Richardson Electronics Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 10, 2025

Key Takeaways

  • Q3 net sales grew 2.7% YoY to $53.8 M, driven by a 139% surge in semiconductor wafer fab sales and a 39.5% jump in Canvas segment.
  • The company generated positive operating cash flow for the fourth consecutive quarter, ended Q3 with $36.7 M in cash and no debt, and declared a $0.06/share dividend.
  • Richardson sold its Healthcare business for $8.2 M, recorded a one-time $4.9 M charge but expects the divestiture to simplify operations and refocus on higher-growth core segments.
  • Backlogs remain strong at $95 M in PMT and GES combined and $36.6 M in Canvas, while management plans further investments to accelerate new product introductions in Green Energy Solutions.
  • With only ~5% of purchases exposed to China tariffs and a duty-drawback process in place, the company anticipates limited supply-chain disruption and potential upside from US content mandates.
AI Generated. May Contain Errors.
Earnings Conference Call
Richardson Electronics Q3 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good day and thank you for standing by. Welcome to the Richardson's Electronics Earnings Call for the Third Quarter of Fiscal Year twenty twenty five. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

Operator

You will then hear an automated message advising you your hand is raised. To withdraw your question, please press 11 again. 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, sir.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Good morning, and thank you all for joining Richardson Electronics' conference call for the third quarter of fiscal year twenty twenty five. Joining me today are Bob Ben, Chief Financial Officer Wendy Dedell, Chief Operating Officer Greg Peliklin, General Manager of our Power and Microwave Technologies Group, which includes Green Energy Solutions and Jens Ruppert, General Manager of Canvas. Today's comments include GAAP and non GAAP financial results. A detailed reconciliation between GAAP and non GAAP results can be found in the press release. As a reminder, this call is being recorded and will be available for playback.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

I'd also like to remind you that we'll be making forward looking statements. They are 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. During the third quarter, we saw significant growth across key segments.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Our semiconductor wafer fab sales surged by 139%, while canvas sales increased 39.5%. We achieved positive operating cash flow for the fourth consecutive quarter, ending with no debt and $36,700,000 in cash and equivalents, while this was helped by $8,200,000 from the Healthcare asset sale in Q3 FY twenty twenty five, the company also generated cash from its ongoing business. We believe our strong balance sheet is important competitive advantage with our customers and supports our long term strategies. Despite the onetime $4,900,000 health care charge representing the loss on the sale of assets, we're encouraged by our fiscal Q3 twenty twenty five results. Excluding the charge, our non GAAP operating profit for the quarter rose to $2,200,000 up from $1,000,000 last year.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

This sale marks the initial step in our strategic focus on our core businesses, particularly on Green Energy Solutions segments. The current operating environment is extremely fluid and impacting our business in different ways. Greg, Jens and Wendy will provide additional details in their prepared remarks on our near and long term expectations for our markets. Overall, we believe Richardson Electronics is well positioned to capitalize on current policies intended to drive manufacturing back to The U. S.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

And to increase the need for U. S. Content. With our global infrastructure and strong vendor partnerships, we're prepared for supply chain readjustments and will benefit from the larger policy environment. Before we discuss the sale of our Healthcare business and our go forward strategy, I'll turn the call over to Bob Ben, our Chief Financial Officer, who'll provide a detailed review of our third quarter financial results and capital position.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Following Bob's remarks, Greg and Jens will provide updates on our business unit performance, and then Wendy will follow-up with more details on the Healthcare divestiture in our future.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

Thank you, Ed, and good morning. I will review our financial results for our third quarter and first nine months of fiscal year twenty twenty five, followed by a review of our cash position. In addition, please note that I will be discussing non GAAP financial measures. A reconciliation of non GAAP items to the comparable GAAP measures is available in our third quarter fiscal year twenty twenty five press release that was issued yesterday. Consolidated net sales for the third quarter of fiscal twenty twenty five increased 2.7% to fifty three point eight million dollars compared to net sales of $52,400,000 in the prior year's third quarter. This was our third consecutive quarterly year over year increase in sales. Third quarter net sales growth was led by a 39.5% increase in sales for our Canvas business unit and a 6.6% increase in PMT sales, which was due to higher sales to semiconductor wafer fab customers. Sales growth for the third quarter of fiscal twenty twenty five was partially offset by a $1,000,000 decrease in Healthcare sales from lower net sales in February 2025 after the sale of the majority of Healthcare assets. In addition, there was a $2,200,000 decline in GES sales, reflecting lower sales of wind turbine battery modules, which are project based and can vary by quarter. Consolidated gross margin for the third quarter was 31% of net sales compared to 29.5% during the third quarter of fiscal twenty twenty four.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

