Richardson Electronics reported its financial results for the second quarter of fiscal year 2025, revealing a net loss per share that fell short of Wall Street expectations. The company posted a net loss of $0.05 per share, compared to a forecasted profit of $0.015 per share. Despite an increase in net sales and gross margin, the company's stock reacted negatively, dropping 12.82% in after-hours trading.
Key Takeaways
- Richardson Electronics reported a net loss of $0.05 per share, missing the forecasted EPS of $0.015.
- Net sales increased by 12.1% year-over-year to $49.5 million.
- Stock price fell by 12.82% in after-hours trading following the earnings announcement.
- Green Energy Solutions segment saw a significant sales increase of 129%.
- The company is optimistic about growth in the semiconductor wafer fab equipment market.
Company Performance
Richardson Electronics demonstrated robust growth in its net sales, which rose by 12.1% year-over-year to $49.5 million. This growth was driven by strong performance in its Green Energy Solutions segment, which saw sales soar by 129% to $5.9 million. The company's gross margin also improved to 31%, up from 28.4% in the same quarter last year. However, the company reported a net loss of $800,000, which, although an improvement from the $1.8 million loss in the prior year, still fell short of expectations.
Financial Highlights
- Revenue: $49.5 million, up 12.1% year-over-year.
- Earnings per share: -$0.05, compared to a forecast of $0.015.
- Gross margin: 31%, up from 28.4% in the previous year.
- EBITDA: Approximately breakeven, compared to a negative $1.2 million last year.
- Cash and cash equivalents: $26.6 million.
Earnings vs. Forecast
The actual earnings per share of -$0.05 were below the forecasted $0.015, marking a significant miss. This represents a negative surprise of approximately 433%. The revenue of $49.49 million also fell short of the anticipated $51.3 million, indicating challenges in meeting market expectations.
Market Reaction
Following the earnings release, Richardson Electronics' stock dropped by 12.82% in after-hours trading. The stock closed at $14.74 before the earnings announcement and fell to a level closer to its 52-week low of $8.08. This decline reflects investor disappointment with the earnings miss and concerns about the company's ability to meet future expectations.
Outlook & Guidance
Looking ahead, Richardson Electronics remains cautiously optimistic about the North American market recovery and expects continued growth in the semiconductor wafer fab equipment market. The company has a backlog of $101 million, with approximately 80% scheduled to ship in the next nine months. Future EPS forecasts suggest improvement, with projections of $0.36 for FY2025 and $0.84 for FY2026.
Executive Commentary
CEO Ed Richardson highlighted the potential of the Green Energy Solutions business, stating, "Our Green Energy Solutions business continues to present exciting opportunities." Greg Pellequin, GM of Power and Microwave Technologies, emphasized the company's unique business model, saying, "We have developed a unique business model that combines legacy products with new technology partners."
Q&A
During the earnings call, analysts inquired about the company's inventory strategy, particularly regarding Thales (EPA:TCFP) tube inventory. Management also confirmed multi-million dollar orders for GE wind turbine platforms and discussed the design registration program, which has a conversion rate of 27-30%.
Risks and Challenges
- Potential supply chain disruptions could impact production and delivery schedules.
- Market saturation in key segments may limit growth opportunities.
- Macroeconomic pressures, including inflation and interest rate fluctuations, could affect consumer demand and operational costs.
- Dependence on the semiconductor market, which is subject to cyclical demand fluctuations.
- Strategic alternatives for the Healthcare business may introduce uncertainties.
Full transcript - Richardson Electronics Ltd (RELL) Q2 2025:
Conference Operator: Good day, and thank you for standing by. Welcome to Richardson Electronics Earnings Call for the Second Quarter of Fiscal Year 2025 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Call.
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 of Richardson Electronics. Please go ahead.
Ed Richardson, CEO, Richardson Electronics: Good morning and thank you all for joining Richardson Electronics conference call for the Q2 of fiscal year 2025. Joining me today are Rob Binn, Chief Financial Officer Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare Greg Pellequin, General Manager of our Power and Microwave Technologies Group, which includes Green Energy Solutions and Jens Rupert, General Manager of Canvas. 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. I'm pleased to share an encouraging update on our 2nd quarter performance as we're making significant progress with multi year growth strategy. During the Q2, we experienced sequential improvements in sales and delivering positive operating income in October November. In addition to this operational momentum, we generated positive free cash flow during the quarter.
We achieved outstanding growth in our Green Energy Solutions business during the Q2 with sales more than doubling compared to the prior year. Furthermore, we experienced a significant improvement in revenues from our semiconductor wafer fab business, underscoring the strength of our diversified business segments. Overall, 2nd quarter sales reached $49,500,000 exceeding $44,100,000 which we recorded in our Q2 last year, a solid 12% year over year increase. With this overview, I'll now hand the call over to Bob Binn, our Chief Financial Officer, who will provide a detailed review of our 2nd quarter financial results and capital position. Following Bob's remarks, Greg, Wendy and Jens will offer in-depth updates on our business and unit performance, including progress on our growth strategies, new product developments, key program wins and the expansion of our customer relations.
Thank you. And now over to Bob.
