Daktronics(DAKT) - 2021 Q4 - Annual Report

Special Note Regarding Forward-Looking Statements This section clarifies that the report contains forward-looking statements subject to risks and uncertainties Forward-Looking Statements Disclosure This section details forward-looking statements and outlines risk factors that could materially alter actual results - The report contains forward-looking statements regarding expectations, beliefs, intentions, and strategies for the future, which are subject to risks and uncertainties[12] - Key factors that could cause actual results to differ include competition, financing, market trends, growth strategies, dividends, contract timing, raw material shortages, margin fluctuations, seasonality, new products, warranty claims, tariffs, litigation, governmental regulations (including COVID-19 impact), and geopolitical events[12] PART I ITEM 1. BUSINESS Daktronics is a global leader in electronic display systems, focusing on innovation, in-house manufacturing, and customer support - Daktronics is 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[13] - The company's business segments include Commercial, Live Events, High School Park and Recreation, Transportation (all domestic, including U.S. and Canada), and International[16] - Daktronics offers a complete line of products from small scoreboards to multimillion-dollar video display systems, including related control, timing, and sound systems, and is recognized for its technical leadership in integrated systems[13] - The company engages in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services, and customer service and support[13][19] Business Overview Daktronics, founded in 1968, has grown into a global leader in the display industry with 2,117 employees - Daktronics, Inc. was founded in 1968 and became a publicly traded company in 1994, growing from a small operation to a world leader in the display industry with 2,117 global employees[14] - The company's headquarters are located at 201 Daktronics Dr., Brookings, SD 57006[14] Industry Background The display industry has evolved from scoreboards to integrated LED video systems, with ongoing advancements in technology - Products have evolved from scoreboards to complex, integrated visual display systems with full-color LED video capabilities, pioneered by Daktronics in the mid-1990s[17] - LED technologies continue to advance, creating new high-resolution and micro-LED display options, with ongoing development in micro-LED construct and mass-transfer production methods[17] - Integrated visual display systems are increasingly used across various vertical markets (media/advertising, stadiums/venues, hospitality/leisure, transportation, broadcast, control room, corporate, education, retail) for communication, information, entertainment, and advertising[18] Description of Business The company's business operations encompass marketing, engineering, manufacturing, technical contracting, and customer support - Marketing and Sales: Utilizes a direct sales force for large integrated display systems (professional sports, colleges, commercial spectaculars, third-party advertising, transportation) and resellers for standard catalog products, supported by various advertising and training methods[19] - Engineering and Product Design and Development: Employs engineers and technicians in mechanical, electrical, applications, software, and quality design to rapidly respond to market needs and invest in advancing technologies[20] - Manufacturing: Primarily in the U.S. (South Dakota, Minnesota), with facilities also in China and Ireland. Focuses on in-house component and system manufacturing for quality control, response time, and cost-effectiveness, with strategies for standardization, commonality of parts, supplier management, and lean manufacturing[21] - Technical Contracting: Serves as a technical contractor for larger display system installations, often including site preparation and installation services, utilizing a network of subcontractors[22] - Professional Services: Provides event support, content creation, product maintenance, marketing assistance, training, control room design, and technical support[23] - Customer Service and Support: Offers limited warranties (1-10 years), service agreements, 24-hour help-desk access, parts repair/replacement, display monitoring, and on-site support through field personnel and third-party partners[24] Products and Technologies The company offers diverse display systems, including video, scoreboards, message, and transit displays, controlled by Venus® Control Suite - The company's systems consist of displays (varying in complexity, size, resolution) and controllers (computer hardware/software) that manage display operations, customized to customer specifications and environment[25] - Product families include Video displays, Scoreboards and timing systems, Message displays, ITS dynamic message signs, Mass Transit displays, Sound systems, Out-of-Home advertising displays, Digit and price displays, Indoor dynamic messaging systems, and Venus® Control Suite[26] - Video Displays: Full-color LED displays for indoor/outdoor use, capable of showing video, graphics, and animation, serving as revenue generation, information, or design elements. Includes mobile/modular, architectural mesh, and freeform LED products[27][28][29][30][31][32][33] - Scoreboards and Timing Systems: Indoor/outdoor scoreboards, digit displays, scoring/timing controllers (All Sport®), and sports statistics software (DakStats®) for various sports events[34][35][36][37] - Message Displays: Galaxy® product line (full-matrix, full color or monochrome) for text, graphics, animation, and pre-recorded video clips, controlled by Venus® Control Suite for information and on-premises advertising[38][39] - ITS Dynamic Message Signs (DMS): Vanguard® family of LED displays for road management, traffic direction, and motorist information, with a dedicated control system[40] - Mass Transit Displays: LCD and LED display solutions for public transportation (railway platforms, bus stations, concourses) to guide travelers[41] - Sound Systems: Standard and custom options for indoor/outdoor sports venues and mall applications, often integrated with video display systems[42] - Out-of-Home Advertising Displays: Digital billboards and street furniture displays with features like patented mounting, self-adjusting brightness, improved energy consumption, and enhanced network security[43][44] - Digit and Price Displays: DataTime® (time/temperature) and Fuelight™ (petroleum industry fuel price updates with Fuelink™ software) displays[45] - Indoor Dynamic Messaging Systems: ADFLOW DMS™ systems for retailers and businesses to broadcast advertising campaigns and information[46] - Venus® Control Suite: A platform for scheduled content control, available in on-premises or cloud-based configurations, scalable for single or multiple displays, and combinable with Show Control Software Suite for live video/real-time content[47] Raw Materials Key raw materials are sourced globally, with recent supply chain disruptions impacting semiconductors and electronic components - Materials like LEDs, integrated circuits, PCBs, power supplies, plastics, aluminum, and steel are sourced globally, some from single or limited suppliers[48] - Supply chain disruptions emerged in late fiscal 2021 due to COVID-19, shipping container shortages, winter weather, and global demand changes, specifically impacting semiconductors, electronic components, and freight availability[49] Intellectual Property The company protects its competitive position through numerous global patents, copyrights, and trademarks - The company owns or licenses numerous patents, copyrights, and trademarks globally, protecting its competitive position through U.S. and international filings[50] - While important, the business is not materially dependent on any single patent or trademark. Nondisclosure agreements are used to protect intellectual property[50] Seasonality Net sales and profitability fluctuate due to unique order configurations and the seasonality of the sports market - Net sales and profitability fluctuate due to uniquely configured orders (professional sports, colleges, commercial projects) and the seasonality of the sports market[51] - Third fiscal quarter sales and profit are typically lighter due to sports business seasonality, construction cycles, and fewer production days from holidays[51] - Gross margins fluctuate more on uniquely configured orders, especially those with competitive bidding and substantial subcontracting, which generally have lower margins[52] Customers Daktronics serves a large and diverse worldwide customer base, from local businesses to premier professional sports arenas - Daktronics serves a large and diverse worldwide customer base, from local businesses to premier professional sports arenas, striving for long-term relationships[55] Backlog Backlog represents the dollar value of contractually binding orders expected to be recognized as net sales in the future - Backlog represents the dollar value of contractually binding orders for integrated electronic display systems and related products/services expected to be recognized as net sales in