Richardson Electronics Q1 2025 Earnings Call Transcript

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Provided by Quartr
October 10, 2024

Key Takeaways

  • Q1 net sales rose 2.2% year-over-year to $53.7 M despite one fewer reporting week, driven by an 84% increase in GES and a 48.7% jump in Healthcare sales.
  • Green Energy Solutions (GES) sales nearly doubled year-over-year, contributing to a combined GES & PMT backlog of over $97 M and paving the way for European expansion with the Ultra 3000 platform.
  • Gross margin declined by 220 basis points to 30.6% due mainly to PMT product mix and under absorption, with PMT segment margin falling to 29.8%.
  • Net income dropped to $600 K ($0.04/share) and EBITDA fell to $1.7 M (3.1% of sales), down from $1.2 M and $2.6 M respectively in the prior-year quarter.
  • Balance sheet strength maintained with $23 M in cash, zero debt, a second consecutive quarter of positive operating cash flow, and a sustained $0.06 per-share quarterly dividend.
AI Generated. May Contain Errors.
Earnings Conference Call
Richardson Electronics Q1 2025
00:00 / 00:00

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Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ed Richardson, CEO. Please go ahead.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Good morning, and thank you all for joining Richardson Electronics conference call for the first quarter of fiscal twenty twenty-five. Joining me today are Bob Ben, Chief Financial Officer, Wendy Diddell, Chief Operating Officer, and General Manager for Richardson Healthcare, Greg Peloquin, General Manager of our Power and Microwave Technologies Group, which includes Green Energy Solutions, and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. I would also like to remind you that we'll be making forward-looking statements. They're based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

I'm pleased to report that we had a solid start to the fiscal year, with net sales exceeding both our internal projections and exceeding our performance from the prior year. Q1 sales were $53.7 million, slightly ahead of the $52.6 million we achieved in Q1 last year. As a note, Q1 last year benefited from an extra week of sales, making the year-over-year growth rate even more encouraging. Sales expanded in our green energy and healthcare businesses, reflecting continued success of our long-term growth strategies. We were particularly pleased to see revenue growth in green energy, with sales nearly double what they were in Q1 last year. Our gross margin was below the prior year, mainly resulting from the product mix and under absorption in our factory. We remain committed to retaining our production resources in anticipation of ongoing recovery in the semiconductor fab equipment market.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

While our Q1 sales in this segment remained low, we were up 16% compared with the first quarter last year, and backlog is increasing. We expect growth and demand throughout the balance of the calendar year twenty twenty-four and into calendar year twenty twenty-five. We also anticipate the launch of several new products in our green energy business and in the first half of the calendar year twenty twenty-five. These activities are expected to drive higher manufacturing demand and improve gross margin. As you can see, we expect demand in key parts of our business to improve over the coming quarters, despite global economic uncertainty. This is a direct result of the value we provide our global customers, as well as the multi-year growth strategies we're pursuing to diversify our business.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

In addition, we believe our strong balance sheet, customer base, and growing engineered solutions will provide the company with flexibility to navigate the current environment and invest in our long-term growth objectives. So with this introduction, I'll now turn the call over to Bob Ben, our Chief Financial Officer, to discuss our first quarter financial results and capital position. Then Greg, Wendy, and Jens will provide more detail on our business unit performance, including an update on our growth strategies, new product development, program wins, and expanding customer relationships.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Thank you, Ed, and good morning. I will review our financial results for our first quarter of fiscal year 2025, followed by a review of our cash position. In addition, please note that I will be discussing EBITDA, a non-GAAP financial measure. A reconciliation of the non-GAAP item to the comparable GAAP measure is available in our first quarter fiscal year 2025 press release that was issued yesterday. Consolidated net sales for the first quarter of fiscal 2025 were $53.7 million, compared to net sales of $52.6 million in the prior year's first quarter, which was a 2.2% increase. It is also important to note that the first quarter of fiscal 2025 comprised 13 weeks, compared to 14 weeks for the first quarter of fiscal 2024.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

This was our first quarterly year-over-year increase in sales since the third quarter of fiscal 2023. This growth in net sales for the first quarter of fiscal 2025 was due to an 84% increase in sales for GES and a 48.7% increase for healthcare. Sales growth for the first quarter of fiscal 2025 was partially offset by a 4.3% decrease in PMT sales and a 22.8% decline in Canvys sales. Consolidated gross margin for the first quarter was 30.6% of net sales, compared to 32.8% during the first quarter of fiscal 2024. The largest component of the 220 basis point decline in consolidated gross margin was due to our PMT business.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