Bob Binn, Chief Financial Officer, Richardson Electronics: Thank you, Ed, and good morning. I will review our financial results for our Q2 of fiscal year 2025 followed by a review of our cash position. Consolidated net sales for the Q2 of fiscal 2025 increased 12.1 percent to $49,500,000 compared to net sales of $44,100,000 in the prior year's Q2. This was our 2nd consecutive quarterly year over year increase in sales. 2nd quarter net sales growth was led by 129% increase in sales for our Green Energy Solutions business unit and a 9.9% increase in PMT sales, which was due primarily to higher sales to semiconductor wafer fab customers.
Sales growth for the Q2 of fiscal 2025 was partially offset by a 6.0% decrease in cannabis sales and a 22.8% decline in healthcare sales, reflecting lower demand in the quarter unrelated to any specific customer or program loss. Consolidated gross margin for the Q2 was 31% of net sales compared to 28.4% during the Q2 of fiscal 2024. The largest component of the 260 basis point increase in consolidated gross margin was due to margin expansion across most parts of our business. PMT's gross margin increased to 30.3% from 28.5% as a result of an improved product mix. GES gross margin increased to 32.0% from 29.2% also due to product mix.
Healthcare margin increased to 35.7% from 14.8% because of an improved product mix and manufacturing efficiencies. Partially offsetting these improvements in gross margin was lower gross margin for Canvas compared to the prior year's Q2. Operating expenses as a percentage of net sales improved to 32.3% for the Q2 of fiscal 2025 compared to 32.8% in the Q2 of fiscal 2024. Operating loss was $700,000 for the Q2 of fiscal 2025 versus an operating loss of $2,000,000 in the Q2 of last year. Income tax benefit was $300,000 or an effective tax rate of 28.8 percent versus an income tax benefit of $500,000 or an effective tax rate of 21.6 percent in the prior year Q2.
Net loss for the Q2 of fiscal 2025 was $800,000 or $0.05 per diluted share compared to net loss of $1,800,000 or $0.13 per diluted share in the Q2 of fiscal 2024. EBITDA for the Q2 of fiscal 2025 improved and was approximately breakeven versus negative $1,200,000 in the prior year Q2. Please note that EBITDA is a non GAAP financial measure and a reconciliation of the non GAAP item to the comparable GAAP measure is available in our Q2 fiscal year 2025 press release that was issued yesterday. Turning to a review of the results for the 1st 6 months of fiscal year 2025. Net sales for the 1st 6 months of fiscal year 2025 were $103,200,000 an increase of 6.7 percent from $96,700,000 in the 1st 6 months of fiscal year 2024, which reflected higher sales across our business segments except for Canvas.
Gross margin was 30.8 percent of net sales, which was unchanged from the 1st 6 months of fiscal 2024. As a percentage of net sales, operating expenses for the 1st 6 months of the fiscal year were 31.1 percent compared to 31.3% for the 1st 6 months of the prior fiscal year. Operating loss for the 1st 6 months of fiscal year 2025 was $400,000 as compared to an operating loss of $500,000 for the 1st 6 months of fiscal year 2024. Income tax benefit was $200,000 during the 1st 6 months of fiscal 2025 versus an income tax benefit of $100,000 in the prior year's 1st 6 months. The company reported a net loss of $200,000 or $0.01 per diluted common share for the 1st 6 months of fiscal year 2025 versus net loss of $600,000 or $0.04 per diluted common share for the 1st 6 months of fiscal year 2024.
EBITDA for the 1st 6 months of fiscal 2025 was $1,700,000 versus $1,400,000 in the prior year's 1st 6 months. Moving to a review of our cash position. Cash and cash equivalents at the end of the Q2 of fiscal 2025 were $26,600,000 compared to $23,000,000 at the end of the Q1 of fiscal 2025. Operating cash flow was $5,500,000 compared to $800,000 in the prior year 2nd quarter. This was the 3rd consecutive quarter of positive operating cash flow.
Capital expenditures of $500,000 in the Q2 of fiscal 2025 were primarily related to our Facilities and IT Systems versus $1,500,000 in the Q2 of fiscal year 2024. As a result, free cash flow was $4,900,000 for the Q2 of fiscal 2025. We paid $900,000 in cash dividends in the Q2 of fiscal year 2025. 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 Q3 of fiscal 2025. As of the end of the Q2 of fiscal 2025, the company had no outstanding debt on its $30,000,000 revolving line of credit with PNC Bank.
Now I will turn the call over to Greg, who will provide more details for our PMT and GES business groups.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Thank you, Bob, and good morning, everyone. As we have stated in prior calls, we remain very optimistic about the future, both over the short and long term. Coming out of FY 'twenty four, we had a strong backlog, numerous new product introductions and expanded customer base and several development programs transitioning from beta testing to preproduction. Building on this positive momentum, we are pleased to report continued growth in Q2 FY 2025 in both our GES and PMT strategic business units, including quarter over quarter and year over year growth in our semiconductor wafer fab equipment manufacturing business. Starting with our GES business, GE sales grew 129 percent to $5,900,000 The strong sales growth in this quarter was enhanced by strong bookings and increased backlog growing by over 16% in Q2.
