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Financing Agreements
 3 Months Ended
Jul. 29, 2023
Debt Disclosure [Abstract]  
Financing Agreements Financing AgreementsLong-term debt consists of the following:
July 29,
2023		April 29,
2023
ABL credit facility$— $— 
Prior line of credit— 17,750 
Mortgage15,000 — 
Convertible note25,000 — 
Long-term debt, gross40,000 17,750 
Debt issuance costs(4,338)— 
Change in fair value of convertible note7,260 — 
Current portion(1,500)— 
Long-term debt, net$41,422 $17,750 
Credit Agreements
On May 11, 2023, we closed on a $75,000 senior credit facility (the "Credit Facility"). The Credit Facility consists of a $60,000 asset-based revolving credit facility (the "ABL") maturing on May 11. 2026, secured by first priority lien on the Company's assets and which is subject to certain factors which can impact our borrowing capacity, and a $15,000 delayed draw loan (the "Delayed Draw Loan") secured by a first priority mortgage on our Brookings, South Dakota real estate (the "Mortgage"). The ABL and Delayed Draw Loan are evidenced by a Credit Agreement dated as of May 11, 2023 (the "Credit Agreement") between the Company and JPMorgan Chase Bank, N.A., as the lender. On May 11, 2023 the Company paid all amounts outstanding on the prior credit agreement and this prior credit agreement was terminated as of this date. No gain or loss was recognized upon termination and the Company incurred no early termination penalties in connection with such termination.
Under the ABL, certain factors can impact our borrowing capacity. As of July 29, 2023, our borrowing capacity was $47,596, and there were no borrowings outstanding and $1,460 used to secure letters of credit outstanding.
The interest rate on the ABL is set on a sliding scale based on the trailing 12 month fixed charge coverage and ranges from 2.5 percent to 3.5 percent over the standard overnight financing rate (SOFR). The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the Pledge and Security Agreement dated as of May 11, 2023 by and among the Company, Daktronics Installation, Inc. and JPMorgan Chase Bank, N.A.
The $15,000 Delayed Draw Loan was funded on July 7, 2023 and is secured the Mortgage on the Company's Brookings, South Dakota real estate. It amortizes over 10 years and has monthly payments of $125. The Delayed Draw Loan is subject to the terms of the Credit Agreement and matures on May 11, 2026. The interest rate on the Delayed Draw Loan is set on a sliding scale based on the trailing 12 month fixed charge coverage ratio and ranges between 1.0 percent and 2.0 percent over the Commercial Bank Floating Rate (CBFR).
Convertible Note
On May 11, 2023, we issued $25,000 in aggregate principal amount evidenced by the secured Convertible Note due May 11, 2027. The Convertible Note holder has a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank N.A., and the holder of the Convertible Note.
Conversion Features
•The Convertible Note allows the Investor and any of the Investor’s permitted transferees, donees, pledgees, assignees or successors-in-interest (collectively, the “Selling Shareholders”) to convert all or any portion of the principal amount of the Convertible Note, together with any accrued and unpaid interest and any other unpaid amounts, including late charges, if any (together, the “Conversion Amount”), into shares of the Company’s common stock at an initial conversion price of $6.31 per share, subject to adjustment in accordance with the terms of the Convertible Note (the “Conversion Price”).
•The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions set forth in the Convertible Note, pursuant to which it can cause all or any portion of the outstanding and unpaid Conversion Amount to be converted into shares of common stock at the Conversion Price.

Additionally, if the Company fails other than by reason of a failure by the Holder to comply with its obligations, the Holder is permitted to cash payments from the Company until the Conversion Failure is cured.

Redemption Features

•If the Company were to have an Event of Default, as defined by the Convertible Note, then the Holder may require the Company to redeem all or any portion of the Note.

•If the Company has a Change of Control, as defined by the Convertible Note, then the Holder is entitled to the outstanding amount of the Note at the Change in Control Redemption Price as defined in the Note.

Interest

Interest is payable in either (i) cash or (ii) in a combination of cash interest and capitalized interest at the option of the Company; provided, however, that at least fifty percent (50%) of the interest paid on each interest date must be paid as cash interest. The Convertible Note accrues interest quarterly at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is paid in kind. Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent. The annual rate of 9.0 percent was used to calculate the interest accrued as of July 29, 2023.

We elected the fair value option to account for the Convertible Note as described in "Note 10. Fair Value Measurement" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q for further information. The financial liability was initially measured at its issue-date fair value and is subsequently remeasured at fair value on a recurring basis at each reporting period date. We have elected to present the fair value and the accrued interest component separately in the income statement. Therefore, interest will be recognized and accrued separately in interest expense, with changes in fair value of the Note presented in the "Change in fair value of convertible note" line item in our condensed consolidated statements of operations.

The changes in fair value of the Convertible Note during the quarter ended July 29, 2023 is as follows:

Liability Component
(in thousands)
As of May 11, 2023$25,000 
Redemption of convertible promissory note— 
Fair Value Change Recognized7,260 
As of July 29, 2023$32,260 

The estimated fair value of the Convertible Note upon issuance date May 11, 2023 and as of July 29, 2023 was computed using a Binomial Lattice Model which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement.

We determined the fair value by using the following key assumptions in the Binomial Lattice Model:

Risk-Free Rate (Annual)4.34 %
Implied Yield18.54 %
Volatility (Annual)55.00 %
Dividend Yield (Annual)— %
The Credit Agreement and the Convertible Note require a fixed charge coverage ratio of greater than 1.1 and include other customary non-financial covenants. As of July 29, 2023, we were in compliance with our financial covenants under the Credit Agreement and the Convertible Note.
Debt Issuance Costs
Debt issuance costs incurred and capitalized are amortized on a straight-line basis over the term of the associated debt agreement. If early principal payments or conversions occur, a proportional amount of unamortized debt issuance costs is expensed. As part of these financings, we capitalized $8,019 in debt issuance costs. During the first quarter, due to the Convertible Note being accounted for at fair value, we expensed $3,353 of the related debt issuance costs which is included in the "Other expense and debt issuance costs write-off, net" line item in our condensed consolidated statements of operations. During the first quarter, we have amortized $328 of debt issuance costs. The remaining debt issuance costs of $4,338 is being amortized over the four-year term of the Credit Facility agreement.
Fair Value and Future Maturities
As of July 29, 2023 and April 29, 2023, the fair value of long-term debt, gross was $47,260 and $17,750, respectively. The fair value of the Convertible Notes was $32,260 as of July 29, 2023.
Aggregate contractual maturities of debt in future fiscal years are as follows:

Fiscal years endingAmount
Remainder of 2024$1,125 
20251,500 
20261,500 
202710,875 
202825,000 
2029 and beyond— 
Total senior secured notes and convertible notes$40,000 

As of July 29, 2023, we had $6,114 of bank guarantees or other financial instruments for display installations issued by other banks and secured by restricted cash deposits. If we are unable to meet the terms of the arrangement, the bank would subrogate its loss by drawing on the secured cash deposit.