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spk06: Good day and thank you for standing by. Welcome to the Richardson Electronics earnings call for the fourth quarter in fiscal year 2023. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ed Richardson. Please go ahead.
spk05: Good morning and welcome to Richardson Electronics Conference Call for the fourth quarter of fiscal year 2023. Joining me today are Robert Benn, Chief Financial Officer, Wendy Dedell, Chief Operating Officer and General Manager for Richardson Healthcare, Greg Peliquin, General Manager of our Power and Microwave Technologies Group and our newest business unit, 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. Fiscal year 2023 was one of the best years in our 76-year history. Operating income increased year over year by nearly 57% on a 16.9% increase in net sales, reflecting the power of our financial model. This growth demonstrates the success of our long-term growth strategy, especially considering a fluid global economic environment supply chain challenges, and significant product and wage inflation. Over the past three years, we pursued organic growth strategies focused on expanding our product lines and leveraging the deep relationships we have with 20,000 customers all over the world. We've also greatly enhanced our engineering and manufacturing resources and capabilities, The success of these strategies has transformed our business by increasing our scale and significantly improving our profitability. Since fiscal 2020, annual sales have increased from $155.9 million to $262.7 million, representing a compound annual growth of 19%. We've also significantly enhanced the profitability of our business. Our gross margin has remained stable. We've controlled expenses. SG&A as a percentage of annual revenue was 32.9% for the year ended May 30, 2020, compared to 22.4% at May 27, 2023, the year we just finished. Positive operating leverage has transformed the profitability as we've grown from an operating loss of $1.7 million in fiscal 2020 to to an operating income of nearly $25 million in fiscal 2023. Most importantly, the growth we've achieved over the last three fiscal years and more recently in fiscal 2023 has been driven by new products and applications development, new customer growth, and expanded relationships with our global customer base. The launch of our green energy solutions business this year is a notable example of our successful strategies, as GES sales in fiscal 2023 grew by 110%. Not only did this support our performance in fiscal 2023, but our GES segment has further diversified our business and is helping us insulate from the challenging semiconductor wafer fab market. While we expect the semiconductor wafer fab market to remain challenging over the next several quarters, we're excited by the significant opportunities we're pursuing all over our business units. We continue to develop new products and expand our global customer base. These products include power management systems for wind turbines, electric locomotives, hydrogen power, synthetic diamonds. We believe our continued growth of our GES business will help offset the expected 2024 decrease in the semiconductor wafer fab equipment business. Today, nearly 60% of our revenue comes from products we manufacture or have manufactured exclusively for us. Ultracapacitors and lithium iron phosphate battery modules, magnetrons, CT tubes, and many other tubes and related products are manufactured by us in LaFox, Illinois. We engineer and manufacture custom display solutions for medical applications in Boston and Germany. To accommodate this growth, we continue to hire talented engineers with a focus on new product development. We're also adding manufacturing capacity through our LaFox facility renovation, which is expected to be completed this week. Recently, we had key OEM customers joined by their end users visit our operations here in LaFox. Each walked away with a list of products and opportunities they want us to explore in addition to the products they purchased from us today. We're excited to show off our completely renovated building at our upcoming investor open house scheduled for August 22nd. Now, Greg, Wendy, and Jens will provide more details on the quarter and fiscal year, including these key growth initiatives. First, Bob Ben, our Chief Financial Officer, will review our fourth quarter and fiscal year 2023 financial performance in more detail.