PMT's gross margin declined to 29.8% from 32.2% as a result of product mix and higher manufacturing under absorption, as the company maintains much of its workforce in anticipation of increasing demand for its manufacturing resources. Partially offsetting this decline was higher gross margin at Richardson Healthcare and Canvys compared to the prior year's first quarter. Operating expenses as a percentage of net sales were 30% for the first quarter of fiscal 2025, and remain unchanged compared to the first quarter of fiscal 2024. Operating income was $0.3 million for the first quarter of fiscal 2025, versus operating income of $1.5 million in the first quarter of last year.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Income tax provision was $0.1 million, or an effective tax rate of approximately 9%, versus an income tax provision of $0.4 million, or an effective tax rate of 23.7% in the prior year's first quarter. Net income for the first quarter of fiscal 2025 was $0.6 million, or $0.04 per diluted share, compared to net income of $1.2 million, or $0.09 per diluted share in the first quarter of fiscal 2024. EBITDA for the first quarter of fiscal 2025 was $1.7 million, or 3.1% of net sales, versus $2.6 million, or 5.0% of net sales in the prior year's first quarter. Moving to a review of our cash position.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Cash and cash equivalents at the end of the first quarter of fiscal 2025 were $23.0 million, compared to $24.3 million at the end of the fourth quarter of fiscal 2024. Operating cash flow was $0.4 million, compared to $1.0 million in the prior year's first quarter. This was the second consecutive quarter of positive operating cash flow. Capital expenditures of $0.9 million in the first quarter of fiscal 2025 were primarily related to our facilities and IT systems, versus $1.1 million in the first quarter of fiscal year 2024. We paid $0.9 million in cash dividends in the first quarter of fiscal year 2025.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

In addition, based on our current financial position, our board of directors declared a regular quarterly cash dividend of $0.06 per common share, which will be paid in the second quarter of fiscal 2025. As of the end of the first quarter of fiscal 2025, the company had no outstanding debt on its $30 million revolving line of credit with PNC Bank. Now, I will turn the call over to Greg, who will discuss the results for our PMT and GES business groups.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Thank you, Bob, and good morning, everyone. We mentioned in our last call that even though our Q4 FY 2024 results were challenging, we remain very optimistic about the future, both over the short and long term. Coming out of Q4 FY 2024, we had a strong backlog, numerous new product introductions, an expanded customer base, and development programs transitioning from beta testing to pre-production. Based on this positive momentum going into FY 2025, we are pleased to report strong growth in our GES segment and our RF microwave components business. Also, quarter-over-quarter and year-over-year growth in our wafer fab equipment manufacturing business in our Q1 FY 2025 results. Starting with our GES business, GES grew 84% to $8.1 million. Looking at these results in more detail, even our margin was down a little bit based on product mix.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Our first quarter sales growth benefited from numerous new programs, products, and customers. Many of these have been in development since FY 2023 and FY 2024, and it's good to see them come to fruition. We had strong sales in our electric locomotive battery modules and new products for EV and diesel locomotives, such as our starter modules. In addition, we had a strong growth in our pitch energy modules as we added numerous new customers for our growing portfolio of products. We now serve dozens of wind turbine owners and operators, including exclusive partnerships with the top four owner-operators of GE wind turbines, such as RWE, Invenergy, Enel, and NextEra.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

To date, we have sold over 57,000 units in North America, and as I mentioned on the last call, in Q2 FY 2025, we're expanding into Europe with GE and other turbine platforms such as Suzlon, Senvion, Nordex, and SSB. Our GES growth strategy is still in its early stages, and as our new products mature, we expect to see sales and bookings fluctuate from quarter to quarter. However, I'm pleased with the progress we are making getting GES to scale as we continuously add new customers, products, and technology partners. We expect this trend to continue and contribute to growth throughout FY 2025 and beyond. The team continues to excel in identifying customer requirements, establishing design and manufacturing capabilities, and launching beta site testing.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

In a short amount of time, we have designed numerous products, received several patents, and developed a growing large customer base of global industry-leading customers. The progress will help create more predictable quarterly revenue and booking streams as our GES business gets to scale. Our customers repeatedly tell us that we have maintained our market share for the core GES power management applications, suggesting the slowdown in shipments in FY 2024 was primarily a timing issue. In fact, our customer pipeline and opportunities continues to increase as we capitalize on significant energy transformation projects globally, including wind turbine repowering. Turning to power and microwave technologies, or PMT, which includes the Electron Device Group, EDG, our legacy tube and semiconductor wafer fab equipment business, and the RF Microwave Group, or PMG. Sales were $34.2 million, down 4.3% compared to the prior year.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

However, this decline was offset by growth in our RF and microwave components business, as well as our semiconductor wafer fab equipment business. PMT margin was down in Q1 due to mainly product mix. Our combined GES and PMT backlog remains strong at over $97 million. Given our inventory position, we will continue to ship many incoming orders from stock, as we did in the past fiscal year. We remain focused on managing our business to support our customers' needs when they are ready. Having inventory on hand allows us to capture market share and expedite the NPI process or new product introduction process. We collaborate with our customers and suppliers, and use our customers' forecast to help us strategically invest in inventory and ensure we meet their needs.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Inventory was up slightly in Q1 FY 2025, mainly due to a large purchase of electron device tubes to support long-term demand and availability. A key component of our growth strategy is selectively expanding our global technology partners. We continue adding new partners who fill technology gaps in our offering and support our growth strategy. Through these partnerships, we often identify opportunities for new products that we design and manufacture in-house. This increases the value we provide customers and allows us to capture more revenue while expanding and diversifying our customer base. These long-term supplier relationships are extremely strong, and when appropriate, we work with them on strategic purchases to maintain proper levels of supply. We negotiate special payment terms, stock adjustment privileges, and shipping schedules to help improve cash flow. In addition, we are a key component of their new product development and new product introduction programs.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