The largest component of the 150 basis point increase in consolidated gross margin was due to margin expansion in both PMT and GES. PMT's gross margin increased to 30.8% from 28.3% as a result of an improved product mix. GES gross margin increased to 32.8% from 26.6% also due to product mix. Partially offsetting these improvements in gross margin was lower gross margin for both Canvas and Healthcare compared to the prior year's third quarter. Operating expenses as a percentage of net sales improved to 26.9% for the third quarter of fiscal twenty twenty five compared to 27.6% in the third quarter of fiscal twenty twenty four.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

Loss on disposal of assets of $4,900,000 resulted from the sale of the majority of healthcare assets to DirectMed Imaging on 01/24/2025. Included in the loss was $1,400,000 in excess components that are not needed once the exclusive supply agreement for manufacturing AltaTubes is completed, 1,100,000.0 for intangible assets from the IMES purchase that are no longer needed, A $1,200,000 margin loss on sales of Alta tubes as detailed under the exclusive supply agreement. A $500,000 write down of Alta related fixed assets that will no longer be needed after the exclusive supply agreement ends and $700,000 in other directly related costs. In future periods, Healthcare's financial results will no longer be a standalone segment and will be consolidated into the company's PMT business unit. Operating loss was $2,700,000 and non GAAP operating income was $2,200,000 for the third quarter of fiscal twenty twenty five compared to an operating income of $1,000,000 in the prior year's third quarter.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

Net loss was $2,100,000 and non GAAP net income was $1,600,000 for the third quarter of fiscal twenty twenty five compared to a net income of $800,000 in the third quarter of fiscal twenty twenty four. Net loss per common share diluted was $0.15 and non GAAP earnings per common share diluted were $0.11 in the third quarter of fiscal twenty twenty five compared to earnings per common share diluted of $05 in the third quarter of fiscal twenty twenty four. EBITDA for the third quarter of fiscal twenty twenty five was a negative $2,100,000 EBITDA after adjusting to exclude the loss on sale of the majority of healthcare assets or adjusted EBITDA was $2,800,000 versus $2,100,000 in the prior year's third quarter. Turning to a review of the results for the first nine months of fiscal year twenty twenty five. Net sales for the first nine months of fiscal year twenty twenty five were 157,000,000 an increase of 5.3% from $149,100,000 in the first nine months of fiscal year twenty twenty four, which primarily reflected higher sales in PMT and GES.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

Gross margin was 30.8% of net sales, which was 50 basis points higher than the first nine months of fiscal year twenty twenty four, primarily due to product mix. As a percentage of net sales, operating expenses for the first nine months of the fiscal year were 29.7% compared to 30% for the first nine months of the prior fiscal year. Loss on disposal of assets of $4,900,000 resulted from the sale of the majority of healthcare assets to DirectMed Imaging in January 2025. Operating loss was 3,100,000.0 and non GAAP operating income was $1,800,000 during the first nine months of fiscal twenty twenty five compared to operating income of $500,000 during the first nine months of fiscal twenty twenty four. Net loss was $2,200,000 and non GAAP net income was $1,400,000 for the first nine months of fiscal twenty twenty five versus a net income of $200,000 during the first nine months of fiscal twenty twenty four.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

Net loss per common share diluted was $0.16 and non GAAP earnings per common share diluted was $0.10 for the first nine months of fiscal twenty twenty five compared to $01 earnings per common share diluted for the first nine months of fiscal twenty twenty four. EBITDA for the first nine months of fiscal twenty twenty five was negative $500,000 Adjusted EBITDA was $4,500,000 versus $3,500,000 in the prior year's first nine months. Moving to a review of our cash position. Cash and cash equivalents at the end of the third quarter of fiscal twenty twenty five were $36,700,000 and $28,500,000 when excluding the sale of healthcare assets compared to $26,600,000 at the end of the second quarter of fiscal twenty twenty five. Cash flow provided from operations was $4,600,000 compared to cash flow used in operations of $2,500,000 in the prior year's third quarter.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

This was the fourth consecutive quarter of positive operating cash flow. Capital expenditures of $500,000 in the third quarter of fiscal twenty twenty five were primarily related to our facilities and IT systems versus $400,000 in the third quarter of fiscal year twenty twenty four. As a result, free cash flow was $4,100,000 for the third quarter of fiscal twenty twenty five. We paid $900,000 in cash dividends in the third quarter of fiscal year twenty twenty five. In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of $06 per common share, which will be paid in the fourth quarter of fiscal twenty twenty five.