spk08: Thank you, Ed, and good morning. I will review our financial results for our fourth quarter and fiscal year 2023, followed by a review of our cash positions. In addition, please note that I will be discussing non-GAAP financial measures. I refer you to our fourth quarter fiscal year 2023 press release for a reconciliation of non-GAAP items to the comparable GAAP measures. Net sales for the fourth quarter fiscal 2023 were down 4.5% to $58.8 million compared to net sales of $61.6 million in the prior year's fourth quarter. Due to lower net sales in our PMT Canvas and healthcare business units, partially offset by higher sales in our GES business unit. Net sales for GES increased 5.8 million or 61.7% from last year's fourth quarter. GES combines our key technology partners and engineered solution capabilities to design and manufacture products for the fast-growing green energy market and power management applications. PMT sales decreased by 8.3 million or 20.8% from last year's fourth quarter, driven by primarily a decline from manufactured products for our semiconductor wafer fabrication equipment customers. Canvas sales decreased slightly by 0.3 million or 3.2% due to the timing of shipments in North America. Richardson healthcare sales also decreased slightly by 0.1 million or 2.7 percent due to decreases in parts and equipment sales, partially offset by higher CT tube sales. Total company backlog was 160.4 million at the end of the fourth quarter of fiscal 2023 versus 175.1 million at the end of the third quarter of fiscal 2023. Gross margin for the fourth quarter was 27.9% in net sales compared to 32.7% in last year's fourth quarter. PMT's margin decreased to 29.0% from 35.2%, primarily due to product mix. GES's margin decreased in the fourth quarter of fiscal 2023 to 23.4% from 31.1% in the prior year's fourth quarter, also due to product mix. Canvas gross margin increased in the fourth quarter of fiscal 2023 to 32.9% from 30.7% in the prior year's fourth quarter because of product mix and lower freight costs. Health care's gross margin increased to 23.7% in the fourth quarter of fiscal 2023 compared to 10.8% in the prior year's fourth quarter due to improved manufacturing absorption partially offset by increased scrap expense. Operating expenses were $15.0 million for the fourth quarter fiscal 2023 compared to $15.2 million in the fourth quarter fiscal 2022. The decrease in operating expenses resulted from tight expense control and lower incentive expenses from significantly lower operating income, partially offset by higher salaries expense, which included wage inflation. The company reported operating income of $1.4 million or 2.4% of net sales for the fourth quarter of fiscal 2023 versus operating income of $5.0 million or 8.1% of net sales in the fourth quarter of last year. Other income for the fourth quarter of fiscal 2023, including interest income and foreign exchange, was $0.1 million compared to other expense of $0.2 million in the fourth quarter of fiscal 2022. Income tax benefit was $2.6 million and non-GAAP income tax benefit was $0.2 million for the fourth quarter of fiscal 2023 versus an income tax benefit of $3.5 million and non-GAAP income tax expense of $0.5 million in the prior year's fourth quarter. The fourth quarter of fiscal 2023 included $0.4 million for an R&D tax credit for the current fiscal year, and a one-time total credit of $0.6 million for fiscal years 2020 through 2022. In addition, the fourth quarter fiscal 2023 included a one-time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance. Net income for the fourth quarter fiscal 2023 was $4.1 million and non-GAAP net income was $1.8 million compared to net income of $8.3 million and non-GAAP net income of $4.3 million in the fourth quarter of fiscal 2022. Earnings per common share diluted were 27 cents and non-GAAP earnings per common share diluted were 11 cents in the fourth quarter of fiscal 2023 compared to earnings per common share diluted of 59 cents and non-GAAP earnings per common share diluted of 31 cents in the fourth quarter of fiscal 2022. Turning to a review of the results for fiscal year 2023, net sales for fiscal year 2023 were 262.7 million, an increase of 16.9 percent from 224.6 million in fiscal year 2022. Net sales increased by 8.9 million or 5.7% for PMT, 25 million or 110.5% for GES, 4.1 million or 11.8% for Canvas, and 0.1 million or 0.5% for Richardson Healthcare. Gross margin for fiscal 2023 was 31.9% of net sales, the same as during fiscal 2022. Operating expenses. were $58.7 million for the fiscal year, which represented an increase of $3.0 million from last fiscal year. The increase in operating expenses resulted from higher employee compensation and travel expenses, including additional incentive expense, due to strong profitability. Operating expenses as a percentage of sales decreased to 22.4% during fiscal 2023 as compared to 24.8% during fiscal 2022. Operating income for fiscal year 2023 was $25.0 