We also continue to invest in our infrastructure to support our growth. We are bringing on talented design and field engineers and making investments to enhance our design and manufacturing capabilities. Our growing in-house design and engineering teams are doing a great job supporting the increased demand in our current products and new product designs. Our field engineering team continues to identify new customers and opportunities. With this team, we will continue to identify, develop, and introduce new products and technologies for green energy, power management, and RF and microwave applications. Going into Q2 FY 2025, we remain excited about the opportunities within our PMT and GES businesses. Q1 FY 2025 bookings exceeded Q1 FY 2024 by 35%. We did not lose market share in FY 2024.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

In fact, with the positive outlook in the semi-fab market, key customers are forecasting growth in FY 2025, and our technology partners are continuing to support our unique global business model and drive our business forward. As a result, we have many reasons to be optimistic about our growth strategies and the future of our business. I cannot stress enough the value of Richardson Electronics' unique model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power management, RF and microwave, and green energy markets. We have built a strong business model, combining legacy products and new technology partners and capabilities that align with our growth strategy to provide global customers with our engineered solutions and capabilities. This model is unique to the industry and differentiates us from our competition.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Through our steadfast and creative focus on customers, we continue to excel by capitalizing on opportunities as they arise. The execution of our strategy has never been stronger, and it is clear our customers and technology partners need Richardson Electronics products and support more than ever. With that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare.

Wendy Diddell
COO at Richardson Electronics

Thank you, Greg, and good morning, everyone. In the first quarter of fiscal year 2025, the healthcare division reported sales of $3.8 million, representing a 48.8% improvement compared to the same quarter last year. Additionally, this marks a $300,000 or 8.4% increase over the fourth quarter. All product lines showed growth over the prior year's first quarter, with a standout 50.6% increase in our CT tube business. This growth was primarily driven by the repaired Siemens Straton Z tubes and our proprietary Alta tubes. The gross margin for the quarter improved to 32.3%, up from 31.6% in the same period last year. This improvement was primarily driven by a favorable product mix, which included higher-margin part sales and lower scrap charges.

Wendy Diddell
COO at Richardson Electronics

During the quarter, we maintained steady production of the repaired Straton Z tubes. We fulfilled the backlog carried into the first quarter and sold every tube repaired during this period. Progress continued with our repair program for the Straton MX, MXP, and MXP-46. We remain on track to launch this program later in the fiscal year. As a result of higher sales and gross margin, we were close to breaking even for the quarter. We have significantly reduced our loss compared to the prior year. While our first quarter performance is encouraging and we remain focused on efforts to improve sales and profitability, the company continues to evaluate strategic options for the healthcare business. I will now turn the call over to Jens Ruppert to discuss the results for Canvys.

Jens Ruppert
Jens Ruppert
General Manager of Canvys at Richardson Electronics

Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures, and sells custom displays to original equipment manufacturers across global, industrial, and medical markets. Canvys' net sales decreased 22.8% to $7.6 million during the first quarter of fiscal 2025, from $9.9 million for the prior year period, due to lower sales in North American and European markets.

Jens Ruppert
Jens Ruppert
General Manager of Canvys at Richardson Electronics

... We ended the quarter with $38.1 million in backlog, providing a strong base of business for the future. Gross margin as a percentage of net sales increased to 34.3% during the first quarter of fiscal 2025, from 34.0% for the prior year period, primarily due to an improved product mix. During the quarter, Canvys received orders from both repeat and first-time medical OEM customers. Some of these applications include optical coherence tomography, OCT, intravascular imaging, pulsed field ablation, computed radiography, lithotripsy, cataract surgery, medical device control, radiotherapy, microwave ablation, and robotic-assisted surgery. Recent design successes illustrate our commitment to providing solutions that meet the evolving needs of our medical clientele. Furthermore, they highlight our ability to cultivate and sustain long-term partnerships with both existing and potential customers who require high standards, supporting our continuous growth in this vital sector.

Jens Ruppert
Jens Ruppert
General Manager of Canvys at Richardson Electronics

We also provide solutions for numerous commercial and industrial purposes. Our products are used for passenger safety and control rooms directly within trains and buses. Other applications include human machine interface, HMI, for printing, vending, and packaging machines. Given the considerable market uncertainties, such as economic difficulties, regulatory shifts, and other near-term trends, we understand that many of our customers have opted for a more cautious approach toward new product development and inventory management. We are cautiously optimistic that customer demand will see an upturn by early next calendar year. We see positive indicators and anticipate a steady recovery as the market stabilizes, supported by customer feedback. An important sign is a rise in projects our teams are handling, highlighting growth in our markets and acknowledgment of our offerings.

