section&id=Material%20Weaknesses) - A material weakness was identified in the information and communication component, specifically the failure to timely communicate the going concern assessment results to all appropriate internal parties, leading to not considering its impact on deferred tax asset valuation[163](index=163&type=chunk) - An additional material weakness was identified in control activities, as management did not appropriately design its going concern policy control to evaluate income tax implications when reaching a substantial doubt conclusion[164](index=164&type=chunk) [Remediation Plan](index=34&type=section&id=Remediation%20Plan) - The remediation plan includes implementing policies for communicating going concern analysis to relevant internal parties (e.g., tax department) and establishing control activities to consider going concern impacts on deferred tax valuation and financial reporting[167](index=167&type=chunk) [Changes in Internal Control Over Financial Reporting](index=34&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - Except for the identified material weaknesses, there were no other changes in internal control over financial reporting during the quarter ended October 29, 2022[169](index=169&type=chunk) [Part II. Other Information](index=34&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no applicable legal proceedings to report - Not applicable[170](index=170&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section highlights significant risks, primarily focusing on ongoing volatility from global economic conditions and supply chain disruptions, impacting liquidity and raising going concern doubt - Global economic conditions and supply chain disruptions continue to cause volatility in cash flow, pricing, order volumes, lead times, competitiveness, revenue cycles, and production costs, likely having negative impacts in fiscal 2023[172](index=172&type=chunk)[173](index=173&type=chunk) - The company's ability to fund operations and capital expenditures depends on generating cash flow, maintaining margins, and using its credit facility, which has covenants that, if breached, could lead to default and foreclosure on assets[173](index=173&type=chunk) - Substantial doubt about the company's ability to continue as a going concern exists due to liquidity needs and uncertainty regarding additional financing, which could materially adversely affect business and investor confidence[176](index=176&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports that the company did not repurchase any shares of its common stock during the three months ended October 29, 2022, or October 30, 2021 - No shares of common stock were repurchased during the three months ended October 29, 2022, and October 30, 2021[177](index=177&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there are no applicable defaults upon senior securities to report - Not applicable[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no applicable mine safety disclosures - Not applicable[179](index=179&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - Not applicable[180](index=180&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section provides an index to the exhibits filed as part of this report, including corporate documents, credit agreements, stock incentive plans, and certifications [Index to Exhibits](index=36&type=section&id=Index%20to%20Exhibits) - The index lists various exhibits, including Amended and Restated Articles of Incorporation and Bylaws, Rights Agreements, Credit Agreements and amendments, Stock Incentive Plans, and Certifications of the CEO and CFO[184](index=184&type=chunk) [Signatures](index=38&type=section&id=Signatures) This section contains the required signatures for the report, confirming its submission on behalf of Daktronics, Inc. by its Chief Financial Officer - The report is signed by Sheila M. Anderson, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of Daktronics, Inc., on December 13, 2022[188](index=188&type=chunk)

Financial Performance - Net sales for the first quarter of fiscal 2023 were $171.9 million, an increase of $27.2 million or 18.8% compared to the same period last year [84]. - The gross profit margin decreased to 15.0% in the first quarter of fiscal 2023 from 22.2% in the same period last year, primarily due to inflationary pressures and supply chain disruptions [86]. - The contribution margin for the first quarter of fiscal 2023 was $11.4 million, representing a decline of 44.3% compared to $20.4 million in the prior year [89]. - Contribution margin decreased to $11.4 million, representing 6.6% of net sales, down from 14.1% in the prior year, with a dollar change of $(9.0) million [91]. - Operating loss for the first quarter of fiscal 2023 was $(5.5) million, a significant decline from a profit of $5.7 million in the same period last year, reflecting a 197.5% change [91]. - Net cash used in operating activities was $(22.8) million, compared