million or 9.5% of net sales as compared to an operating income of $16.0 million or 7.1% of net sales for fiscal year 2022. Other income for fiscal 2023, including interest income and foreign exchange, was less than $0.1 million as compared to other expense of $0.2 million for fiscal 2022. Income tax expense was $2.7 million, and non-GAAP income tax expense was $5.0 million for fiscal 2023. The fourth quarter of fiscal 2023 included $0.4 million for an R&D tax credit for the current fiscal year, and a one-time total credit of $0.6 million for fiscal years 2020 through 2022. In addition, the fourth quarter fiscal 2023 included a one-time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance. The income tax benefit of $2.2 million for fiscal 2022 resulted from the $4.0 million partial reversal of the tax valuation allowance due to evidence of profitability for realizing a portion of the deferred tax assets in the future. The non-GAAP income tax expense for fiscal 2022 was $1.8 million. The company reported net income for fiscal 2023 of $22.3 million and non-GAAP net income of $20.0 million versus net income of $17.9 million and non-GAAP net income of $13.9 million during fiscal 2022. Earnings per common share diluted were $1.55 and non-GAAP earnings per common share diluted were $1.39 for fiscal 2023 compared to earnings per common share diluted of $1.31 and non-GAAP earnings per common share diluted of $1.02 for fiscal 2022. Moving to a review of our cash position, cash and investments at the end of fiscal 2023 were $25.0 million compared to $24.6 million at the end of the third quarter of fiscal 2023 and $40.5 million at the end of fiscal 2022. Cash generated at $0.4 million in the fourth quarter of fiscal 2023 was primarily due to a decrease in accounts receivable, partially offset by an increase in inventory. The use of cash during the fiscal year related to higher working capital to support significant sales growth. U.S. cash and investments were $7.6 million at the end of fiscal 2023 versus $8.9 million at the end of the third quarter of fiscal 2023 and $25.5 million at the end of fiscal 2022. Capital expenditures were $2.4 million. in the fourth quarter fiscal 2023 versus $1.0 million in the fourth quarter fiscal 2022. Approximately $2.2 million related to investments in manufacturing including facility expansion and included the renovation of our office space. Total capital expenditures were $7.4 million in fiscal 2023 as compared to $3.1 million in fiscal 2022. We paid $0.8 million in cash dividends in the fourth quarter and a total of 3.3 million in fiscal year 2023. In addition, based on our current financial position, our board of directors declared a regular quarterly cash dividend of six cents per common share, which will be paid in the first quarter of fiscal 2024. As of the end of fiscal 2023, the company had not made any draws on its $30 million revolving line of credit with PNC Bank. Now I will turn the call over to Greg who will discuss the results for our PMT and GES business groups.
spk11: Thank you, Bob, and good morning, everyone. In fiscal year 2023, Power and Microwave Technologies, or PMT, and Green Energy Solutions, or GES, performed well with excellent growth in all aspects of the business. PMT revenue grew 5.7%, while GES revenue increased 110.5%. The major highlight in the fourth quarter was our GES group, as it continues to drive strong growth with addition of new products, new programs, and new customers. Our GES group had exceptional growth throughout the quarter as the demand for green energy applications, such as wind energy, electric locomotives, energy storage, and power management greatly increased. We continue to apply focus and resources to this extremely important strategic business unit and the growth opportunity it represents for Richardson Electronics. GES sales were up 61.7% in Q4 FY23 at $15.3 million versus $9.5 million last fiscal year. Our backlog is strong at $42.9 million. Revenues in GES include numerous successful products such as the Ultra 3000, EV locomotive battery modules, UltraGen 3000, and products used in synthetic diamond manufacturing and other green advancements, such as hydrogen production and electric vehicles. In addition, we have numerous products in design, prototype, and beta testing. In the quarter, we continue to sign global technology partners and announce new patents and programs. We continually evaluate technologies to ensure we offer our customers the best, most up-to-date solutions for their applications. In Q4, we announced the Ultra PEM multi-brand module for several non-GE wind turbine platforms. We received a third patent on our Ultra 3000, and we announced that GE for NOVA had selected the Ultra 3000 as the exclusive pitch energy module for the GE marketplace, increasing our served available market. We also announced the Ultra UPS 3000, used in wind turbines and other power management applications. This strategy of developing niche products and