Jens Ruppert
Jens Ruppert
General Manager of Canvys at Richardson Electronics

Our sales team continues to explore new opportunities, while I concentrate on implementing our strategic plan to ensure sustainable growth, to create long-term value for our shareholders. I will now turn the call back over to Ed.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Thanks, Jens. While we know Q2 will be challenging, we remain optimistic that Canvys will return to growth, given the expanding list of blue-chip customers Canvys serves. Despite uncertain economic conditions, we maintain our excitement and commitment to our long-term growth strategies. The list of opportunities within our Green Energy Solutions business unit continues to expand. Even though product deployment and our customer approvals are taking longer than we'd like, our growing list of global customers for our wind energy, transportation, and power management sectors support our multiyear growth plan. Demand for energy is only increasing, and a recent McKinsey report forecast demand to increase at an annual rate of 11%-18% through 2050. While fossil fuels will continue to play an important role in meeting energy demand, renewable energy sources, particularly solar and wind, will grow at a much faster rate.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

These trends are aligned with our strategy to support global energy transformation initiatives, and we intend to leverage our engineered solutions to deliver substantial revenue streams over the coming years. As mentioned earlier, backlog from our semiconductor wafer fabrication assemblies is growing. Growth is being driven by rising semiconductor demand associated with AI, the need for more data centers, 5G deployment, and other factors, including ongoing efforts to localize semiconductor manufacturing. We anticipate the growth in semiconductor wafer fab equipment market will continue over the next several years, giving us time and resources to continue investing and growing our Green Energy Solutions business. We continue to take a conservative approach to expenses, as we remain focused on managing inventory levels and are committed to maintaining a healthy balance sheet. We believe these initiatives will help generate operating leverage as sales expand.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Our focus for the remainder of the fiscal year is to continue the positive momentum. We remain optimistic about the opportunities in our pipeline, and we are committed to delivering continued value to our shareholders. On behalf of everyone at Richardson Electronics, we look forward to updating you on the progress we're making. We'll be happy to answer any of your questions.

Operator

Thank you. As a reminder, to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. Ladies and gentlemen, due to the time constraints, we do ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and one follow-up until we have answered all questions, after which we will answer additional questions if time permits. One moment for our first question, and our first question is going to come from the line of Bobby Brooks with Northland. Your line is open. Please go ahead.

Bobby Brooks
Bobby Brooks
Analyst at Northland

Hey, good morning, guys. Thank you for taking my question. So in the press release-

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Good morning, Bobby.

Bobby Brooks
Bobby Brooks
Analyst at Northland

Good morning. So in the press release, you specifically call out new program wins and improving demand trends for legacy programs that drove the, you know, $3.7 million year-over-year increase in GES sales. So I was just curious, what were those new program wins? And then what were those legacy program wins? And just any more color you could provide on that would be appreciated.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

... Yeah, the biggest new program is what's going on throughout North America and in Europe is these large repowering of sites and wind turbines for all manufacturers of wind turbines. And so in the quarter, we booked and shipped a number of large orders for our ULTRA3000, which are being used in this repower program for the wind turbines. In addition to that, we shipped a number of products to 19 other customers, specific to replacing their lead-acid batteries and their turbines, and also the electric locomotive modules and our starter modules had good shipments in the quarter.

Bobby Brooks
Bobby Brooks
Analyst at Northland

Got it. Fair enough. And then, kind of following up on that is, I think it last month, where the team did its first trade show in Europe to introduce the ULTRA3000 family of solutions. So I just wanted to hear how that went. Breaking into Europe would obviously be a major needle mover for Richardson, and maybe if you could then touch on any key differences between the dynamics for selling to wind turbine operators in the Americas versus Europe.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Yeah, the need and want for our ULTRA3000 type product is as high in Europe as it is in North America. The difference, for the most part, is the number of GE turbines in Europe is much, much smaller than North America. So as we've talked about for the past year, we've been able to pretty much dominate the GE wind turbine owner-operators with our product. So the four major platforms in Europe are Suzlon, Senvion, Nordex, and SSB. We already have customers testing three of those that came from the show. But our booth was pretty full with people like Vestas, et cetera.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Again, going back to this repowering, their comment to me was, "We do not want to put any more lead-acid batteries in our turbines." When they do this repower, at that point in time, they're looking to replace all the lead-acid batteries with our now five platforms of ULTRA3000. Excuse me. We're really excited about the opportunity. We kind of have a lead on the competition with patents and exclusive design. The show really just confirmed what we've been being told, and we've come back, and we've gotten together here, and we're gonna put together an even increased launch of the product to get these customers to know that this product's available.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Because it seems once they know it's available, we're already in discussions and doing beta testing with them. So it was a great show. It confirmed a lot of things that we thought, and it looks like we're in a great position to take advantage of this global repower.

Bobby Brooks
Bobby Brooks
Analyst at Northland

That's terrific to hear. And just to confirm. It's not. You guys already have the products to place in these Nordex and the other three guys that you mentioned. It's not. You're not having to come up with a new solution, it's just kind of a plug and play, right?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Yeah. Right now, all five platforms and products were at our booth. There might be little things. I'll give you an example with Suzlon. With that large program we have going with Suzlon, India, in the end, they asked for a couple of tweaks. Put the handles in a different spot, move over the positive connector, which our engineering team is so talented, you know, to support the customer. We do these small tweaks. So there might be some small mechanical tweaks, but in terms of electrical performance, they're ready to go. And like I said before, they're being tested. I just want to add, Bobby, that this is a launch because of Europe, but there's also a number of farms in North America that have Senvion, Nordex, SSB, and Suzlon. We are also selling that there.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

In fact, we shipped some of those products, about 200 units of the SSB in North America. So it's a kind of a launch of new platforms, but the major launch would be, obviously, to get us into Europe, where we're not today.