to $(1.0) million in the prior year, a difference of $(21.8) million attributed to changes in net operating assets and liabilities [98]. - Net cash used in investing activities totaled $(10.4) million, significantly higher than $(1.9) million in the same period last year, with property and equipment purchases amounting to $10.7 million [100]. - Effective tax rate decreased to 15.8% from 25.2% year-over-year, driven by increased estimated tax credits [96]. Order and Backlog - As of July 30, 2022, the product order backlog was $469.1 million, up from $285.3 million on July 31, 2021, and $471.6 million at the end of fiscal 2022 [82]. - Order volume decreased by 6.3% in the first quarter of fiscal 2023 compared to the previous year, with strong bookings in specific sectors like shopping centers and sports venues [85]. Costs and Expenses - Increased input costs have led the company to implement price increases in the latter half of fiscal 2022 and early fiscal 2023 [78]. - Warranty costs as a percentage of sales increased to 1.6% from 1.2% year-over-year [88]. - General and administrative expenses increased by 24.7% to $9.4 million, primarily due to personnel expenses and $1.0 million in professional fees related to shareholder engagement [91]. Capital Expenditures and Investments - Projected total capital expenditures for fiscal 2023 are approximately $30 million, aimed at enhancing manufacturing capacity and automation [112]. - Company plans to invest an additional $2.0 million in current affiliates over the next year [113]. - The company is planning additional cash use for capital spending to grow manufacturing capacity amid ongoing supply chain challenges [78]. Market Conditions - The international market has experienced softening demand due to inflationary pressures and geopolitical events [85]. - The company expects supply chain conditions to persist throughout fiscal 2023, impacting lead times and order fulfillment [84]. Working Capital and Financing - Working capital increased to $118.5 million as of July 30, 2022, up from $103.9 million as of April 30, 2022 [104]. - As of July 30, 2022, the company had $24.1 million advanced on its line of credit, with an agreement to temporarily expand it by $10 million [107]. Risk Exposure - The company has not reported any material changes in its exposure to interest rate, foreign currency, and commodity risks during the first three months of fiscal 2023 [118]. Accounting and Reporting - For a summary of recently issued accounting pronouncements and their effects on financial results, refer to the Notes to the Condensed Consolidated Financial Statements [117].

Company Overview - The company employs 2,477 people globally and has evolved from a small operation to a leader in the display industry since its founding in 1968[17]. - The company has invested in display technologies and new markets since becoming publicly traded in 1994, indicating a commitment to growth and innovation[17]. - The company focuses on four domestic business units: Commercial, Live Events, High School Park and Recreation, and Transportation, along with an International business unit[20]. - The company has a tradition of applying engineering resources to anticipate and respond to market needs, employing engineers in various fields to enhance product reliability and serviceability[24]. - The majority of the company's products are manufactured in the United States, with additional facilities in China and Ireland, emphasizing quality control and cost-effectiveness[25]. - The company offers a range of products including video displays, scoreboards, message displays, and intelligent transportation systems, showcasing its diverse product portfolio[32]. Product Development and Innovation - The company emphasizes ongoing product innovations and technological advancements to maintain competitiveness in the large format electronic display industry[24]. - The company has invested in developing new video technology with varied pixel density for improved image quality and expanded product offerings[81]. - The company utilizes the Venus® Control Suite software for managing message displays, which can scale to control large networks of displays[45]. - The company has developed the Vanguard® family of dynamic message displays for road management applications, enhancing traffic direction and information dissemination[46]. - The company’s mobile and modular display systems are designed for both indoor and outdoor events, highlighting its adaptability to various market needs[36]. Financial Performance - Net sales for the quarter ended April 30, 2022, were $610.97 million, an increase from $482.03 million in the same quarter of the previous year, representing a growth of 26.7%[333]. - Gross profit for the quarter was $116.70 million, down from $120.58 million year-over-year, indicating a decrease of 3.2%[333]. - Operating income for the quarter was $4.05 million, a significant decline from $17.11 million in