The following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations. The most significant risks and uncertainties are discussed in "Item 1A. Risk Factors." This discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K.
Management report – Financial year 2021 compared to financial year 2020
The comparison of fiscal 2021 to fiscal 2020, including results of operations and cash, can be viewed in the “MD&A” section of our Annual Report on Form 10-K for fiscal 2021, which comparison is incorporated by reference herein.
EXECUTIVE OVERVIEW
Our mission is to be a world leader at informing and entertaining audiences
through dynamic audio-visual communication systems. We organize into business
units to focus on customer loyalty over time and earn new and replacement
business as our products have a finite lifetime. See "Note 3. Segment Reporting"
of the Notes to our Consolidated Financial Statements included in this Form 10-K
for further information. Our strategies include the creation of a comprehensive
line of innovative solutions and systems and our ability to 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).
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We measure our success using a variety of metrics, including:
•our percentage of market share by comparing our estimated revenue to the total estimated global digital 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 manufacturing costs and the selling prices of our products impact profitability. Due to volatility in our supply chain and labor conditions, our manufacturing costs and selling prices of our products have increased during the 2022 fiscal year and may continue to increase for some time into the future. Our competitors outside theU.S. are impacted differently by the global trade environment allowing them to avoid tariff costs and have access to parts supplies and lower costs of doing business, which may allow them to maintain lower prices 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 and increased user adoption and applications have increased the size of the global market. Competitors' offerings, actions and reactions also can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attract 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 severe economic downturns with social changes causing decreases in sporting event revenues, the sports business can also be seriously impacted. Outlook: Impacts to and changes in global economic conditions are expected as the world economies recover from and react to the COVID-19 pandemic, adjust to changing supply chain conditions and disruptions, and react to the evolving war and geopolitical environment. Supply chain disruptions continue as a result of several factors, including the pandemic lockdowns, shipping container shortages, labor shortages, war and other conflicts, and changes in global demand. We are specifically impacted by the global shortage of semiconductors and related electronic components. Our production schedules were disrupted because of supply shortages, and we experienced increased input costs in many areas including material, commodity, freight, and tariff costs. Personnel spend also increased throughout the 2022 fiscal year. We have responded to input cost increases by increasing pricing, and we began quoting at the new price levels across the business areas in the third quarter of fiscal 2022. Certain areas will see additional increases at the beginning of fiscal 2023. We also use pricing policies and opportunity evaluations across markets to manage price levels. We will continue to monitor our supply chains and our marketplaces and adapt our pricing methodologies as we see appropriate. Although we cannot predict the length or severity of these conditions, we expect continued disruptions in obtaining material, commodities, labor, and freight availability and an increase in inflation. We also expect impacts to the global economic conditions in reaction to the evolving war and geopolitical environment. Due to longer planning horizons and volatility in supply chains, we plan to carry higher quantities of inventory and anticipate changes in the timing of payments from our customers as we work through different disruptions and fulfill our backlog, all likely creating a consumption of cash. We are also planning additional cash use for capital spending to grow our manufacturing capacity. All of these conditions have and will continue to cause volatility in our cash flow, pricing, order volumes, lead-times, competitiveness, revenue cycles, and production costs, and it is likely these conditions will have some negative impact in fiscal 2023. However, the full impact to our financial condition, results of operations and cash flows cannot be determined at this time.
In addition to the COVID-19 and supply chain impacts described above, the outlook and unique key growth drivers and challenges for our business units include the following:
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Commercial Business Unit: Our customers who rely on advertising revenues for
Out-of-Home ("OOH") advertising or who rely on customer foot-traffic to drive
sales are beginning to increase their capital spending through the COVID-19
economic recovery. Businesses 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.
Over the long term, we believe business unit growth 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 retailers, and other nationwide organizations. •Additional standard display offerings using micro-LED designs. •Increasing use of LED technologies replacing signage previously using 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 andTimes Square type locations. •New market adoption and expansion for use of LED in government and military and corporate campuses. •Dynamic messaging systems demand growth due to market adoption and 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 OOH advertising companies continue developing new sites and replacing digital billboards reaching end of life. This is dependent on no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, as well as maintaining our current market share in a business that is concentrated in a few large OOH companies. •Replacement cycles within each of these areas. Live Events Business Unit: During fiscal year 2022, as the restrictions on gathering started to decrease, more customers chose to invest or upgrade current audiovisual systems in their locations. Some live events customers took advantage of the downtime during the COVID-19 pandemic to build new or renovate existing arenas and sport stadiums. This created large orders being booked during fiscal year 2022 that are expected to be recognized as sales in future fiscal years.