Bobby Brooks
Bobby Brooks
Analyst at Northland

Awesome. Thanks for the call, guys, and congrats on the solid first quarter.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Thanks, Bobby.

Operator

Thank you. And one moment for our next question. And our next question is gonna come from the line of Anja Soderstrom with Sidoti. Your line is open. Please go ahead.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Hi, thank you for taking my question.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Good morning, Anja.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Good morning, and congrats on the nice progress here. I'm just curious, how is the system in India progressing?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

The program in India? Oh, yeah.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Yeah.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Just fantastic. In fact, we had a long meeting with them also in Europe. So the first phase will be for them to replace all the lead-acid batteries of their wind turbines that are in the field. In India, there's 9,000 today. We are in the final sign-offs. We fully expect production orders this quarter, probably starting at the end of the month, with the nice shipments between now and December, but majority of it will be the rollout, will be 2025. But in addition, we also have partnered with KEBA, who's the largest producer of pitch controls. That's the type of pitch control that Suzlon uses in their OEM product, and that design is complete, and they're forecasting about 1,000 new turbines a year, starting in 2025, and our product will be in that new turbine.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

So all the stuff we're doing now is obviously replacing lead-acid batteries in existing turbines in the field. Our first OEM order, and program will be with Suzlon, and every new, turbine they build will have our product in it, giving them a jump on the competition.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

... Okay, thank you. And what other sort of, what other products do you have in a prototype or beta testing where you see some near-term maybe orders coming through potentially?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Yeah, you know, a number of things are beta and some are beta plus. You know, the starter modules, we have that program going on with two of the largest diesel and electric locomotive manufacturers. The one program, they were here, it's been signed off by their CEO, and we're going to start shipping that product in volume starting January. Also, we have our inverter program that we're doing with them and also the wind turbine manufacturers. Those have moved from alpha to beta to beta plus. Again, we expect bookings this quarter or next. We have the other stuff we talked about. We have the emergency lighting program going on with Metra. That's getting final signatures. We have the microwave generator program in Korea with that customer.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

That's being tested with great success. We have the Ultra Fridge, which, you know, replaces the lead-acid batteries and refrigeration trucks. So yeah, a lot of things in queue, but, you know, one thing, as I mentioned, last year was challenging, but at no time did any of these programs stop. We continued to work with them. They continued to do the beta testing. We continued to tweak the product to meet their needs and their specific specs. And now we're seeing, as you saw in the quarter, shipments, and Q2 will be a very strong booking quarter for us, compared to the last few quarters.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

So yeah, a lot of things moving, but the good news is they've never stopped, and everything's been going, not on schedule, of course. We don't have a lot of patience, but the customer is very, very happy with our support.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Okay, thank you. That was helpful and, just one, a quick one more, on the inventory. Do you expect that to go down in dollar terms in the coming quarters, or?

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Hi, Anja, this is Bob Ben. If you're asking about the impact excluding foreign exchange, yes, it was a slight pickup of about $124,000, I think, if you look at our cash flow statement.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Okay, but going forward-

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Okay.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Do you expect the inventory to decline or you expect it to increase? Because you're sitting on a lot of inventory anyway.

Wendy Diddell
COO at Richardson Electronics

Right. We still have a lot of inventory. You know, we would expect that the efforts that we're putting in to control inventory, we're gonna continue to do that. As we've discussed before, we have one large vendor that the inventory will continue to grow, and that will happen through calendar year 2025. And as Greg mentioned in his script, that's in support of our long-term demand for our legacy products. That particular location, the factory, is ceasing production at the end of calendar year 2025, so we are adding inventory, and that will continue to grow. The other area that we anticipate will continue to show some growth is in green energy.

Wendy Diddell
COO at Richardson Electronics

As Greg just mentioned, we have a number of programs, and, we don't think it's necessarily gonna grow substantially, but we are willing to invest in that area as he brings these new products to market. We have plenty of the ULTRA3000s already built in stock. We have plenty of ultracapacitors to build more in stock, but there could still be some increases for some of the other programs. So we don't want to rule that out per se. On the other hand, you know, we continue to monitor. Greg's group is doing a phenomenal job of going through every order, every requirement for inventory, making sure it's going to ship when it comes in, and that's where we're seeing some of the offsets.

Anja Soderstrom
Anja Soderstrom
Analyst at Sidoti

Okay, thank you. That was helpful. I'll get back in queue.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Thanks, Anja.

Operator

Thank you, and one moment for our next question, and our next question comes from the line of Chip Rewey with Rewey Asset Management. Your line is open. Please go ahead.

Chip Rewey
Analyst at Rewey Asset Management

Good morning-

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Good morning, Chip.