the prior year, reflecting a decrease of 76.3%[333]. - Net income for the quarter was $0.59 million, a sharp drop from $10.93 million in the same quarter last year, representing a decline of 94.6%[336]. - Basic earnings per share (EPS) for the quarter was $0.01, compared to $0.24 in the previous year, indicating a decrease of 95.8%[333]. - Total operating expenses increased to $112.65 million from $103.48 million year-over-year, marking an increase of 8.3%[333]. - The company reported total assets of $440.9 million as of April 30, 2022, compared to $375.2 million a year prior, marking an increase of about 17%[328]. - Total current assets rose to $317.6 million as of April 30, 2022, up from $265.0 million a year earlier, indicating a year-over-year increase of about 20%[328]. Supply Chain and Market Challenges - The company has been affected by supply chain disruptions and inflationary pressures since late fiscal 2021, impacting production and costs[57]. - The company faced supply chain disruptions due to the COVID-19 pandemic, impacting the availability and prices of raw materials, particularly semiconductors[304]. - The company has been impacted by global inflation and shortages in key production materials, which may affect future operations[304]. - The company expects to fulfill the backlog within the next 24 months, although timing may be impacted by supply chain disruptions[69]. Currency and Financial Instruments - Approximately 15.9% of net sales for fiscal 2022 were derived from currencies other than U.S. dollars, highlighting exposure to foreign currency fluctuations[298]. - The notional amount of foreign currency agreements as of April 30, 2022, was $11.3 million, with all contracts maturing within ten months[299]. Employee and Operational Metrics - The company employed approximately 2,246 full-time employees and 231 part-time and temporary employees as of April 30, 2022[84]. - The company’s manufacturing facilities comply with industry-specific requirements, including environmental rules and safety standards[71]. - The company’s ability to compete depends on customer-centric product quality, technical expertise, and cost-effective solutions[78]. Revenue Recognition and Accounting Policies - Daktronics, Inc. recognized revenue based on the percentage of costs incurred for uniquely configured contracts, which requires significant management estimates[316]. - Revenue for uniquely configured systems is recognized over time using the cost incurred input method, reflecting the costs incurred to date compared to estimated total costs for each contract[370]. - The company recognizes revenue when a performance obligation is satisfied, with variability in contract assets and liabilities depending on billing schedules and revenue recognition timing[365]. - The company evaluates contract modifications based on the five-step revenue model, treating them as separate contracts when additional goods or services are distinct[371]. Future Outlook and Strategy - The company plans to focus on new product development and market expansion strategies to improve future performance[335]. - The company expects to maintain or improve margins while generating cash flow from operations to fund future operations and capital expenditures[400]. - The company anticipates utilizing a portion of its line of credit, which was recently extended to April 2025, to support continued investment in capacity to meet expanding demand[401].

Financial Data and Key Metrics Changes - The order volume reached an all-time record of $846 million for the year and $286 million for the fourth quarter, rebounding from pandemic lows [5] - Sales for the year increased to $611 million from $482 million, representing a 26.7% year-over-year increase [9] - Gross profit as a percentage of net sales was 19.1% for fiscal 2022, down from 25% the previous year, primarily due to supply chain disruptions and inflationary challenges [11] - Operating expenses increased to $112.7 million for fiscal 2022, up 8.9% from $103.5 million in fiscal 2021 [12] - For the fourth quarter, net sales increased 38.8% to $162.2 million compared to $116.9 million in the same quarter of the previous year [13] Business Line Data and Key Metrics Changes - The Live Events business unit saw a rebound as sports and entertainment venues returned to normal operations [6] - High School Park and Recreation business unit growth was driven by increased adoption of video displays [7] - The Commercial business unit experienced strong demand from out-of-home advertising customers [8] - Transportation order levels increased as project planning resumed to pre-pandemic levels [8] Market Data and Key Metrics Changes - The International business unit also saw growth due to recovery in out-of-home and sports venue areas [8] - The company faced challenges with supply chain disruptions, particularly in semiconductor availability and shipping logistics [22][23] Company Strategy and Development Direction - The company plans to invest approximately $30 million in capital expenditures for fiscal 2023 to increase capacity and automation [18] - There is a focus on long-term profitable value creation and adapting to evolving customer needs through technology investments [28][30] - The company aims to grow its international business and enhance its market share in various sectors [29] Management's Comments on Operating Environment and Future Outlook - Management expects continued volatility in supply chain and production costs through fiscal 2023 [27] - There is optimism about long-term growth despite current challenges, with a focus on creating shareholder value [31] - The company is adjusting pricing and production schedules in response to inflationary pressures and supply chain issues [25][26] Other Important Information - The cash position at the end of the year was $22 million, with $26.8 million used from operations to increase inventory levels [15][16] - Capital spend for the year was $20.4 million, with investments in production capacity and automation [17] Q&A Session Summary Question: Is there a lag in adjusting pricing and production schedules due to supply chain issues? - Management confirmed there is a lag in seeing price increases reflected in backlog and sales due to active quotes [34] Question: Should gross margin be expected to improve slightly in the upcoming quarter? - Management indicated that while predicting future margins is challenging, they believe processes and actions taken will support gross margin growth over time [35]

FOURTH QUARTER FISCAL 2022 NASDAQ: DAKT SAFE HARBOR STATEMENT In addition to statements of historical fact, this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and is intended to enjoy the protection of that Act. All forward-looking statements involve risks and uncertainties which may be out of our control and may cause actual results to differ materially. Such risks include changes in economic conditions, changes in the competitiv ...

Financial Performance - For the third quarter of fiscal 2022, net sales reached $139.6 million, an increase of $45.4 million or 48.2% compared to the same period last year [87]. - Net sales for the nine months ended January 29, 2022, increased to $448,767, a 22.9% increase from $365,150 in the same period last year [103]. - The Live Events segment saw a significant sales increase of 33.9%, reaching $150,840 compared to $112,626 in the prior year [103]. - The total gross profit for the three months ended January 29, 2022, was $22.3 million, representing 16.0% of net sales, down from 25.4% in the same period last year [90]. - Gross profit margin decreased to 19.3% for the nine months ended January 29, 2022, down from 25.5% in the same period last year [106]. - Operating income for the nine months ended January 29, 2022, was $4,365, a decrease of 72.7% compared to $15,972 in the previous year [113]. - Contribution margin for the three months ended January 29, 2022, was $9.6 million, or 6.9% of net sales, a decrease from 12.7% in the prior year [93]. - Contribution margin for the nine months ended January 29, 2022, was $49,748, representing 11.1% of net sales, a decrease of 12.4% compared to the previous year [113]. - Contribution margin for the third quarter of fiscal 2022 was $9,573, representing 6.9% of net sales, down from 12.7% in the same quarter last year [95]. Orders and Backlog - As of January 29, 2022, the product order backlog was $353 million, up from $195 million on January 30, 2021, and $282 million at the end of the second quarter of fiscal 2022 [86]. - Orders across all business units increased significantly, with Live Events orders rising by 617.6% year-over-year [87]. - Orders for the nine months ended January 29, 2022, increased by 62.5% to $560,242, reflecting strong demand recovery across all markets [103]. Costs and Expenses - Warranty costs as a percentage of sales increased to 2.4% from 1.6% year-over-year [91]. - General and administrative expenses for the nine months ended January 29, 2022, increased by 16.0% to $24,100, primarily due to personnel-related expenses [114]. - Interest expense decreased significantly as there were no outstanding amounts due on the line of credit, compared to $15.0 million last year [99]. Cash Flow and Capital Expenditures - Net cash used in operating activities was $25.5 million for the first nine months of fiscal 2022, a decrease of $73.7 million compared to $48.2 million provided in the same period of fiscal 2021 [121]. - Cash decreased by $48.7 million primarily due to increases in accounts receivable, contract assets, and inventory to support increased order volume during supply chain disruptions [120]. - Net cash used in investing activities totaled $19.9 million in the first nine months of fiscal 2022, compared to $6.8 million in the same period of fiscal 2021 [122]. - The company plans to project total capital expenditures of approximately $25 million for fiscal 