Many of our recent achievements have been in development since FY2023 and FY2024 and it is rewarding to see them come to fruition. Our pitch energy modules and other products continue to gain momentum and market share as we add new customers and complete beta testing with our key owner operators. Today, we serve dozens of wind turbine owners and operators, including exclusive partnerships with the top 4 owner operators of GE wind turbines in North America, specifically RWE (LON:0HA0), Invenergy, Enel (BIT:ENEI) and NextEra. Additionally, we continue to grow this program globally, expanding into Europe and Asia with GE and other new products for turbine platforms such as Suzlon, Senvion, Nordex (ETR:NDXG) and SSB. As we have mentioned previously, our GES growth strategy is focused on power management applications in the green energy space.
In a short time, we have designed multiple products, received several patents and built a growing base of large global and industrial leading customers and partners. This process positions us to establish a more predictable quarterly revenue and booking stream in our GES business scales. We believe our 2nd quarter performance demonstrates the benefits of our multi year GES growth strategy. Additionally, our customers continue to highlight our strong market position in our core GES power management applications. Our global pipeline continues to grow as we capitalize on numerous opportunities to support the significant energy transformation such as wind turbine repowering projects.
Turning to Power and Microwave Technologies Group or PMT, which includes the Electron Device Group, our legacy tube and semiconductor wafer fab equipment business and the Power and Microwave Group. Sales were $34,400,000 up 9.9% compared to prior year. We continue to see growth in our RF and Microwave Components business and with our semi fab equipment manufacturing customers. Our combined GES and PMT backlog remains strong as it increased to over $101,000,000 in Q2. Given our inventory position, we will continue to ship many incoming orders from stock as we did last quarter.
We remain focused on managing all aspects of our business to maximize profits, while meeting the needs of our expanding customer base. A key component of our growth strategy is selectively expanding our global technology partnerships. We continue to add new partners who address technology gaps in our offering and align with our strategic growth priorities. Through these partnerships, we often identify opportunities for new products that we design, we 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 partner relationships are extremely strong and when appropriate, we collaborate on new component development, strategic purchases and long term planning. We are investing in our infrastructure to support our growth. This includes hiring talented design and field engineers to enhance our design and manufacturing capabilities. Our growing in house design, engineering and manufacturing teams are doing an excellent job supporting increased demand for current products new product designs. Our field engineering team continues to identify new customers and opportunities.
With this team, we will keep identifying, developing and introducing innovative products and technologies for green energy, power management and RF microwave applications. Heading into Q3 FY 'twenty five, we are excited about the opportunities within PMT and our GES businesses. As I mentioned, Q2 FY 'twenty five bookings were extremely strong in our GES SBU and we see a positive outlook in our semi fab market. Key customers in GES and RF and Microwave are forecasting growth in FY 'twenty five and our technology partners continue to support our unique global business model driving our business forward. We have many reasons to be optimistic about the growth strategies we are pursuing and the future of our business.
Our unparalleled capability and global go to market strategy set us apart in the power management, RF and microwave and green energy markets. We have developed a unique business model that combines legacy products with new technology partners and ES capabilities, aligning our growth strategy to deliver engineered solutions to a global customer base. This model differentiates us from our competition. By maintaining our steadfast and creative focus on customers, we continue to excel, capitalizing on opportunities as they arise. The execution of our strategy has never been stronger and is evident that our customer and technology partners rely on Richardson Electronics products and support more than ever.
And with that, I'll turn it over to Wendy Daddell to discuss Richardson Healthcare.
Wendy Diddell, Chief Operating Officer, Richardson Electronics: Thank you, Greg, and good morning, everyone. In the Q2 of fiscal year 2025, our Healthcare division generated $2,300,000 in sales, reflecting a 22.8% year over year decline. All product lines experienced lower performance compared to the prior year. Despite the sales drop, gross margin improved to 35.7%, up from 14.8% in the same period last year and 32.3% in Q1. This growth was driven by improved manufacturing absorption and a favorable product mix, notably higher margin parts and CT tube sales.
We maintained steady production of repaired Straton Z tubes and advanced our repair program for the Straton MX, MXP and MXP-forty six. Although the first MX series life tube fell short of expectations, our engineering team quickly isolated the problems and implemented improvements. This allowed us to restart life testing in December, keeping us on track for launch later this fiscal year. Through disciplined expense management and an improved gross margin, our losses year to date are less than the prior year. Looking ahead, we are committed to enhancing sales and profitability while exploring strategic options for the Healthcare business.
I'll now pass the call to Jens Rupert to discuss Canvas results.
Jens Rupert, General Manager, Canvas, Richardson Electronics: Wendy, and good morning, everyone. Canvys engineers, manufacturers and sells custom displays to original equipment manufacturers across global industrial and medical markets. Despite some macroeconomic related challenges impact the Q2, Canvys remains resilient in its mission to deliver high quality solutions tailored to our customers' needs. Net sales decreased 6.0 percent to $6,900,000 during the Q2 of fiscal 2025 compared to $7,300,000 in the Q2 of fiscal 2024, reflecting a temporary dip due to lower sales in our European markets. Nevertheless, we are confident in our ability to navigate these fluctuations.