Robert Ben
Robert Ben
Executive VP, CFO, Chief Accounting Officer & Corporate Secretary at Richardson Electronics

As of the end of the third quarter of fiscal twenty twenty five, the company had no outstanding debt on its $30,000,000 revolving line of credit with PNC Bank. And now I will turn the call over to Greg, who will provide more details for our PMT and GES business groups.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Thank you, Bob, and good morning, everyone. Coming out of FY twenty twenty four, specifically in GES, we had a strong backlog, numerous new product introductions, expanded customer base and several development programs transitioning from beta testing to preproduction. Building on that positive momentum, we expect a growth this year. We are pleased to report that Q3 GES sales totaled $9,300,000 a 55% increase over our most recent Q2, but down 19% year over year as a result of lower sales in the wind turbine battery modules, which are project based and can vary by quarter. However, on a year to date basis, GES sales are $23,000,000 an increase of 26% over the prior year.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Based on our current backlog, we expect year over year growth in Q4 FY twenty twenty five and for the full year. Our pitch energy modules and related wind energy products continue to gain market share coming from new customers and key owner operators who recently completed beta testing. Today, we serve dozens of wind turbine owners and operators, including exclusive partnerships with the top four owner operators of GE wind turbines RWE, InverEnergy, Enel and NextEra. Additionally, we continue to grow the program globally, expanding into Europe and Asia with new products and other turbine platforms such as Suzlan, Senvion, Nordex and SSB. Our GES growth strategy is focused on power management applications.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

In a short time, we have designed multiple products, received several patents and built a growing base of large global industry leading customers and technology partners. Our success is evident in our growing global pipeline as we capitalize on numerous growth opportunities to support significant energy transformation and wind turbine repowering projects. Continuing in Q4, we will make further investments to our organization to expedite the new product introduction process and global expansion. We need to get products to market faster. And in FY 2026, will making the necessary investments to meet these strategic objectives.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Turning to Power and Microwave, or PMT, which includes Electron Device Group, or EDG, our legacy tube and semiconductor wafer fab equipment business and the Power and Microwave Components Group. Sales were $32,200,000 up 7% compared to the prior year, led by growth in our RF and Microwave Components business and our semi fab equipment manufacturing customers. Our combined GES and PMT backlog remains strong at $95,000,000 at the end of Q3. The team has done a good job making sure we have the right products at the right time and in our inventory decreases again in the third quarter, the company generate positive cash flow. We remain focused on managing all aspects of the business to maximize profits, while meeting the needs of our expanding customer base.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Heading to the fourth quarter and next fiscal year, we are excited about the opportunities within our PMT and GES businesses. While, like many companies, we are navigating a high degree of near term uncertainty associated with the impact of new reciprocal tariffs and marketing conditions, but we are also pursuing opportunities that may come from these disruptions. Throughout calendar year 2025, we expect limited market growth in The U. S, but we expect Richardson will continue to grow sales by grabbing market share and introducing new products. A key component of our growth strategy is selectively expanding our global technology partnerships and engineered solution products.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

We continue to add new partners who address technology gaps in our offerings and align with our strategic growth priorities. Through these partnerships, we often identify opportunities for new products that we design, manufacture and test in house. This approach enhances the value we provide our customers and allows us to capture more revenue while expanding and diversifying our customer base. Our technology partnerships are extremely strong. And when appropriate, we collaborate on new component design and development, strategic purchases and long term planning.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

These technology partnerships are key to the customer relationships for all of our products. We're investing in the infrastructure to support our growth. This includes hiring talented design and field engineers and enhancing our design and manufacturing capabilities. Our growing in house design, engineering and manufacturing teams are doing a good job supporting increased demand for current products and new product designs. Our field engineering team continues to identify new customers and opportunities.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

We need to invest in the team to keep identifying, developing and introducing innovative products and technologies for green energy, power management, and RF and microwave applications. Our unique global capabilities and global go to market strategy set us apart in the power management, RF and microwave, and green energy markets. We've developed a unique business model that combines legacy products with new technology partners and solutions, aligning with our growth strategy to deliver engineered solutions to a global customer base. This model differentiates us from all of our competitors. And finally, as a global company, we are analyzing the effects of the announced tariffs, and we will make needed adjustments to our global supply chain to continue our growth.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And with that, I'll turn it over to Jens to discuss Canvas.