2022, focusing on manufacturing equipment and expanded capacity [131]. - The company expects to utilize a portion of its line of credit, which expires in November 2022, to support operations amid ongoing supply chain challenges [133]. Supply Chain and Inflation - The company anticipates continued supply chain disruptions and inflationary pressures affecting financial performance throughout fiscal 2022 and into fiscal 2023 [81]. - The company anticipates ongoing supply chain disruptions and inflationary challenges will impact profitability and cash flows [132]. - The company plans to carry higher inventory levels to mitigate supply chain volatility and expects cash flow impacts due to longer lead times and project delays [79]. - The company is exploring various strategies to manage cash flow, including increasing prices, reducing capital expenditures, and negotiating longer payment terms with suppliers [80]. Tax Rate - The company recorded an effective tax rate of 32.2% for the third quarter of fiscal 2022, a significant decrease from 82.0% in the same quarter of the previous year [101]. - The effective tax rate was 9.4% for the nine months ended January 29, 2022, down from 21.3% for the same period in the previous year [118]. Stock and Working Capital - The company repurchased 600 shares of common stock at a total cost of $3,000 during the nine months ended January 29, 2022 [128]. - Working capital was $113.9 million as of January 29, 2022, down from $118.4 million as of May 1, 2021 [124]. - The company recorded losses for equity method affiliates and foreign currency volatility, impacting other income and expenses [117].

SECOND QUARTER FISCAL 2022 NASDAQ: DAKT SAFE HARBOR STATEMENT In addition to statements of historical fact, this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and is intended to enjoy the protection of that Act. All forward-looking statements involve risks and uncertainties which may be out of our control and may cause actual results to differ materially. Such risks include changes in economic conditions, changes in the competitiv ...

Financial Data and Key Metrics Changes - Customer activity increased significantly, with record orders of $163.7 million for Q2 FY2022, representing a 20.7% increase compared to the same quarter last year [4] - Net sales rose by 29.1% to $164.5 million in Q2 FY2022, compared to $127.4 million in Q2 FY2021 [6] - Gross profit margin decreased to 19.6% in Q2 FY2022 from 26.2% in the same quarter last year, primarily due to increased costs and inflation [7] Business Line Data and Key Metrics Changes - Commercial business unit orders increased due to strong demand for on-premise promotion and out-of-home advertising [5] - High School Park and Recreation business unit saw growth driven by the adoption of video displays for sports and education [5] - Live Events business unit performance was similar to last year's second quarter but showed an increase year-to-date [6] Market Data and Key Metrics Changes - International business unit orders were lower than the same quarter last year but improved through the first half of FY2022 [5] - Transportation order levels increased as project planning resumed to pre-pandemic levels, with a focus on intelligent transportation systems [5][17] Company Strategy and Development Direction - The company plans to strategically invest in capital assets and technology developments to meet customer needs and enhance internal operations [12][14] - Focus on expanding into new markets and developing advanced technologies such as micro LED and control systems [14][15] - Strategies include enhancing digital technologies for customer interactions and growing market share in various segments [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds from supply chain disruptions, including semiconductor shortages and inflationary pressures [12][13] - The company remains optimistic about overcoming pandemic challenges and expects growth in the audio-visual industry [18] - Future focus includes profitable growth and improving operating margins through new solutions and customer development [18] Other Important Information - The product backlog reached an all-time high of $282 million, indicating strong future sales potential [11] - Operating expenses increased to $27.9 million in Q2 FY2022, reflecting adjustments to support increased demand [8] - The company suspended dividends and share repurchase programs during the pandemic, with plans to potentially reinstate them at their discretion [10] Q&A Session Summary Question: What are the expectations for future sales growth? - The company expects sales for Q3 FY2022 to increase due to the record product backlog, but acknowledges potential volatility from project bookings and material availability [11] Question: How is the company addressing supply chain challenges? - Management is focusing on reducing lead times and improving delivery capabilities while navigating supply chain disruptions [13]