The German economy, one of our core markets, is currently facing headwinds. The IFO Business Climate Index, a key indicator for economic conditions, dipped to 84.7 points in December from 85.6 in November, marking the lowest level since May 2020. While this represents challenges, Canvys is poised to adapt and emerge stronger by focusing on innovation and customer engagement in this difficult global economic environment. On a positive note, our backlog grew from $38,100,000 at the end of fiscal 2025 Q1 to $39,100,000 at the end of the fiscal 2025 Q2, providing a robust foundation for future business. The increase highlights the trust our customers place in our products and services.
Gross margin as a percentage of net sales was 31.7% during the Q2 of fiscal 2025 compared to 33.5% in the same fiscal 2024 period, largely due to increased freight costs. We are actively exploring ways to optimize costs and improve efficiency to enhance our margins moving forward. During the quarter, Canvys secured orders from both repeat and first time medical OEM customers for a variety of applications. Additionally, our solutions continue to serve numerous commercial and industrial applications. For instance, our products enhance passenger information systems within trains and buses as well as human machine interfaces, HMI, technologies used in printing, vending, milling and packaging machines.
Our strategic initiatives are designed to elevate Canvas' visibility and position us as a leading player in the market. By actively seeking new opportunities and fostering connections with potential customers, we aim to try sustained growth and innovation. We continue to engage directly with industry peers and stakeholders, fostering collaborations and strengthening our market presence. Despite recent economic challenges primarily in our European markets, we remain committed to supporting our customers as they adapt to these conditions. Many are taking a cautious approach to new product development and inventory management, and we are here to help them succeed in this environment.
Looking ahead, we are cautiously optimistic about improving demand in the North American markets. Positive indicators suggest a steady recovery as conditions stabilize, reinforced by encouraging customers' feedback. Our dedicated sales teams continue to explore new opportunities, while I focus on implementing strategic plans to ensure sustainable growth and give a long term value to our stakeholders. Our dedicated sales team continues to explore new opportunities, while I focus on implementing strategic plans to ensure sustainable growth and give a long term value for our shareholders. I will now turn the call back over to Ed.
Ed Richardson, CEO, Richardson Electronics: Thanks, Jens. We knew Q2 would be a challenge. However, it's nice to see the plan to return to growth in the 3rd quarter, supported by incremental growth in Canada's backlog. Despite the ongoing uncertainties in the global and change in the political landscape, we remain steadfast in our commitment to our long term growth strategies. Our Green Energy Solutions business continues to present exciting opportunities with an expanding pipeline of global customers across the wind energy, transportation and power management sectors.
Shipping orders from inventory on a regular basis helps improve our cash flow and expands our gross margin. Product deployment and customer approvals are still taking longer than we'd like, but these partnerships are solid and support our confidence in our multiyear growth strategy. At the same time, we're seeing strong momentum in our semiconductor wafer fab assembly business, rising semiconductor demand driven by advances in AI, increased data center capacity. 5 gs deployment and efforts to vocalize semiconductor manufacturing is fueling this growth. While we have good visibility for this coming quarter, we anticipated sustained growth in the semiconductor wafer fab equipment market, which provides the resources needed to support the continued investment in our Green Energy Solutions business.
Our disciplined approach to managing expenses, optimizing inventory levels and maintaining a strong balance sheet remains a top priority. These efforts will enable us to generate operating leverage as sales continue to grow. On behalf of everyone at Richardson Electronics, thank you for your continued support. We look forward to sharing updates on our progress and we're now happy to answer your questions.
Conference Operator: Thank you. Ladies and gentlemen, due to time constraints, we ask that you please limit yourself to 1 question and one follow-up. Again, we ask that you please limit yourself to 1 question and a follow-up until all have had a chance to ask a question, after which we will answer additional questions from you as time permits. Our first question comes from the line of Anja Soderstrom from Sidoti.
Anja Soderstrom, Analyst, Sidoti: Hi, thank you for taking my questions and congrats on the quarter here. It seems like you are trending out as expected with a pickup in the second half. But I'm just wondering with those recent multimillion orders, what time frame are you expecting those to ship within?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Good morning. Yes, they've already started to ship. The balance of it was shipped throughout calendar year 2025. But those products, those contracts, we've already started to ship at the beginning of December. So it's moving along great.
Anja Soderstrom, Analyst, Sidoti: And those work for the non GE wind turbine pitch modules, right?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Well, they were a combination in terms of overall bookings, but the 2 largest orders that I mentioned in the press release were both for GE wind turbine platforms with from 2 of the largest owner operators of turbines. 1 of them was a new customer, Xcel Energy (NASDAQ:XEL) and the other one is RWE.
Anja Soderstrom, Analyst, Sidoti: And how penetrated are you with those? Would there be could it be potential for follow ups or?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Absolutely. In fact, that's one of the things the Ultra 3000, we shipped close to $30,000,000 and the numbers we see, we haven't even put a dent into the opportunity. So yes, they'll continue. This is phase 1 of most of it. What they do is they pick a number of farms.
They roll that out, do another capital expenditure at the end of 2025, do another rollout and then it continues until they've completed all their wind turbines. One thing I want to add which is really fantastic for the company is the large order from this customer was for repower program. And so this is where we are listed on the bill of materials when they do a repower for their entire wind turbine, which is similar to if you took a car apart and replaced everything on it and make it brand new again. And so Richardson being listed on the bill of materials for repowers should expedite the sales growth of the Altra 3000 and the multi brand.