Chip Rewey
Analyst at Rewey Asset Management

... Wendy, Ed, and everybody. Good quarter. Does seem like, we're finally inflecting off the bottom, and things look good. Can you give a little more detail on the inventory? How much of it is PMT for semis, how much would be green energy, and how much kind of everything else? And then, maybe just assure us that the inventory is all still kind of state-of-the-art and ready to ship, and, because it's so large, there's no aging, product life cycle on that side. So that's one question. And, second, again, with positive cash, positive operating cash flow and, kind of the good forward, thoughts on continuing cash, seemingly now might be a good time to start, repurchasing a modest amount. I mean, not huge, but, what do you think of that, Ed?

Chip Rewey
Analyst at Rewey Asset Management

All right. Thank you.

Wendy Diddell
COO at Richardson Electronics

All right. Let me start with the inventory question, and then I'll turn it over to either Bob or Ed, and they can talk about what to do with this cash. In terms of inventory, where it kind of breaks out, there was $111 million at the end of Q1, and about $21.5 million or so of that is related to green energy. We don't break PMT down by how much of that growth or how much of that inventory is related to the semiconductor market, so I can't tell you that off the top of our head here. What I can tell you is we feel very good about the inventory we have. We don't see any risk there.

Wendy Diddell
COO at Richardson Electronics

Again, as I mentioned, a lot of it is coming, a lot of the growth has come from one of our largest suppliers for tubes, and we've done this in the past, where we've had to add extra inventory when we were stopping production, and we've sold through every single tube we have. So we also go through with BDO every quarter and every year a very in-depth analysis of our inventory. They question everything we do. They look at every quote that's out there, and we're not seeing, again, any risk there.

Wendy Diddell
COO at Richardson Electronics

And then finally, with any of the growth that is associated with our other growth initiatives, including the PMT business, Greg and his team have negotiated inventory balancing, inventory stock returns, and all of those programs to make sure, again, that we always have the most current inventory that we need to serve the customer base. So with that, let me let the other guys answer the cash flow question.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Well, we're always asked, you know, at some point, are we going to start to rebuy the stock? One of the things that's occurring is the semiconductor wafer fab business is starting to increase, and that takes a lot of inventory and a lot of resources. And as you probably know, in a good year, our semi wafer fab business is over $40 million, and last year it was below $20 million. So if it turns around and that, Lam Research and Applied Materials and these companies are in that business are telling us that 2025 is gonna be larger than ever, it will take a substantial amount of our cash to fund that growth.

Wendy Diddell
COO at Richardson Electronics

Bob, you want to talk about where the cash is located?

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Yeah. In addition to that, we do have of our $23 million in cash, at the end of the first quarter, approximately $3.5 million was in the U.S., and the rest is spread among 20 or so foreign subsidiaries that we need the cash to operate our foreign subsidiaries. As you know, over 55% of our sales are outside of the United States. So, you know, we're constantly managing cash flow, moving money around, but you know, we need to manage it very carefully at this point.

Chip Rewey
Analyst at Rewey Asset Management

Okay, great. All right, guys. Congrats again. Thank you.

Wendy Diddell
COO at Richardson Electronics

Thank you.

Operator

Thank you. And as a reminder, if you would like to ask a question, please press star one one on your touch tone telephone. And our next question is gonna come from the line of Andrew Rem with Odin Partners. Your line is open. Please go ahead.

Andrew Rim
Analyst at Odinson Partners

Hi, Geg, Andrew. I just want to follow up on the inventory question. Wendy, how much is related to the one vendor, or how much do you expect to increase it with the one vendor?

Wendy Diddell
COO at Richardson Electronics

I don't have that part of the presentation in front of me, Andrew, but I would say that. Go ahead. Go ahead, Bob.

Robert J. Ben
Robert J. Ben
CFO at Richardson Electronics

Okay. We have about $30 million total with the one vendor, and we are forecasting over a $10 million increase this year. Although, as Wendy said, you know, this quarter and continuing through this year, we expect to make continued progress on reducing inventory in our other parts of the business.

Wendy Diddell
COO at Richardson Electronics

And then also-

Andrew Rim
Analyst at Odinson Partners

Okay

Wendy Diddell
COO at Richardson Electronics

... Andrew, that inventory again, will grow through the end of calendar year 2025, and at which point, if we will start burning it down.

Andrew Rim
Analyst at Odinson Partners

Right. Okay. And then I think you said, on the MX series in healthcare, did you say you're planning to launch those later in calendar 2025 or fiscal 2025?

Wendy Diddell
COO at Richardson Electronics

Fiscal 25.

Andrew Rim
Analyst at Odinson Partners

So will any of those go towards the back end of calendar 2024?

Wendy Diddell
COO at Richardson Electronics

I don't think so. You know, we wanna make sure we get through life test, and, you know, right now we're about maybe 20%-25% through life test. It's going well, but we need to get through that, and we need to file all of our work instructions with the FDA. So I think that's gonna take us through the end of the year, and you'll see it in, you know, our Q3, possibly. If there's any issues, it could be as late as our Q4. But right now it looks good.