technologies is key to our long-term success. The growth of customers and products in GES continues as our design teams are in discussions with several major OEMs weekly regarding the development of energy storage products and other green energy applications. P&T sales in the fourth quarter of fiscal year 2023 decreased 20.8%, reaching 31.5 million versus 39.8 million in Q4 last fiscal year. This decline was mainly due to the major slowdown in our semiconductor wafer fabrication equipment business. The team has been supporting this semiconductor wafer fabrication business and its customers for well over 25 years. This business has always been cyclical, and we expected to see a slowdown in 2023. However, in talking to our customers, they expect the business to start recovering in the first half of calendar year 2024. Our engineered solution strategy is led by our global technology partners, such as Quervo, Macom, Monokia Wave, Ellis Materials, Ammo Green Tech, Navitus Semiconductor, and Fuji Semiconductor. Key tube manufacturers and partners include CPI, TALIS, Ishimbo Micro Devices, and Photonis. Each of our global partners help us meet and manage customers' requirements. Our team has done an excellent job identifying and cultivating these relationships. We will continue to add partners who fill technology gaps in our offering and support our growth. In Q4, we added ConductRF, a leader in RF cable assemblies. These key technology partners not only fill technology gaps in our component and engineered solutions offering, but they also give us continued source and supply of new technologies to support all these new opportunities. Often, through these partnerships, we identify opportunities for new products that we design and manufacture in-house. Increasing the value we provide customers and allowing us to capture more market share and revenue. We also continue to invest in our infrastructure to support our growth. We are bringing on talented design and field engineers and making investments to enhance our manufacturing capabilities. Our growing in-house design engineering and manufacturing teams are doing a great job supporting increased demand for current products and new product designs. I am pleased with the progress we are making. With this team, we will continue to identify, develop, and introduce new products and technologies for green energy and other power management applications. Our growth strategy has been proven successful over the years, and we will continue to develop new products as well as increase our customer base, revenue, and profits by capitalizing on our existing demand creation infrastructure. Our belief in our future based on customer forecasts and inputs requires us to strategically invest in inventory that positions us in order to fill the pipeline and ensure we can meet our customers' needs through close collaboration with both our customers and suppliers. There are always headwinds, but we carefully manage these. We are prudently aligning the business for a slowdown in the semiconductor wafer fab market over the near term, while maintaining our core competencies to support our wafer fab customers for the market expected to recover in calendar year 2024. Much of the green energy business is project-based, and robots are dependent on our customers as well as their customers' CapEx requirements. For example, we shipped over $18 million in products in FY23 to our electric locomotive customers, which they are using to build their prototypes. These trains will be finished and shipped to their customers in Q2 FY24. New production orders are not expected until Q4 FY24. Also, finding enough design and field engineering talent to support this growth continues to be a challenge. However, with Richardson's unique global model, continued growth, and with our technology partners and a focused strategy, we will subsidize the project-based business with products we engineer and manufacture to a very diverse customer base to have a more consistent, improved profitability with top-line annual growth. We also continue to grow by gaining market share, introducing new products and technology partners, and expanding the value we provide to our customers worldwide. I cannot stress enough the value of this electronics model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power and energy, RF and microwave, and green energy markets. We have developed a strong business model, including legacy products and new technology partners that fit with our engineered solutions capabilities. Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities when they arise. The execution of this strategy has never been better. There is no question our customers and technology partners need Richardson's products and support more than ever. We continue to be very excited about the future as opportunities and our market share for P&T and GES continue to grow. And with that, I'll turn it over to Wendy Dedele to discuss Richardson Healthcare.