Jens Ruppert
Jens Ruppert
Executive VP & GM of Canvys at Richardson Electronics

Thanks, Craig, and good morning, everyone. Canvas engineers, manufacturers, and sells custom displays to original equipment manufacturers across global industrial and medical markets. It is our mission to deliver high quality display solutions tailored to our customers' needs. Net sales increased 39.5% to $9,200,000,000 during the third quarter of fiscal twenty twenty five compared to $6,600,000,000 in the third quarter of fiscal twenty twenty four, driven by higher sales in North American markets. Gross margin as a percentage of net sales decreased to 33.2% during the third quarter of fiscal twenty twenty five from 34.4% during the third quarter of fiscal twenty twenty four, primarily due to product mix.

Jens Ruppert
Jens Ruppert
Executive VP & GM of Canvys at Richardson Electronics

Our backlog at the end of the fiscal twenty twenty five third quarter remains strong at $36,600,000 providing a robust foundation for future business. During the quarter, CANVAS received orders from both repeat and new medical OEM customers for various applications. Our focus remains on robotic assisted surgery, navigation, endoscopic and human machine interface solutions for controlling medical devices. Additionally, our solutions are extensively utilized in various commercial and industrial applications. For example, our products improve passenger information systems in trains and buses and enhance HMI technologies employed in printing, vending, milling and packaging equipment.

Jens Ruppert
Jens Ruppert
Executive VP & GM of Canvys at Richardson Electronics

Our strategic initiatives aim to increase Canvas' visibility and market leadership. We seek new opportunities and build connections with potential customers to drive growth and innovation. We also engage with industry peers and stakeholders to strengthen our market presence through collaboration. Looking ahead, we are cautiously optimistic about improving demands in our markets. Positive indicators such as increasing requests for quotes and encouraging customer feedback suggest a steady recovery.

Jens Ruppert
Jens Ruppert
Executive VP & GM of Canvys at Richardson Electronics

Our dedicated sales team continues to explore new opportunities while I focus on implementing strategic plans to ensure sustainable growth and deliver long term value for our shareholders. I will now turn the call over to Wendy.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Thank you, Jens, and good morning, everyone. Under the terms of the January 20 asset sale, Richardson Electronics sold the healthcare business unit for $8,200,000 but retained its CT tube engineering, repair, and manufacturing assets under an exclusive ten year global supply agreement with DirectMed Imaging. The company will continue to support DirectMed through the term of this agreement with prepared Siemens CT X-ray tubes. We will also make a limited supply of ULTA CT X-ray tubes, but will sunset complete our quantity commitment. We anticipate this could take twelve to eighteen months and may continue to generate a loss for the company in FY twenty six.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

While the company reported a loss on sale of assets, the strategic transaction is expected to simplify the company's business, improve Richardson's financial model long term, and allow the company to prioritize profitable opportunities within higher growth markets. The remaining assets of the Richardson Healthcare business, primarily CT tube manufacturing and repair, will be consolidated into the company's PMT reportable segment beginning with Q4 FY twenty twenty five. Richardson Electronics intends to use proceeds from the asset sale to invest in the company's growth initiatives, primarily our Green Energy Solutions business unit and other high growth complementary businesses. As we navigate a more fluid economic environment, we believe maintaining a strong balance sheet will give us the flexibility needed to expand our position with our customers. It will also allow us to pursue opportunities to emerge stronger from this economic period and with a larger market share.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

As Greg discussed earlier, there are many exciting opportunities for growth just within PMT and Green Energy Solutions. We will continue our strategy of leveraging our core engineering capabilities and technology partnerships with our in house and US based manufacturing to expand higher value sales and power management applications. Our success in developing patented products, including our ultra capacitor based pitch energy modules and EV train starter modules is a good example of how we successfully expand our markets and grow our scale. We deal in markets and applications that have large TAMs. We will continue to add resources that will allow us to increase market share on a global basis.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