Andrew Rim
Analyst at Odinson Partners

Is the first quarter, which is not quite annualizing, close to $16 million, is that a reasonable run rate, and maybe you get a bump with the commercial launch of the MX series?

Wendy Diddell
COO at Richardson Electronics

We would definitely get a bump with the commercial launch of the MX series. I can't tell you that that's a, you know, going to be our run rate going forward. A lot of it, again, is predicated on the market. And, you know, so right now, for example, we're seeing a slowdown in our system sales that go to Latin America. More difficulty getting money from our customers there to pay for the systems. So I don't want to say that, you know, $3.5 million is our run rate. We're not ready to say that. What we can say is that we're in more steady delivery, production and delivery of the repaired Straton Z, and that's gonna help, you know, move that needle up. But the MX series will definitely be a commercial bump.

Andrew Rim
Analyst at Odinson Partners

And then for healthcare, is the operating expense running at about a $6.5 million annualized run rate? Is that roughly correct?

Wendy Diddell
COO at Richardson Electronics

Let's see. I think it's a one five. That'd be, you said six million, Andrew?

Andrew Rim
Analyst at Odinson Partners

6.5.

Wendy Diddell
COO at Richardson Electronics

Six and a half? That's probably a little high. Less than that.

Andrew Rim
Analyst at Odinson Partners

Okay. So is, I mean, you said earlier that you're close to kind of breakeven. If you get either a little bit of a lift on the revenue or is there an opportunity with maybe some of the newer MX series, you could get some lift on gross margin, and that kind of pushes it over the hump to kind of breakeven?

Wendy Diddell
COO at Richardson Electronics

Yes, both of those factors will be in play. This, the Siemens series, all of them, the ZM, the MX series, are better margin for us. So we'll definitely provide some upside there.

Andrew Rim
Analyst at Odinson Partners

All right. And then maybe one for Greg. On the PMT and GES backlog, you said it was 97, so that was a sequential decline. Was all of the decline, was that all GES?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Most of it was, and most of the reduction in inventory was also GES. You know, sales were up 27%, so the book-to-bill was below one, so that lowered our backlog a little bit. But it's still so strong at $97 million, and I think GES is up over 40%. But we're seeing so far, and I think we're over the halfway point of Q2. It looks to me like that backlog will be back. Very strong book-to-bill right now and very strong bookings this quarter, so.

Andrew Rim
Analyst at Odinson Partners

On the gross margins, I mean, you noted they were a little bit below, but if we think about kind of the historic 30-32, are you guys still kind of comfortable with that on a, you know, more of a trailing twelve months basis?

Wendy Diddell
COO at Richardson Electronics

For the total company, Andrew?

Andrew Rim
Analyst at Odinson Partners

No, just for those two segments, PMT and GES.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Yeah. It's really quarter to quarter in terms of product mix. Obviously, we make more margin, strong margin on our engineered solutions products and lower margin on our components business when we're just designing in the components to a separate customer's design, versus when we use those components and then design to manufacture our own products here. So, you know, that'll be kind of moving around as the % of our sales, that's components and the % of our sales, that's engineered solutions, but it'll be, you know, 30-plus margin overall.

Wendy Diddell
COO at Richardson Electronics

The other thing to add to that, Andrew, is that as these new programs go into production and as the semiconductor market continues to improve and recover, we will see an improvement, or let's call it a reduction, in the under absorption, which is a direct hit to the gross margin. When you look at under absorption for the total company for Q1, I think it was about a 1.5% reduction in our gross margin. As, again, as we see those programs go into full production, that's gonna pick up the slack, and you're gonna see a margin improvement from that.

Andrew Rim
Analyst at Odinson Partners

All right. Thank you. That's great color. Appreciate it, you guys.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Yep.

Wendy Diddell
COO at Richardson Electronics

Thanks, Andrew.

Operator

Thank you. One moment for our next question, and our next question is gonna come from the line of Ross Taylor with ARS Investment Partners. Your line is open. Please go ahead.

Ross Taylor
Analyst at ARS Investment Partners

Thank you, and congratulations.

Andrew Rim
Analyst at Odinson Partners

Good morning, Ross.

Ross Taylor
Analyst at ARS Investment Partners

Congratulations on the continued improvement in the business trends.

Andrew Rim
Analyst at Odinson Partners

Thank you.

Ross Taylor
Analyst at ARS Investment Partners

Real quick, you commented, and we've talked in the past about how you've been told by your semi-cap equipment customers that 2025 was going to be effectively a record year. Question, is that a calendar year? And also, a record year, you indicated, is basically somewhat north of $40 million, and it appears that from backing out numbers, that this is far and away your most profitable business, perhaps with an operating margin half again what we see in some other parts of the business. So I'm curious, are you looking at 2025 calendar being a $40 million plus run rate, potentially in revenues for-

Andrew Rim
Analyst at Odinson Partners

Yeah

Ross Taylor
Analyst at ARS Investment Partners

... semi-cap equipment?

Andrew Rim
Analyst at Odinson Partners

Yes.

Ross Taylor
Analyst at ARS Investment Partners

Yeah.

Andrew Rim
Analyst at Odinson Partners

In calendar-

Ross Taylor
Analyst at ARS Investment Partners

Okay

Andrew Rim
Analyst at Odinson Partners

... 2025.