Anja Soderstrom, Analyst, Sidoti: Okay. Thank you. And I'm just going to squeeze in one more. Can you just talk to some other GS opportunities that you think could come to fruition in the near term?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Yes. The programs we're working on the multi brand, we introduced that at the end of Q2 in Europe. That's getting traction both in Asia and Europe. We have a number of testing going on with our IGBT modules also in wind turbines. We're in the process of finalizing our ESS strategy.
And so these aren't it's replacement of lead acid batteries, but these are products that don't exist today and they have to be designed to support and work in the customer's entire system, not just in that battery box. So the engineering team has done a great job. It takes time, but all those programs are moving forward. And we have weekly and biweekly calls with some large owner operators to continue making the product fit and work within their system moving forward. So very positive.
Anja Soderstrom, Analyst, Sidoti: Okay. Thank you. I'll get back in queue.
: Okay. Thanks, Anja.
Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Bobby Brooks from Northland Capital Markets.
: Hey, good morning, guys.
Bobby Brooks, Analyst, Northland Capital Markets: Good morning. Good morning. Thank you for taking the question. So in the prepared remarks and the press release, new program wins were mentioned as a benefit to the Q2. So I was just hoping to get some more color on where those wins occurred and why.
I know maybe some of it was from the earlier press release with those multimillion dollar orders. Are those and then just secondly, are those program wins expected to be a multi quarter benefit? Or is it more like a new customer buying Ultra 3000s for the first time for kind of a smaller project?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Yes. I'll touch on the booking side of it. There are new customers. And again, one of the things I've always mentioned over the past 2 years is we continue to gain market share. We started out with a couple of large customers.
Today, we're selling to over 17 of them in North America. And so from a bookings point of view, there were customers that we're working with doing designs, and then we did a great job supporting it, got approved by engineering, they got their capital expenses approved and they placed the order in the Q2. So it's new customers, but like I mentioned, the larger orders that we did the press release on were with the Altra 3,000.
Bobby Brooks, Analyst, Northland Capital Markets: Okay. And so just to like kind of confirm, those new program wins are really kind of centered within the turbine opportunities or was it anything outside of that?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Yes. Majority of it was in the wind turbine application.
Bobby Brooks, Analyst, Northland Capital Markets: Okay, great. And then just kind of SG and
: A was up
Bobby Brooks, Analyst, Northland Capital Markets: 10% year on year compared to sales up 12% on a year over year basis. The press release mentioned it was tied to incentives that were tied to sales growth. So I'm just trying to sort out if we see similar growth rates going forward, is SG and A going to continue to increase at a similar pace? And I'll just add in the Q1 sales were up 2.2% and SGA was up 2%. So just trying to get a feel of like where SGA trends as sales grow?
Bob Binn, Chief Financial Officer, Richardson Electronics: Hi, Bobby, it's Bob Ben. Yes, as you noted, most of the increase in the Q2 was due to the incentives tied to the sales growth. In the quarter a year ago, we really didn't pay out any incentives due to the performance then. There was a large loss and sales were low. So this quarter with the improvement over the 6 month period, there was an increase there.
Regarding going forward, I think we expect some sort of an increase in the next two quarters, again based upon sales growth, but not at the levels that you mentioned on the 10%.
Bobby Brooks, Analyst, Northland Capital Markets: So it will lag sales growth more notably? Yes. Got it. I'll return to the queue. Thank you, guys.
: Thanks, Bobby.
Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Brett Davidson from Invest Letter.
Ed Richardson, CEO, Richardson Electronics0: Good morning from sunny, 15 degree Buffalo.
Bobby Brooks, Analyst, Northland Capital Markets: Good morning, Brett.
Ed Richardson, CEO, Richardson Electronics0: Good morning. I got a couple of quick questions. One is, can you guys provide an update on the shipping timeline for the diesel locomotive family of products?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Yes. The one major program we're working on that's expected to ship, it's over $1,000,000 at the end of Q3. And that's the main one. And then they're taking that product and obviously building up their locomotives and shipping them to their customers to get testing done there. So on electric locomotives, we have a large shipment going out, which is scheduled to go out at the end of Q3.
Ed Richardson, CEO, Richardson Electronics0: Now are those the starter modules or the battery?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: No, that's the electric locomotive. So on the starter modules for electric and diesel locomotives, those have started to ship. They've just gave us their forecast for 1,000 trains this calendar year and we'll start shipping those this quarter and then throughout 2025 and it's 1,000 trains, 1 per train. Wow.
Ed Richardson, CEO, Richardson Electronics0: And can you provide color on the drawdown in inventory during the course of the year? Are we looking at a couple of $1,000,000 $5,000,000 $10,000,000 What does that kind of look like through the course of the year?
Bob Binn, Chief Financial Officer, Richardson Electronics: Hi, Brett. It's Bob Ben. Yes, the inventory, as you know, was down a little bit in the Q2 and that's due to improved management. We're trying to bring in less inventory and sell what we have on hand. But going forward in the 3rd Q4, as we've said, we're expecting an increase in sales.
And so I think there'll be some growth, but it shouldn't be that significant. We're going to have to bring in some products to sell for Q3 and Q4 sales, but I don't expect a significant growth there.