We believe our success in these large power management applications supports additional opportunities across other power management and energy transformation markets. This includes the battery energy storage solutions Greg discussed that are supported by advancements in battery technologies and the rising demand for energy storage and grid stability. Technologies are evolving and the use cases are wide. These include renewable energy integration, peak shaving and load shifting, backup power for remote or critical sites, and EV charging. Market size and growth rates vary but are sizable.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Fortune Business Insights valued the global energy storage market at $25,000,000,000 in 2024, up from $18,000,000,000 in 2023. They project it to grow to $114,000,000,000 by 02/1932, reflecting a compound annual growth rate of 21% during the forecast period. With ever increasing demand for power and the company's ability to act nimbly with new technologies, Richardson Electronics is well positioned to differentiate itself in global niche markets like energy storage. As a result of the healthcare transaction and more recent made in America mandates, we are redefining our growth strategy that we believe will reposition the company for sustainable growth by expanding our capabilities and our patented technology and optimizing our operational efficiencies. In the near term, we will make further investments in our business development and engineering teams to improve our reach and time to market.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Longer term, we will also consider acquisitions that meet strict financial and operating requirements, including market applications, manufacturing requirements, geography, profitability, and cash flow. As technology evolves, power management technologies evolve with it and our strategy is to provide flexible solutions that further differentiate the company. Selling the assets of Richardson Healthcare served as an important catalyst that is driving our efforts to look for external opportunities to add scale and new capabilities. We are in the early stages of our strategic plan development, but have a solid foundation on which to build. We are positioning Richardson Electronics to be a leader in power management and power conversion solutions for the markets we serve.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Given our current priorities, we expect our M and A strategy will develop later in FY 2026. We look forward to sharing more on future calls. I'll now turn the call back over to Ed.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Thanks, Wendy. We're excited about the future of Richardson Electronics. While power grid tubes will always be at the heart of the organization, repositioning the company as a leader in power management brings a new level of focus. Despite persistent global economic and political challenges, we delivered 4.9% growth in Q3 from our core business units. In the near term, we continue to see good opportunities with the rising semiconductor wafer fab equipment demand and for many new products and geographical expansion in our Green Energy Solutions business.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Our cash position from the sale of Healthcare and the team's success in converting inventory to cash puts us in an excellent position to continue investing in our growth strategies and push forward the company's agenda to be a significant player in power management solutions. On behalf of everyone at Richardson Electronics, we look forward to sharing more details with you in the coming quarters. We'll now open the call for questions.

Operator

Thank you. Ladies and gentlemen, due to time constraints, we 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 had a chance to ask all questions, after which we will answer additional questions from you as time permits. Again, to ask a question at this time, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again.

Operator

One moment for our first question. Our first question is going to come from the line of Anya Sonestorm with Sidoti. Your line is open. Please go ahead.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Hi, and thank you for taking my questions. Nice job on the GS business here with the sequential growth. What do you you mentioned the backlog there remains strong, but what should we expect in terms of the sequential growth going from here?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Well, you know, there's a lot going on out there, but we fully expect based on our backlog, our inventory position, as you know, we made a strategic purchase to make sure we had, stock that we expect to grow in the fourth quarter and in FY twenty six. Probably the best visibility I can give you. But definitely with our backlog and current shipping schedule, we expect to grow.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

And terms of the pipeline, I mean, the sales cycles has been quite prolonged. Are you seeing any sort of cancellations or anything? Or are the projects still viable and just being pushed out to future periods?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Yeah, no cancellations. I mean, timing of things aren't we're not happy with. We don't have a lot of patients anyway. But every one of the programs and the products that we've identified with help from our field team and our customers and our design teams that we feel we can win at, they're all moving forward. And as Wendy mentioned, in FY twenty six specifically, starting now, we're going to invest to expedite getting products to market faster, but, very, very positive in terms of things moving forward.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

No cancellations, no programs, delayed. It's just kind of on our end and then these NPI processes, these are new products, highly technical, and, they just take some time, but, they're all moving forward, which is very exciting.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Okay, thank you. And with the fab business, I also expected that to remain strong. What are you seeing there?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Well, again, not a lot of visibility. We had a very strong quarter. We expect to have a growth in the fourth quarter also, and we'll have growth for the fiscal year. I wasn't on the call, but I'll let Wendy add she listened in on the lamb corporate call, and they're predicting growth in what would be our FY '26.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