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 drive larger displays or higher resolution displays, both of which increase the average transaction size. •Dynamic messaging 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 are upgrading their equipment as the pandemic eases and advertising revenue is available.
In the long term, we believe that the growth of the
the business unit will result from a number of factors, including:
•Increased demand for video systems in high schools as school districts realize
the revenue generating potential of these displays compared to traditional
scoreboards and these systems' ability to provide or enhance academic curriculum
offerings for students.
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•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.
•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.
•Certain display requirements for sporting events.
Transportation Business Unit: Daktronics has experienced governmental agencies
placing orders as a way to spend their allocated budgets for their fiscal years.
In addition, the Infrastructure Investment and Jobs Act signed into law in
November 2021 , is expected to have a positive impact on all segments of United
States transportation terminals and public transit facilities.
Over the long term, we believe growth in the Transportation business unit will result from a number of factors, including:
•Increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications. •Effective use ofthe 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. •Expanded use of 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.
Global Business Unit: As most restrictions on collection are reduced in all geographies, more and more customers are choosing to invest in their digital needs.
Over the long term, we believe that growth in the international business unit will result from a number of factors, including:
•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 inEurope and theMiddle East . •Continued focus on sports facility, spectacular-type, OOH advertising products, and architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside ofthe United States andCanada . •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 city-center locations. •New market adoption and expansion of use of LED in government and military and corporate campuses. •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. •Our product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry. •Growing our reseller channels to promote our products and gain market share.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") are based upon, and should be read in conjunction
with, our Consolidated Financial Statements and Notes to the Consolidated
Financial Statements included in this Form 10-K, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of these 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. Although our significant accounting policies are described in
"Note 1. Nature of Business and Summary of Significant Accounting Policies" of
the Notes to our Consolidated Financial Statements included in this Form 10-K,
the following discussion is intended to highlight and describe those accounting
policies that are especially critical to the preparation of our consolidated
financial statements.
A critical accounting policy is defined as a policy that is both very important
to the portrayal of a company's financial condition and results and requires
management's most difficult, subjective or complex judgments. We regularly
review our critical accounting policies and evaluate them based on these
factors. We believe the estimation process for uniquely configured contracts and
warranties are most material and critical. These areas contain estimates with a
reasonable
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likelihood to change, and those changes could have a material impact on our financial condition and reported results of operations. The estimation processes for these areas are also difficult, subjective and use complex judgments. Our critical accounting estimates are based on historical experience; on our interpretation of GAAP, current laws and regulations; 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. Revenue recognition on uniquely configured contracts. Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost incurred input method. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed. The cost incurred input method measures cost incurred to date compared to estimated total costs for each contract. This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform the contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include material and components; manufacturing, project management and engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as facilities and equipment depreciation and general overhead. Provisions of estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated. We may have multiple performance obligations in these types of contracts; however, a majority are treated as a combined single performance obligation. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to our customer is to provide significant integration services and incorporate individual goods and services into a combined output or system. Often times the system is customized or significantly modified to the customer's desired configurations and location, and the interrelated goods and services provide utility to the customer as a package. See "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on our revenue recognition policies. Warranties. We have recognized an accrued liability for warranty obligations equal to our estimate of the actual costs to be incurred in connection with our performance under contractual warranties. Warranty estimates include the cost of direct material and labor estimates to repair products over their warranty coverage period. Generally, estimates are based on historical experience considering known or expected changes. If we would become aware of an increase in our estimated warranty costs, additional accruals may become necessary, resulting in an increase in cost of sales. Although prior estimates have been materially correct, estimates for warranty liabilities can change based on actual versus estimated defect rates over the lifetime of the warranty coverage, a difference in actual to estimated costs to conduct repairs for the components and related labor needed, and other site related actual to estimated cost changes. As ofApril 30, 2022 andMay 1, 2021 , we had approximately$28.9 million and$26.0 million accrued for these warranty obligations, respectively. Due to the difficulty in estimating probable costs related to certain warranty obligations, there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities. See "Note 16. Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on warranties.