Ed Richardson, CEO, Richardson Electronics0: Okay. So you're expecting that to track kind of where it is at now, not a drawdown during the course of the remaining portion of the year?
Bob Binn, Chief Financial Officer, Richardson Electronics: Yes, probably not a drawdown with increased sales.
Ed Richardson, CEO, Richardson Electronics0: Got it.
Bob Binn, Chief Financial Officer, Richardson Electronics: But again, not a significant
Ed Richardson, CEO, Richardson Electronics: Got it.
Jens Rupert, General Manager, Canvas, Richardson Electronics: Thanks.
Conference Operator: Thank you. Our next question comes from the line of Ross Taylor from Arce Investment Partners.
Ed Richardson, CEO, Richardson Electronics1: Thank you. Congratulations on the progress you guys are making. Quick, in the past, you've talked about the outlook for the semi cap equipment related space as having calendar 25, particularly second half showing a significant run rate and your key customers indicating that they would expect that second half of twenty twenty five, first half of twenty twenty six, you could be running at levels equal to or better than you saw at your peak a few years ago. Is that scenario still playing out you think?
: Right now, I think we mentioned it in the script that visibility is more challenging. Just that for example, for us for the Q3, we have good visibility and the numbers look good. They should increase again. But beyond that, it seems like our customers are kind of keeping their cards closer to the vest this time. We're not hearing anything to the contrary on that, Ross, meaning they're not telling us expect a drop off.
As a matter of fact, they tell us to keep the momentum going. That's what we can see right now. So no bad news has been given to us and we continue to see quarter over quarter increases in our revenue and in our demand.
Ed Richardson, CEO, Richardson Electronics1: Okay, great. Great. And second, I think people at times get confused about your wind turbine business and they see moves or steps that might slow the adoption or implementation of new turbines as being negative to your business. It's my understanding that you're really an aftermarket, a refit, rebuild type play and that market is still very lightly penetrated even for comments you made on this call today. So is that really the case where if the U.
S, if the President were or President-elect were successful in following the adoption of new wind turbines, that shouldn't have a significant impact on your wind turbine related business over the next several years? Yes, that's correct.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Our products go into existing wind turbines today. And as I mentioned before, we've also now started to participate in the repowering of wind turbines, which most people do instead of buying new ones, again like cars. So that will have no effect if there's a decrease in new wind turbines being shipped over the next or sold over the next couple of years because our business is focused on existing wind turbines and getting the lead acid batteries out of those.
Ed Richardson, CEO, Richardson Electronics1: Great. And if I can sneak one or 2 quick and one with regard to your inventory, where do you stand with regard to building up your inventory tubes to cover for the fact that Thales will be stepping out of the business. You've been building that up fairly aggressively. It's a fairly significant portion, I think, of your overall inventories. And at some point, my assumption is you'll probably achieve a level where you're comfortable and at which point then you would stop building them and actually eventually those will become cash flow as they move into the market.
And the second question I wanted to ask just quickly is regarding the medical imaging space. In the past you've talked about the idea that it basically needs to either be able swim on its own or you would take steps to move away from it, monetize it. Where do we stand with regard to whether that's going to be able to swim on its own or need to be monetized? So tell us related inventories as a percentage of overall inventories and medical imaging as a future?
Ed Richardson, CEO, Richardson Electronics: Sure. As far as Talis is concerned, we've had an agreement with Talis now that goes back about 20 years. And so we were manufacturing identical products in Brie, France that we'd acquired from Philips and we made an agreement to consolidate our manufacturing facilities with theirs in Tranau, France and it's been a very successful agreement. We do over $20,000,000 a year on those products. The unfortunate part is that Thales has made a decision that they are going to exit the manufacture of those products in the next 2 or 3 years to come.
And so it puts us in a position to try to move equipment and technology that belongs to us to other sources. So in the meantime, we built up a very substantial inventory, which now you're seeing start to level off and they're going to discontinue that, Wendy, is it in 2025?
: Right. We have one more year of inventory build, Ross, and that will end at the end of December.
Ed Richardson, CEO, Richardson Electronics: So that inventory will go down substantially as we move the equipment to other sources and you'll continue to see that. We had a similar situation when we closed our business in France and moved it to Dallas. We took in $10,000,000 worth of inventory and I can tell you that we sold every one of those tubes. And so although it looks like we're buying a lot of inventory, tubes are like fine wine, they last forever,
: they're
Ed Richardson, CEO, Richardson Electronics: in a vacuum and those tubes are going to sell. Our problem is going to be trying to find other sources for those tubes.
Ed Richardson, CEO, Richardson Electronics1: Okay. Well, and what you have, I assume you're in the process of attempting to qualify or discover who those sources or those people are going to be?
Ed Richardson, CEO, Richardson Electronics: That's correct. I mean, we could move them here, but we bought 25 different divisions of 2 companies and it takes over a year to relocate equipment and sometimes it takes another year to get it operating correctly. So it's a massive project.
Ed Richardson, CEO, Richardson Electronics1: Okay. Well, it sounds like you guys are on top of that and the business continues to roll forward as expected in spite of a small hiccup on the revenue and EPS side in the quarter just passed.