That's correct, Anya. They wouldn't. This was a call that we had yesterday, and it was predominantly regarding tariff strategy. So, they're in a quiet period, and they didn't comment on the balance of calendar year 'twenty five or calendar year 2026, but they have excellent strategies in place to manage these tariffs. And we've been working with them really over the past year to make sure that tariffs don't impact our component prices to any extreme extent, and that's really what their call was with all of their suppliers, is making sure that everybody moves things around and they're going to make some changes possibly on where they manufacture certain equipment for certain countries, but they appear to be in good shape.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And Anya, I'd like to add to that. I just want to mention that the batteries and the ultracapacitors that we use in our Ultra 3,000, our new pitch energy module, multi brand, our starter modules for the diesel locomotive industry, they are not made in China. So that was a positive thing in terms of those specific products, which are key to a number of our, engineered solutions.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Okay, thank you for that. And while we're on the topic, like, how how are you seeing potentially being impacted by the tariffs and how how are you navigating it?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Yeah. It just seems like, kind of a hold. You know, we're we're we're doing a lot of engineering work, that's continuing full speed. But even ourselves, obviously, there's a couple of large POs we'd like to place because of lead times, but we're just kinda maybe holding off a week or two or kinda to see what what settles. And as you know, was it a few hours ago or a day ago, the tariffs changed again.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

So I think a lot of people are just kind of a wait and see for a while in terms of placing any large orders.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

And Anya, I'll add to Greg's answer. China, of course, is where the largest tariffs are in place. And today, and over the past year, about only 5% of our purchases that we made came from China. So, exposure in China from that perspective is a very small percentage of the total company. We also this is a wonderful time when we're going to be able to take advantage of the infrastructure that we've put in place over the last seventy five years, including, you know, we have multiple inventory hubs where we can stock inventory.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

So, removing things and ensuring that where we put our inventory is closest to customer, where we don't incur significant tariffs. We have a robust duty drawback process in place that is still applicable for the majority of the tariffs. So, I think as far as tariffs go, we're in good a position as we can be in. Obviously, we don't know the impact on the end user or the end demand level, but we are doing everything we can, again, to minimize the impact on our customers, and therefore on the the end use demand.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And in addition to that, you know, we obviously were an entrepreneurial company and had set that mentality up for seventy five years. We're looking at the opportunities that would come out of this, and specifically, have three, well, two are customers and one is a supplier, technology partner coming in to look to us to potentially either build or design products quote unquote made in America that they're currently dealing with tariffs because they're not made in America. So coming out of this, dealing with tariffs and purchasing and cost, but there's also opportunities specifically for a niche company like Richardson, which has design, manufacturing, and test capabilities.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Okay. Thank you. I'll get back in the queue.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Thanks, Anya.

Operator

Thank you. And one moment as we move to our next question. Our next question comes from the line of Bobby Brooks with Northland Capital Markets. Your line is open. Please go ahead.

Logan Hennen
Equity Research Associate at Northland Capital Markets

This is Logan on for Bobby.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Sorry, this is Logan.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Was just asking Bobby was on his honeymoon. So, hi, Logan.

Logan Hennen
Equity Research Associate at Northland Capital Markets

Yep. Yep. I'm filling in. But thanks for taking our question then. First, so with semi sales up 139% year over year, can you help us contextualize that a bit more with how that performed sequentially? What drove that strength? And is that strength continuing?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Yeah, so I mean, each quarter on quarter, the the the, semiconductor wafer fab business has increased. We're going to end up with a strong year. Last year was about $13,000,000 will be way above that. And it's it's just that the sequential growth going forward is just a lack of visibility. Everybody's looking at growing it, but this year, we're coming out of a low point, last year.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And we're getting visibility from corporate, but also from their engineering teams talking to our engineering teams. So we look at growing in q four, again, like we did in q three, probably not January, but it will grow and we will grow substantially for the year, and we look to grow in f y twenty six. And again, that's the most visibility we have right now.

Logan Hennen
Equity Research Associate at Northland Capital Markets

Perfect. Yeah, that's great to hear. Then one more just on capital allocation. So post closing of the healthcare sale, how should we think about allocation going forward, specifically with the M and A strategy starting in fiscal year 'twenty six?