RECENT ACCOUNTING PRONOUNCEMENTS
For a summary of recently issued accounting pronouncements and the effects those pronouncements have on our financial results, refer to "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest toApril 30 of each year. WhenApril 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. 27
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The following table presents information on net sales for the years ended
Year Ended
(in thousands) April 30, 2022 May 1, 2021 Dollar Change Percent Change
Net Sales :
Commercial $ 154,211 $ 127,300 $ 26,911 21.1 %
Live Events 199,106 143,049 56,057 39.2
High School Park and Recreation 111,816 91,557 20,259 22.1
Transportation 62,707 58,284 4,423 7.6
International 83,130 61,843 21,287 34.4
$ 610,970 $ 482,033 $ 128,937 26.7 %
Orders:
Commercial $ 192,917 $ 138,878 $ 54,039 38.9 %
Live Events 313,940 157,177 156,763 99.7
High School Park and Recreation 156,305 94,292 62,013 65.8
Transportation 77,993 49,696 28,297 56.9
International 104,916 75,841 29,075 38.3
$ 846,071 $ 515,884 $ 330,187 64.0 %
Fiscal 2022 vs. Fiscal 2021
In fiscal 2022, sales and orders increased as demand increased in all markets compared to fiscal 2021 as global economies recovered from the economic downturn caused by the COVID-19 pandemic. We achieved record order levels due to the recovery, multi-million dollar orders for sports facilities and bulk orders for OOH displays. These orders relate to the Live Events, Commercial and International segments.
Net sales during fiscal year 2022 increased due to the conversion of the higher order volume. Throughout the year however, material supply and labor shortages created an increase in lead times, extending the timing of converting some orders to sales. Commercial: The increase in net sales for fiscal 2022 compared to fiscal 2021 was primarily due to an increase in OOH niche and spectaculars orders. Fiscal 2021 had an overall low market activity in these two particular niches due to the pandemic, and their recovery was strong.
The increase in orders for fiscal 2022 compared to fiscal 2021 is primarily attributable to higher overall market activity across all market niches.
We continue to see increased adoption of video solutions in our Commercial
business unit marketplace. Depending on the duration of the current economic
conditions, we see opportunities for orders and sales over the coming years in
our OOH, on-premise, and spectacular focused niches due to replacement cycles,
expansion of dynamic messaging systems usage, releases of new solutions,
additional distribution methods, and increased market size due to the decline of
digital pricing over the years as well as the desire for higher resolution
technology. Due to a number of factors, such as the discretionary nature of
customers committing to a system, economic dependencies, regulatory
environments, competitive factors, and supply chain constraints, it is difficult
to predict orders and net sales for fiscal 2023. We expect growth in the
Commercial business unit over the long-term, assuming favorable economic
conditions and our success in counteracting competitive pressures.
Live Events: The increase in net sales and orders for fiscal 2022 compared to
fiscal 2021 was primarily due to high demand for upgraded or new solutions for
arenas, university venues, and sports stadiums. This increase was due to the
economic recovery from the COVID-19 pandemic, several large projects including
in the bowl and other immersive displays through
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the sports facilities, and replacement orders due to systems' ages. Bookings of large multi-million dollar projects also contributed to the order increases and a record order year for Live Events. We continue to see ongoing interest from venues at all levels in increasing the size and capabilities of their display systems and in the usage of dynamic messaging systems throughout their facilities in our Live Events business unit marketplace. A number of factors, such as the discretionary nature of customers committing to upgrade systems, long replacement cycles, the limited number of large custom projects, competitive factors, and the uncertainty of the overall impact of supply chain constraints, make forecasting fiscal 2023 orders and net sales difficult. We expect this business unit's size to remain stable over the long-term, assuming favorable economic condition, and success in maintaining market share by counteracting competitive pressures.