spk03: Thanks, Greg. Good morning, everyone. Fourth quarter sales for healthcare were 2.8 million. slightly lower than fourth quarter sales last year of 2.9 million. CT tube sales were higher in the quarter versus the same quarter last year. Parts and system sales were both down. On a full year basis, healthcare sales were 11.4 million, just slightly above the prior year. System sales exceeded the prior year where part sales were down. CT tube sales were down less than 5% compared to last year. Gross margin in the fourth quarter improved significantly to 23.7% versus 10.8% in Q4 of last year, primarily reflecting better factory utilization. Last year, we were forced to stop production for a period due to supplier quality issues. On a full year basis, gross margin was 30.7%, a meaningful improvement over 21.2% last year. Much of the growth in gross margin was again due to positive production variances in FY23, stemming from enhanced operations. Scrap, while still high for the year, also decreased over prior year. We are pleased with the improvement in gross margin as an indicator that we've ironed out many of the production challenges we've had in the past. We also want to point out that healthcare's SG&A for the year was significantly below prior year. These savings, combined with the improved margin, resulted in reduced operating loss for healthcare compared to both our planned loss and our performance last year. We continue to make excellent progress on the Siemens repaired tube program. This is a series of four tube types, including the Stratton Z, MX, MXP, and MXP46. The Siemens install base is considerably larger than Cannon's, and there are no third-party replacement options for these tube types. The repaired Stratton Z is now in full production and performing well in the field. We expect sales to rise gradually in the coming quarters based on early discussions with key customers. We are making excellent progress as well on the repaired Siemens MX series with a high degree of confidence that these will launch in the 2023 calendar year. We know demand is strong based on discussions we've had with our customers. As noted in prior calls, the Siemens program is a critical element for our healthcare business unit to reach its goal of providing a positive operating contribution to the company by Q4 of FY24. Several new programs that will further improve CT tube sales and factory utilization are still underway. These programs include reloading tubes in Brazil. We continue to work our way through the local registration process. We are also partnering with an international company to reload and sell several other types in the Americas. We anticipate these programs may have a small yet positive impact on our revenue in FY24, depending on how quickly we can validate and achieve regulatory approvals. I will now turn the call over to Jens Rupert to discuss the results for Canvas.
spk07: Thanks, Wendy, and good morning, everyone. Canvas engineers, manufacturers, and sales custom displays to original equipment manufacturers in industrial and medical markets throughout the world. Canvas' performance remains excellent with sales of 9.2 million for the fourth quarter of fiscal 2023. This reflects continued strong customer demand globally. Sales grew by 11.8% to 39.4 million in fiscal year 2023, the highest revenue since fiscal year 2012 due to increased demand globally. and the continued addition of new customers and programs. This was a remarkable accomplishment considering ongoing supply chain and global economic challenges. Cross-margin as a percentage of net sales was 32.9% during the fourth quarter of fiscal 2023, compared to 30.7% during the fourth quarter of fiscal 2022. The increase in cross-margin was primarily related to the more favorable mix of higher margin products. Our fiscal year 2023 gross margin as a percentage of sales decreased slightly to 31.5% from 32.0% in fiscal year 2022. The decrease in gross margin was related to product mix and higher component costs, which impacted many companies around the globe, including Canvas. Our backlog remains extremely healthy. which we expect to support strong sales throughout fiscal 2024. Given the number of projects currently in the engineering stage, we are well positioned for continued growth. Our expectations assume no impact from current supply chain obstacles and demand is not negatively impacted by any potential recessionary pressures. During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include ocular biometry, corneal cross-linking, refractive surgery, HMI to control medical devices within the operating theater, prostate biopsy, esotripsy, dental treatment chairs, surgical navigation, and laparoscopy. In the non-medical space, our products are used in a variety of commercial and industrial applications. These include flight simulators, displays used in control rooms, human machine interfaces for ticketing machines, and teleprompting, talent monitors, and clocks. I'm immensely proud of our teams around the world, and I'm extremely pleased with their exceptional operating performance. Our strong and growing customer relationships, along with the backlog, position us for future growth in fiscal 2024 and beyond. From the variety of customers and applications, as well as the value of orders from existing and new customers, it is clear we offer our global customers outstanding products and localized service. While our sales organizations stay focused on new opportunities, I stay focused on improving the operating performance of the division. Maximizing cash flow and improving Canvas's profitability is an ongoing priority, and we continue to work closely with our partners to meet the demands of our customers. I will now turn the call back over to Ed.