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

So our short term is really what we're prepared to talk more about. And I think both Greg and I mentioned it in our prepared remarks, that we will be making investment in people and some technology that will allow us to expand more rapidly on some of the products that are already released, like the ultra capacitor wind energy, pitch energy modules. So that's gonna be our first priority with that cash. As I mentioned, we're not prepared to discuss our M and A strategy. As we get better clarity and definition on that, we'll be glad to share it with you.

Logan Hennen
Equity Research Associate at Northland Capital Markets

Sounds good. Thank you. I'll hop back in the queue.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Thanks, Logan.

Operator

Thank you. One moment as we move on to the next question. Our next question comes from the line of Barry Mendell with Mendell Money Management. Your line is open. Please go ahead.

Barry Mendel
Director at Mendel Money Management

Hi, Wendy.

Barry Mendel
Director at Mendel Money Management

I didn't hear you guys talk about Progress Rail or Wabtec. Can you talk about what's going on with the two of them?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Well, in specific to, that large locomotive company, they've released, very large order. We're in the process of building that. We'll start shipping that in FY twenty six. So that program has been a fantastic program. Again, I've been in the NPI process on April 22 for forty years.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And, it's one of the most amazing quick, detailed program with great success on their side. So the starter modules for two of our large locomotive manufacturers is moving forward very fast. And then on what was the other question? Progress Rail? Yeah.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Progress Rail, yeah. Okay. On Progress Rail, yeah, we we shipped, with nice shipments to them in the quarter. But that program is will be the largest electric vehicle in the world when it's completed, and, we continue to work with them on a weekly basis, and we'll probably finish shipping the Long Island Railroad trains in FY twenty six.

Barry Mendel
Director at Mendel Money Management

You say how large that order was?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

I think it's 1,300,000.

Barry Mendel
Director at Mendel Money Management

Any progress in Australia with Progress Rail?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Yeah, they're still working with their end customer. Again, we've completed our program with them in terms of what they needed from us. They're now working directly with their end customer. There's been a ton of delays, for various reasons, technically, etcetera. And, the last feedback we got, which was a week ago, is they expect to ship the first, vehicle to their end customer Australian Railroad, in the fall of this year.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And that's all we have from them. Again, they're dealing directly with their end customer. We're not involved in those calls. We've completed the engineering and support that they needed to complete the final train.

Barry Mendel
Director at Mendel Money Management

Okay, and one last question. In terms of healthcare, I think Wendy mentioned there's gonna be some continuing losses there. Can you frame the size of those losses, what they might be?

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Yeah, we're not prepared to discuss that, Barry. We're still working through that. Obviously, objective is to minimize that to the extent possible. So as we begin in more steady fashion releasing the repaired Siemens tubes, that'll help take up some of the loss that's generated from the ALTA tube manufacturing. But again, bear in mind that FY '26 only will be done with the ALTA tubes before the end of that period.

Barry Mendel
Director at Mendel Money Management

Okay. Thank you.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Thanks, Barry.

Operator

Thank you. And if you have a question at this time, please press 11 Our next question is going to come from the line of P. Ross Taylor with ARS Investment Partners. Your line is open. Please go ahead.

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

Thank you. Sounds very helpful. Morning.

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

How are we doing? This is such a formal name. Can you talk about how you see profitability playing out? I think of most of what you do as being relatively a small piece of a bigger puzzle in most cases for your customers? And with you looking at things like the semi wafer fab business, which is I believe probably been your most profitable business, would you expect that as we push through this year, it would be able to remain your most profitable business as it grows?

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

Also the same kind of thinking for like the wind turbine business and the like as things push forward?

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

Well, on the wind turbine and really it's power management products that go into wind turbine programs. That's going to continue to grow not only as we expand again, 95% of our business so far has been North America. And one of the things we're talking about in terms of investment is take that model, take that model and drop it into Europe and Asia, because we've proven that the success in North America. And so you're gonna see a couple of press releases coming up this quarter on other niche products. So what we're seeing now is since we have the relationships with the top owner operators of of wind turbines, GE wind turbines specifically, we're they're coming us for more and more products.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

And again, Richardson's success has been identifying in this case where we can be successful. I mean, we could sit here and look at a hundred different products. You guys make those, you guys make those, no. We pick products that we can be successful on and we've done a good job of that. And, we continue to get from these owner operators and the wind turbine manufacturers requests for inverters, UPSs, turbine guards, all kinds of stuff that our team, which is very strong engineering wise, is able to develop.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