We expect larger video systems and our classic scoring and message centers to
remain in demand in fiscal 2023, primarily in high school facilities, which
benefit from our sports marketing services that generate advertising revenue to
fund the display systems and because of schools' desire to communicate with
students and parents using these systems. Some growth is also expected for
regulatory requirements of certain display types for sports events. Several
factors, such as the potential reduction in the availability of advertising
revenues, the discretionary nature of customers committing to upgrade systems,
replacement cycles, competitive factors, and the uncertainty of the overall
impact of supply chain constraints, make forecasting fiscal 2023 orders and net
sales difficult. We expect growth in this business unit over the long-term,
assuming favorable economic conditions.
Transportation: The increase in net sales and orders for fiscal 2022 compared to
fiscal 2021 was primarily due to pent up demand from fiscal 2021 for Intelligent
Transportation Systems ("ITS") which had been delayed due to the COVID-19
pandemic.
Several factors, such as transportation funding, the competitive environment,
customer delivery changes, and the uncertainty of the impacts of supply chain
constraints, make forecasting orders and net sales difficult for fiscal 2023.
However, the stability of long-term federal transportation funding and the
number of capital projects for highways and public transit that include dynamic
message signs and for advertising and wayfinding use in public transport and
airport terminals continue to rise. We expect continued growth in this business
unit over the long-term, assuming favorable economic conditions and continued
transportation funding.
International: The increase in net sales and orders for fiscal 2022 compared to fiscal 2021 is mainly due to the economic recovery following the COVID-19 pandemic in OOH, transport and stadium projects sportsmen.
We expect demand for larger video systems for commercial and sports
applications, indoor and outdoor OOH applications, and transportation
applications to remain strong over the long-term. Macroeconomic factors, the
discretionary nature of customers committing to new systems or replacements, the
pace of market growth, and the uncertainty of the impacts of the supply chain
constraints, may impact order bookings and timing, making it difficult to
predict order and sales levels for fiscal 2023. For the long-term, we believe
the International business unit has the potential for sales growth as we
penetrate markets with our established sales networks to increase our
International market share, continue to enhance our tailored portfolio of
product and control solution offerings, invest in additional distribution
methods, and expect the trend of increased use and adoption of our technology
globally to continue.
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Gross profit and contribution margin
Year Ended
April 30, 2022 May 1, 2021
As a Percent of As a Percent of
(in thousands) Amount Net Sales Amount Net Sales
Gross Profit:
Commercial $ 31,851 20.7 % $ 33,072 26.0 %
Live Events 21,787 10.9 24,397 17.1
High School Park and Recreation 35,477 31.7 31,472 34.4
Transportation 18,172 29.0 20,329 34.9
International 9,410 11.3 11,313 18.3
$ 116,697 19.1 % $ 120,583 25.0 %
Fiscal 2022 vs. Fiscal 2021
The decline in gross profit percentage in fiscal 2022 is primarily related to the ongoing supply chain disruptions and inflationary challenges in materials, freight, tariff, and personnel related costs; the difference in sales mix between periods; other factors experienced during fiscal 2021 which had a positive impact on fiscal 2021 margins; and an increase in warranty expense in fiscal 2022. Total warranty expense as a percent of sales increased to 1.9 percent for fiscal 2022 as compared to 1.4 percent during fiscal 2021. Factors impacting the gross profit in fiscal 2021 included the positive$2.1 million litigation claim reversal in theHigh School Park and Recreation business unit and$1.8 million of COVID relief governmental subsidies offset by$2.8 million of severance costs to reduce our workforce to adjust to the impacts of the COVID-19 pandemic. In addition, we earned a higher rate of gross profit on our service agreements in fiscal 2021 due to reduced stand ready services conducted during the year because of the pandemic. During fiscal year 2022, we had more large project sales which generally have lower gross profit because of their competitive nature. It is difficult to project gross profit levels for fiscal 2023 because of the uncertainty regarding the level of sales, the sales mix, price strategy and timing of sales generation, the COVID-19 impact, potential inflation and the availability of materials, labor, and freight, and the competitive factors in our business. We are focused on improving our gross profit margins as we execute our strategies for improved profitability, which include selectively increasing pricing, releasing new product designs to lower overall costs of the product; improving reliability to reduce warranty expenses; expanding our global capacity and planning; meeting customer solution expectations; and continued improvements in operational effectiveness in manufacturing, installation, and service delivery areas. Cost reductions made during the pandemic vary in permanency and may not be sustainable in future periods as orders and sales volumes recover. Year Ended April 30, 2022 May 1, 2021 As a Percent of As a Percent of (in thousands) Amount Net Sales Dollar Change Percent Change Amount Net Sales
Contribution Margin: Commercial$ 16,073 10.4 %$ (2,903) (15.3) %$ 18,976 14.9 % Live Events 11,903 6.0 (3,295) (21.7) 15,198 10.6 High School Park and Recreation 23,587 21.1 2,178 10.2 21,409 23.4 Transportation 14,553 23.2 (2,695) (15.6) 17,248 29.6 International (494) (0.6)
403 (44.9) (897) (1.5)
$ 65,622 10.7 % $ (6,312) (8.8) % $ 71,934 14.9 %
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Fiscal 2022 vs. Fiscal 2021
Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, marketing related expenses (show rooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses.