spk05: Congratulations, Jens. You and your team on setting another new sales record for Canvas and our custom display solutions. You and your team have aggressively attacked the medical OEM market and provided them with solutions they can't find anywhere else. As you've heard from Bob, Ben, and the business unit leaders, FY23 was phenomenal. While the semiconductor wafer fab cycle is expected to impact near-term PMT sales, we believe we're well-positioned to navigate the challenging market cycle. We continue to pursue organic growth strategies that leverage our global customer and supplier relationships, provide our customers with more engineered solutions, and expand our manufacturing resources and capabilities. As a result, we're excited about the opportunities we have in front of us to significantly grow sales over the next three years and beyond. In addition, with our talented team and compelling products, I'm more confident about the direction we're headed than at any time as CEO of Richardson Electronics, which, by the way, has been 61 years. We continue to manage expenses and carefully evaluate every dollar we spend to ensure we're protecting our cash and maximizing our return. Our intent in FY24 is to use our cash to fund our key growth initiatives while taking advantage of the money we've deployed so far. We firmly believe that developing solutions in a responsible manner alongside our suppliers and our customers is the key to our future success. We're scrutinizing inventory purchases. We review every capital expenditure and approve every add to staff. We'll continue to explore and benefit from our favorable tax programs that support our green energy solutions. At this time, we'll be happy to answer some questions.
spk06: 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 all have had a chance to ask the questions, after which we will answer additional questions from you as time permits. Again, if you have a question, please press star 1-1 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Michael Hughes with SGF Capital Management. Your line is open.
spk09: Good morning. Thanks for taking my questions. Ed, can you talk about the revenue generated from the semi-cap equipment business in the just completed fiscal year and what your expectation is for the coming year?
spk05: Yes. It was approximately $40 million in which included Lam Research, Applied Materials, Tokyo Electron, MKS, Talus, a number of firms. If you had heard the press release from Lam because of the CHIPS Act that Congress passed, they said their business would be down about 30% in the coming year, primarily because they couldn't ship high-tech equipment to China. Since that time, they've come out with a much more optimistic forecast, saying that by the end of 2024, that their business will even be stronger than where it's been in the past. And they've even gone so far to tell their vendors, we'll help support you financially to make sure you have the resources to supply our products when we need them.
spk09: Okay. So $40 million in the just completed year. Do you have a ballpark number that we can think about for the coming year?
spk05: Yes, we're forecasting about 20 million.
spk09: Okay.
spk05: And that may improve, but right now that's what it looks like.
spk09: Okay. So that's about a $20 million headwind. And just my follow-up, at a recent conference, I think you talked about a $290 million number potentially for the coming year. That's a pretty stout headwind, that $20 million, coupled with it doesn't sound like there are going to be any additional rail orders until the fourth quarter. Is that what Greg said? So just kind of maybe talk about the top line number for the coming year.
spk05: We think that there's enough business and various projects that we're working on in green energy that will more than compensate for the loss of business in the semi-fab area. We have projects going not only for wind turbines. It was originally GE wind turbines, now Siemens wind turbines. We've been an approved source for GE for all of their customers. They tell us they have 800 on their electronic systems. In addition, we're making energy storage systems, and we're working in the cellular field. As you know, we're working on the electric locomotives, both for Progress Rail and Wabtec, which is the old General Electric facility. Each one of the diesel locomotives has what's called a battery start. And those are lead-acid batteries, like 50 times what you'd have in a car. And we've developed a... either an ultracapacitor module or lithium-ion phosphate battery pack to replace those that gives them from 7 to 10 years life. And we're in a prototype beta system on those and project that that could be very substantial in the future. There's something like 30 to 40 million diesel engines in use in the United States So the replacement for those units is $3,000 to $5,000 apiece. You can just imagine what the potential is.
spk03: We should just clarify it was thousands, not millions. We wish there were 30 or 40 million. Oh, yeah. Yeah, $30,000. Yeah, $30,000.