So what you're gonna see is not only growth in the existing products we have, but continued growth in additive products, because obviously, from a profit point of view, one of the best ways to grow sales and grow profits is to sell more products to an existing customer base, because one of the most costly parts of a new product introduction process is identifying customers, finding the contact and going through the NPI process itself. So yeah, we're excited on the on the wind turbine product that has been a very prod profitable program. Internally, we call it project turbo. On the Lam side, you know, we're kinda at the hands of them. You know, it's how much market share they get.

Greg Peloquin
Greg Peloquin
General Manager, Power & Microwave Technologies Group at Richardson Electronics

The products we make for them, we've made for them for a long time. So we're pretty much exclusive. But kinda on the on the semiconductor wafer fab side versus the wind turbine side, you know, we can add resources, go get business, gain market share for those products. On the Lam side, we're kind of seeing where they're at in terms of market shares they gain and what their business does.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

So, Ross, let me add to that, that we still have excess capacity here within the LaFox manufacturing facility. So, everything Greg said is true that we're seeing improved profit profits in the wind energy business. Lam continues to be in the semiconductor market and overall continues to be a very healthy profitable part of our business. But we are in a very, very good position to take advantage of these made in America mandates and these tariffs that are asking people to do different things. And the nice thing is, we don't have to do a lot to begin to realize additional profits from that.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

We still have an issue with under absorption, which is impacting our gross margin, and we will be able to reduce that as we focus those efforts on bringing more manufacturing items into this building.

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

Okay, that's good. So basically, you're looking at high margin products, growing the ability to push those into the market. While you do that, you're actually gonna be picking up your getting better coverage of your fixed cost structure as well at the same time. With regard to your backlog, healthcare is still in your backlog, but it's really, you know, it's a very different role that was playing. Could you give an idea of what your backlog and how quickly you can service backlog for things like if if Lam were to come to you, how long does it take for you to fill a lamb order?

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

So in this uncertain period, we see more short term orders where they come in and need something and you should be able to be responding inside a quarter as opposed to over an extended period of time?

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

We do that with Lam all the time. Again, they're dropping in orders constantly. And yes, we certainly can respond with human resources, labor. We've got the capacity for that. The long pole in the tent would be any components that have long lead times.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

We've been building products for Lam way back when they first bought Novella, so 02/2006, and a lot of those products that were sole source on, and we're able to react to their increases in orders in a very short period of time.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

What we want to see, Ross, and this is what they keep telling us is, first of all, they said we are one of their key vendors for deposition, and they will continue to bring us new opportunities to look at. So, for us, it's a matter of filling their existing business that both Ed and Greg have described, but also winning more of it. And that is also one of our key strategic points, and we'll continue to work away at that.

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

Okay, good. Well, you guys are doing an excellent job in here in uncertain times, but it seems that you have a pretty good idea of where you're going in them. Thank you.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Thank you.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

We just have to get on X, because apparently that's the only place we're going to know what's happening in the care.

Ross Taylor
Partner and Portfolio Manager at ARS Investment Partners, LLC

Or hang out tomorrow a while Take care.

Wendy Diddell
Executive VP, COO & Director at Richardson Electronics

Yeah, there you go.

Operator

Thank you. And I would now like to hand the conference back over to Ed Richardson for further remarks.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

Thanks, Michelle. Thanks to all of you again for joining us today. We appreciate your investment and interest in Richardson Electronics. Please don't hesitate to call us at any time. We're available and happy to talk with you.

Edward Richardson
Edward Richardson
Chairman, CEO & President at Richardson Electronics

We also posted an updated investor presentation on our website and we look forward to our ongoing discussions on growth and to share our fourth quarter and full year results with you in July. Thank you very much.

Operator

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day.

Executives
    • Edward Richardson
      Edward Richardson
      Chairman, CEO & President
    • Robert Ben
      Robert Ben
      Executive VP, CFO, Chief Accounting Officer & Corporate Secretary
    • Greg Peloquin
      Greg Peloquin
      General Manager, Power & Microwave Technologies Group
    • Jens Ruppert
      Jens Ruppert
      Executive VP & GM of Canvys
Analysts
Powered by Quartr