Contribution margin in fiscal 2022 was impacted by the sales levels and gross profit impacts previously discussed, as well as a 5.0% increase in selling expenses in fiscal 2022 compared to the 2021 financial year.
Since the start of fiscal 2022, we have adjusted our sales and marketing activities and staffing levels to meet current and expected future sales levels. In fiscal 2021, we had reduced the overall headcount and laid off employees to reduce operating costs to align with the uncertainties created by the COVID-19 pandemic. These savings in fiscal year 2021 were partially offset by a
Reconciliation from non-GAAP contribution margin to operating income (loss) GAAP
measure is as follows:
Year Ended
April 30, 2022 May 1, 2021
As a Percent of As a Percent of
(in thousands) Amount Net Sales Dollar Change Percent Change Amount Net Sales
Contribution margin $ 65,622 10.7 % $ (6,312) (8.8) % $ 71,934 14.9 %
General and administrative 32,563 5.3 4,583 16.4 27,980 5.8
Product design and
development 29,013 4.7 2,167 8.1 26,846 5.6
Operating income $ 4,046 0.7 % $ (13,062) (76.4) % $ 17,108 3.5 %
Fiscal 2022 vs. Fiscal 2021
General and administrative expenses for fiscal year 2022 increased compared to the same period a year ago, mainly due to increased personnel expenses.
We expect general and administrative expenses to increase for fiscal 2023 as compared to fiscal 2022 as labor rates continue to rise and further increase in personnel may be needed to keep up with the increased demand. Our costs for product design and development represent an allocated amount of costs based on time charges, professional services, 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 included in cost of sales.
Product design and development expenses in fiscal 2022 increased compared to fiscal 2021, primarily due to an increase in personnel expenses.
We expect product design and development expenses to increase for fiscal 2023 compared to fiscal 2022 due to continued increases in labor costs. We will continue to actively invest in new technologies.
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Other Income and Expenses
Year Ended
April 30, 2022 May 1, 2021
As a Percent of As a Percent of
(in thousands) Amount Net Sales Dollar Change Percent Change Amount Net Sales
Interest income
(expense), net $ 171 - % $ 236 (363.1) % $ (65) - %
Other expense, net $ (3,109) (0.5) % $ (126) 4.2 % $ (2,983) (0.6) %
Fiscal 2022 vs. Fiscal 2021
The change in net interest income (expense) for fiscal 2022 compared to fiscal 2021 is mainly attributable to the variation in investment levels and interest expense for our line of credit drawdowns.
Other expenses, net: The change in other income and expenses, net for fiscal year 2022 compared to fiscal year 2021, is mainly explained by a
Income taxes
Our effective tax rate was approximately 46.6 percent for fiscal year 2022. The effective income tax rate for fiscal 2022 was impacted due to tax benefits from permanent tax credits offset by valuation allowances as well as other various permanent tax adjustments and state taxes with additional expense for prior year provision to return adjustments. Our fiscal 2021 effective tax rate was approximately 22.3 percent resulting from the tax benefit of permanent tax credits and previous year provision to return adjustments offset by valuation allowances as well as other various permanent tax adjustments and state taxes. Our consolidated effective tax rate is impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate. Due to various factors, and because we operate in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation. See "Note 12. Income Taxes" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information.