Ed Richardson, CEO, Richardson Electronics: Thank you. Absolutely. I mean, we've made acquisitions, as I mentioned, of over 25, 2 companies in the world. So we've been through this many, many times.
Ed Richardson, CEO, Richardson Electronics1: Yes. Great.
: All right. So Ross, let me take your second question regarding the healthcare business unit. And at the risk of being very vague, as we've indicated, we are focused on running the business and we are making improvements. The gross margin is improving, the factory absorption is improving as we introduce the additional tubes that we've been discussing. So we are we feel good about the business here.
It is still losing money and we are still exploring other alternatives.
Ed Richardson, CEO, Richardson Electronics1: Okay, great. Thank you very much.
: You're welcome.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Thanks Ross.
Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Bobby Brooks from Northland Capital Markets.
Ed Richardson, CEO, Richardson Electronics1: Hey guys, just wanted
Bobby Brooks, Analyst, Northland Capital Markets: to jump back on real quick and ask. So $142,000,000 in backlog, I think Greg mentioned $110,000,000 of that was PMT and GES backlog. So I was just trying to get a sense of, 1, timeline of that backlog turning into revenues? And then second, is it right for me to assume that much of that backlog will directly be drawn from inventory? Or is it more nuanced than that?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: On the for PMT and GES, the combined backlog is $101,000,000 And looking at that backlog, about 80% of it is currently scheduled to ship over the next 9 months. I don't have that breakdown. And so what we're excited about is the new business with new products and new technology. A lot of that backlog is also tube based. And so that's scheduled out in some cases for a longer period of time.
And then the Lam backlog, they don't give us a lot of visibility when they're going to take that. And as Wendy mentioned, what they've given us for Q3 shows strong growth again in Q3. But outside of that, it's kind of hard to put a number on it.
Bobby Brooks, Analyst, Northland Capital Markets: Okay. But is so is a lot of that is and thanks for the correction on the $101,000,000 but is a lot of that backlog then more they say, hey, we want to get it shipped now and then you go out and produce you go and make it? Or is it them saying, hey, we want it now and then you just tapping into your inventory and shipping it right away?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: No. Other than the MRO business, most of our backlog is scheduled. And in most cases, they give you a 12 month schedule, mainly based on people are still having nightmares over the long lead times just 18 months ago where things are going out to 56 weeks. So people are giving us orders and in most cases specifically on the GES and PMG side it is a 12 month schedule and I looked at it recently before the board meeting about 80% of that is scheduled to ship over the next 12 months. However, you can see our book to bill is continuing to grow and be strong.
We have over 100 of current design opportunities. We look at a design registration program where we register every single design we're working on globally and track it to fruition. And we're seeing a lot of wins. Some stuff we thought we'd get in Q4, we got in Q2 and that kind of stuff. You just kind of manage that last 20% of the business.
But if bookings continue at the rate they are, which we've seen for the past couple of quarters, obviously, the backlog will grow. And again, we're getting scheduled orders over 12 months and about 80% of that today is showing that it's going to ship in 2025.
: And Bobby, if it's the Ultra 3000, those will ship from inventory. That was part of his question because we do have those built. If it's other products, in a lot of cases, we have raw materials already in stock that will be used. So it's not a matter of us having to go out and buy 100% of the components for new orders that we get.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: No, with our inventory position, we have especially this fiscal year shipped a majority from stock and that's why you've seen a reduction in inventory because we built it up due to lead times, make sure we take care of our customers and so that's kind of the process we go through. Tough to manage, don't get a lot of visibility, but we're able to support the customer.
Bobby Brooks, Analyst, Northland Capital Markets: Yes, for sure. I can appreciate that. Thank you guys for answering the question.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Thanks, Bobby.
Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Rem from Odinson Partners.
: Hi, guys. Nice quarter. Greg, can you give the detail on the backlog in DMT and then also GES?
Ed Richardson, CEO, Richardson Electronics1: Sure.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Within GES, the backlog grew substantially. It's right around $45,000,000 and that backlog is scheduled as we've just talked about to all ship in 2025. On the PMT side, which is our RF and Microwave Components business and our legacy MRO2 business,
Ed Richardson, CEO, Richardson Electronics1: that's about
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: $50,000,000
Ed Richardson, CEO, Richardson Electronics1: and that's kind of how
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: it breaks down. So the GES backlog has grown quite substantially, up to $44,000,000 and the balance of it is PMT.
: Okay. I guess can you just clarify if PMT is $50,000,000 and GES is $45,000,000 that's $95,000,000 and you said portal was 101?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Yes. So right now it's GES is $44,000,000 and the balance of that the ECO 101 is I got a bunch of documents here is PMP.
: Very good. All right.
Ed Richardson, CEO, Richardson Electronics0: And then
: I guess you talked well, actually I want to go back to the question earlier on the inventory that's related to the Talos. What is that current balance?
Bob Binn, Chief Financial Officer, Richardson Electronics: It's around $30,000,000
: Okay. So very similar to last quarter.
Bobby Brooks, Analyst, Northland Capital Markets: That's about right.
: Right. We didn't have we didn't have we had an increase. Okay. Yes.