Ross Taylor
Analyst at ARS Investment Partners

Yeah, calendar.

Andrew Rim
Analyst at Odinson Partners

You're correct.

Ross Taylor
Analyst at ARS Investment Partners

Yeah.

Ross Taylor
Analyst at ARS Investment Partners

That's probably our highest margin.

Ross Taylor
Analyst at ARS Investment Partners

Yeah, 'cause I mean, to me, it backs out. It looks like it, as I said, about half again, perhaps what you're carrying and, you know, perhaps other some other parts of the business that we've just talked about. Also-

Andrew Rim
Analyst at Odinson Partners

Right.

Ross Taylor
Analyst at ARS Investment Partners

You've commented you have inventory. How much of the semi-cap equipment business you're expecting to do you think you're gonna be able to fill by drawing down inventories versus new builds?

Wendy Diddell
COO at Richardson Electronics

Ross, so we don't have that detail in front of us. You know, that might be something we can discuss offline.

Ross Taylor
Analyst at ARS Investment Partners

Sure, that would be great. 'Cause I would think that, obviously, that will help in cash conversion and help in financing the growth in the space that you were indicating you need, will need to finance. Additionally, you were talking about battery starter packs and like, what are we looking at on a dollar per unit basis for those? And what kind of unit volume are you thinking you're gonna be able to do, you know, over the next 12, 15 months?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Yeah, I can't share. We have NDAs, and I'm not gonna let my competition knows what I sell for these. But right now we have an agreement for a thousand trains.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

But that's only for one end customer.

Ross Taylor
Analyst at ARS Investment Partners

Okay.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Right now, the product's being featured at their trade show at McCormick Place, and they fully expect to get more.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

... train owner-operators to install this great product. So but right now, on the books, about 1,000 trains next year.

Ross Taylor
Analyst at ARS Investment Partners

Okay. So it's gonna be a meaningful driver on the revenue side in the next 12-15 months than you would expect?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

It'll be a strong part of it, absolutely.

Ross Taylor
Analyst at ARS Investment Partners

Okay, great. 'Cause I mean, it just looks to me like, once again, we're setting up for having gone through a pretty sloppy, you know, last twelve, fifteen months. It looks like we're really setting up for, you know, a return to some really meaningful profitability, meaningful revenue growth, and setting the stage to really kind of launch you guys into the twenty twenty-five, twenty twenty-six, and beyond on a strong foot. Is that where you guys see things?

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Absolutely.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Yes, absolutely.

Ross Taylor
Analyst at ARS Investment Partners

Okay, great. I'll leave it back. I would just say, obviously, as you free up cash flow, don't be afraid to put some of it. You can probably afford to have a small amount of leverage. I wouldn't argue putting a lot of leverage on the balance sheet, but perhaps if you do something strategic with the medical, you know, with the medical imaging business, you can put some of those proceeds towards reducing the share base outstanding. Because it strikes me as you're setting up, you did it around $1.50, it had some one-time items in it, you know, in your peak earnings year recently, and I think that, you know, so if we look at a return anywhere close to that, you know, you're a pretty, pretty inexpensive stock here. In fact, a brutally inexpensive stock.

Ross Taylor
Analyst at ARS Investment Partners

I think investors would be really happy to see even a minor commitment by the company to reducing the shares outstanding. Thank you for-

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Oh, we always consider it.

Wendy Diddell
COO at Richardson Electronics

Thanks, Ross.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Thank you.

Ross Taylor
Analyst at ARS Investment Partners

Thank you.

Wendy Diddell
COO at Richardson Electronics

So we'll talk to you soon.

Ross Taylor
Analyst at ARS Investment Partners

Take care.

Ross Taylor
Analyst at ARS Investment Partners

Bye-bye.

Greg Peloquin
Greg Peloquin
General Manager of Power and Microwave Technologies Group at Richardson Electronics

Thank you, Ross.

Operator

Thank you, and I'm showing no further questions at this time, and I would like to hand the conference back over to Ed Richardson for his closing remarks.

Edward J. Richardson
Edward J. Richardson
CEO at Richardson Electronics

Thank you again for joining us today. We appreciate your investment and interest in Richardson Electronics, and you're welcome to call us at any time. We're always free and happy to talk to you, and we look forward to our ongoing discussions and sharing our second quarter results with you in January. Thanks very much.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Executives
    • Edward J. Richardson
      Edward J. Richardson
      CEO
    • Robert J. Ben
      Robert J. Ben
      CFO
    • Greg Peloquin
      Greg Peloquin
      General Manager of Power and Microwave Technologies Group
    • Jens Ruppert
      Jens Ruppert
      General Manager of Canvys
Analysts
    • Wendy Diddell
      COO at Richardson Electronics
    • Bobby Brooks
      Analyst at Northland
    • Anja Soderstrom
      Analyst at Sidoti
    • Chip Rewey
      Analyst at Rewey Asset Management
    • Andrew Rim
      Analyst at Odinson Partners
    • Ross Taylor
      Analyst at ARS Investment Partners
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