CASH AND CAPITAL RESOURCES
Year Ended
(in thousands) April 30, 2022 May 1, 2021 Dollar Change
Net cash (used in) provided by:
Operating activities $ (27,035) $ 66,212 $ (93,247)
Investing activities (31,384) (10,221) (21,163)
Financing activities (3,576) (15,585) 12,009
Effect of exchange rate changes on cash (399) (416) 17
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (62,394) $ 39,990 $ (102,384)
Cash decreased by $62.4 million in fiscal 2022 as compared to an increase of
$40.0 million in fiscal 2021. Operating assets and liabilities decreased cash
flow by $45.4 million during fiscal 2022 as the business expanded compared to a
$31.7 million increase in cash flow during fiscal 2021 as the business
contracted and management conserved the Company's cash.
Net cash used in operating activities: Net cash used in operating activities was
$27.0 million for fiscal 2022 compared to $66.2 million net cash provided by
operating activities in fiscal 2021. The $93.2 million decrease in cash from
operating activities was primarily the result of changes in net operating assets
and liabilities and a decrease of $10.3 million in net
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income. For specific quantitative changes in operating assets and liabilities, see "Note 13. Cash Flow Information" of the Notes to our Consolidated Financial Statements included in this Form 10-K. Net cash used in investing activities: Net cash used in investing activities totaled$31.4 million for fiscal 2022 compared to$10.2 million in fiscal 2021. Purchases of property and equipment totaled$20.4 million in fiscal 2022 compared to$7.9 million in fiscal 2021. Proceeds from the sales of property and equipment totaled$0.9 million in fiscal 2022 compared to$3.2 million in fiscal 2021. Purchase of marketable securities totaled$4.0 million in fiscal 2022 compared to no purchases of marketable securities in fiscal 2021. Net cash used in financing activities: Net cash used in financing activities was$3.6 million for fiscal 2022 compared to$15.6 million in fiscal 2021. During fiscal 2021, we paid$15.0 million on notes payable. During fiscal 2021, there were no share repurchases compared to$3.2 million of share repurchases in fiscal 2022.
Other Liquidity and Capital Resources Discussion: The timing and amounts of changes in working capital, profitability, capital expenditures, investments in affiliated companies, share buybacks and dividend payments have impact on our liquidity.
Working capital was$103.9 million atApril 30, 2022 and$118.4 million atMay 1, 2021 . The changes in working capital, particularly changes in accounts receivable, accounts payable, inventory, and contract assets and liabilities, and 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. On multimillion-dollar orders, the time between order acceptance and project completion may extend up to or exceed 12 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 orders. We expect to use cash in operations as our business returns and exceeds pre-pandemic levels. We had$7.1 million of retainage on long-term contracts included in receivables and contract assets as ofApril 30, 2022 , which has an impact on our liquidity. We expect to collect these amounts within one year. 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 work, and our customer would call upon the bond for payment, the surety company would subrogate its loss toDaktronics . AtApril 30, 2022 , we had$88.3 million of bonded work outstanding against this line. Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We projected capital expenditures to be approximately$30 million for fiscal 2023. 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. The Board of Directors authorized reinstatement of the share repurchase program in December of 2021. Shares may be repurchased from time to time in open market purchases, private transactions or other transactions. The timing, volume, and nature of share repurchases will be at the sole discretion of management and will be dependent on market conditions, applicable securities laws and other factors, and share repurchases may be suspended or discontinued at any time.
The Board of Directors suspended dividends in fiscal 2020 as part of our cash conservation measures during the pandemic. The timing and future reinstatement of dividends are at the discretion of the Board of Directors. Future dividends are also affected by limits imposed on our credit facility.
We believe the audiovisual industry fundamentals will drive long-term growth for our business; however, for the near-term outlook, we expect to continue to have disruptions from our supply chain and logistics. Due to longer planning horizons and volatility in supply chains, we plan to carry higher quantities of inventory and anticipate changes in the timing of payments from our customers as we work through different disruptions and fulfill backlog. We also plan to use cash for capital spending to grow our manufacturing capacity. When cash is needed, we expect to use borrowings under our bank credit agreement. As ofApril 30, 2022 , we were in compliance with all applicable bank loan covenants. For additional information on financing agreements, see "Note 7. Financing Agreements" of the Notes to our Consolidated Financial Statements included in this Form 10-K. 33
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