: Okay. And then I want to go back. I think you guys have said previously that you might add up to $10,000,000 or so. Is that still the
: No, I think we have about $5,000,000 left in Talos inventory. Is that what you're asking?
: In terms of purchases this year.
: Yes. About $5,000,000 this year, in calendar year 2025.
Ed Richardson, CEO, Richardson Electronics: And we're selling over $20,000,000 a year of that inventory. So it will start to deplete.
: Okay. Yes, that was the other thing. So I thought previously that you guys had said that that was kind of long dated inventory that you would sell it out over. I think the commentary that I remember was over the next like 7 years, but that doesn't sound like what you're saying today.
Ed Richardson, CEO, Richardson Electronics: No, that's about correct.
: We're 2030.
Ed Richardson, CEO, Richardson Electronics: Right.
: So while we when we first said it was 7 years, now it's 5 years.
Anja Soderstrom, Analyst, Sidoti: Yes. Okay.
: And then maybe just lastly, you guys did have done a nice job on the cash flow. From here over fiscal 2025, what is the key in terms of I mean, so far, in this case, this quarter I guess it was more kind of the AR, AP was a big driver. But as you look at the second half of the year, what allows you to continue to put up nice positive cash flow?
Bob Binn, Chief Financial Officer, Richardson Electronics: Well, earnings would certainly help. Yes, we do expect a good increase in sales in the second half of the year and with continued tight management of inventory. And then of course, accounts receivable, we do expect to grow due to the increased sales, but that turns pretty well. Our DSO is around 40 to 45 days. So continuing to do what we're doing.
: Yes. So if working capital is kind of stable, sales go up and then the profit should kind of lift with it and then that kind of drops down. I mean that's kind of what I was thinking just that the profitability is the bigger driver in the second half of the year versus working capital in the first half of the year.
Bob Binn, Chief Financial Officer, Richardson Electronics: I think that's correct.
: Yes. Okay. Thank you guys. Good quarter.
Anja Soderstrom, Analyst, Sidoti: Thank you. Thanks, Andrew.
Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Brett Davidson from Invest Letter.
Ed Richardson, CEO, Richardson Electronics0: Okay. Now it's sunny 16 degree Buffalo without any sun.
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: 16, that's a heatwave, Brett. Okay.
Ed Richardson, CEO, Richardson Electronics0: So I'm intrigued by that design registration program for new products. I think you said that there's over 100 of those currently right now. How does that compare to last year or 5 years ago? Can you give me some context that is this a huge increase from what's normally seen or is this kind of standard fare?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: Yes. This is a program that we've implemented here many, many, many years ago and it's for our field engineering organization and every opportunity that they're working on or identified they register if you will on our system. And that's the data, part number, customer, application, quantity, forecast, and that's the document that they use in the quarterly business reviews with the product and sales management team. And so as we add new products and as we add new technology partners that list has and continue to grow every year. Our conversion rate today is about 27% to 30% of that list, which again we've used this type of system for well over a decade and that's kind of the norm.
But it's a very detailed, I guess it's more of a sales and marketing management tool that we document every opportunity because as you know they can get lost and not focused on. And so one interesting thing to add to that is every opportunity is given a percent of that will be booked in the next 6 months. So you have a 30%, 60%, 90% number put on that. And we focus on what does it take to get that 60% to 90%, that 30% to 60% and then that 90% group to 100%. And that's greatly helped us manage our opportunities.
And like I mentioned before, just with the Altra 3,000, we have well over 40 different sites in North America that we're talking to generate beta testing, alpha testing. So that's it's more of a software program that we use to track our opportunities globally and has grown every quarter since I came back about 10 years ago.
: So over the past 5 years,
Ed Richardson, CEO, Richardson Electronics0: I mean, was it something like 50 and now we're at 100 and is this largely driven by the green energy?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: No. Or it's currently. Yes, it can be green energy, RF and microwave. Anywhere we have technology partners, so the component side of it and then the engineered solution side of it. I don't have the exact number right now or the growth of that over the years, but it's 100 globally that the team is working on.
And I'll get you that number. I'll give it to you, Brett, and give you a call.
Ed Richardson, CEO, Richardson Electronics0: Okay. And yes, I mean, I'm just curious what's the driving factor in the increase? Is it business wide or is it tilted towards green energy?
Greg Pellequin, General Manager, Power and Microwave Technologies Group, Richardson Electronics: It's tilted toward the number of new products we introduced. Obviously, that generates more opportunities because you have more products to sell. When we sign these technology agreements like you've seen the press releases like Novitas, these are world leading component suppliers that generates more opportunities because you have more products to sell. And right now looking at the percent, a majority of it in terms of the increase is like you said is green energy, green energy applications, both component and then our own engineered solutions products.
Ed Richardson, CEO, Richardson Electronics0: Got it. Thank you.
: You bet.
Conference Operator: Thank you. At this time, I would now like to turn the conference back over to Ed Richardson for closing remarks.
Ed Richardson, CEO, Richardson Electronics: Thank you again for joining us today. We certainly appreciate your investment and interest in Richardson Electronics. You're welcome to call us at any time. We're happy to speak to you individually for questions that we didn't cover today. We look forward to our ongoing discussions and sharing our Q3 results with you in April.
Thank you very much.
Conference Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.