spk05: Right.
spk09: Okay. I'll jump back into the queue. Thank you.
spk06: Thank you. One moment for our next question.
spk04: Our next question comes from .
spk01: Your line is open. Thank you for taking my questions. Can you just talk about the growth margin opportunity and how we should think about that in the coming years?
spk05: I think overall our growth margin will run about 32% somewhere in that area. And that's a mix, you know, with all of our businesses. Certainly, the semi-fab business, which is very profitable, reduces our margin, but we pick it up on the green energy solutions where the business, particularly for wind turbines and energy storage systems, and also the battery starts is quite profitable.
spk03: To add on to that, Agnes, I think, you know, in the FY24, as Ed mentioned, you know, the semiconductor market has always been very profitable for us, so we'd be looking at a gross margin more in the 30% range for the FY24.
spk01: Okay.
spk03: And we expect it to recover back into the range that Ed was pointing out.
spk01: Okay. But since the GS is a little bit lumpy, right, that could pressure the margin in the near term as well, but does that revenue comes in, that should help the margins, right?
spk05: The issue is not a matter of if. It's obvious these programs are all in progress. It's a matter of when and how quickly they'll be rolled out.
spk01: And that will also help the growth margin.
spk05: That's right.
spk01: So it should be improving sequentially. Okay. In terms of the inventory, is there any way you – is there any risk to that inventory, or can you get help from your customers in terms of financing that?
spk05: Well, we've worked out programs with our suppliers. Greg, you might mention the one program you have where we have 180-day terms.
spk11: Yeah. With all of our technology partners, we have zero liability. We have complete stock rotation of the product. uh for the components on the uh engineered solution side uh we've developed uh great payment terms because as we're all dealing with it's project based and um due to lead times we're collecting inventory but there might be one or two parts that have to this day 30 week lead times and so they've been very uh good in working with us because we are designing you know disruptive technology for them and uh so we've gotten good payment terms so even though inventory might be up in a certain situation. If it is, we usually have signed either special terms or some sort of stock rotation capability if the product does not move at a certain date.
spk01: Okay, thank you, and I'll get back in line.
spk04: Thanks, Anya. One moment for our next question.
spk06: Our next question comes from P. Ross Tyler with ARS Investment Partners. Your line is open.
spk02: It's rare I hear my full name. A couple quick questions. One, you talked about the idea of seeing semi-cap equipment revenues drop from 40 to 20. We own in our larger cap products a number of the semi-cap equipment companies, and pretty universally they see the quarter we're currently in as the trough revenue quarter. So would you explain to me why we should see revenues dropping meaningfully over coming quarters when they actually see revenues or they're expecting revenues to ramp over the next three, four quarters pretty sequentially?
spk05: Well, we base that on the first two quarters. And you're right. You know, we've heard that they think the drop is in the next quarter or two. And if that happens, then it'll turn up much faster. But we'd rather under-promise and over-perform than to tell you that it's going to be 30, 40 million and it comes in at 20. Yeah.
spk02: Yeah, I think the street's a little nervous about that number. And I think it does make, and part of what I want to highlight is that you have a pretty tight correlation between how AMAT and LAM and the like do. Historically, those have a pretty close tracking. And so that one would expect if they turn up, if this is the nadir of their performance, that this quarter that we're in currently should be the nadir of yours. Away from that, can you talk to us about green energy? You saw a 60-plus percent, 62 percent rise in revenues, but only about a 22 percent increase in operating profit from that business, it appears. That's a pretty wide margin spread. Can you give us an idea of which margin? Is this a 30-plus percent margin business, or is this a low-mid-20s margin business?
spk11: Yeah, the products altogether in our green energy group is a 30-plus percent margin overall. What you saw in the fourth quarter was large shipments of the battery management systems that we shipped to our largest electric locomotive customer and again this is prototype build so this is prototype quantities prototype products and that we shipped a little more margin until we get to economies of scale when we get into the production and so what we do is we in support of these large customers making us exclusive we'll give them the production pricing uh for the in essence prototype shipment with a letter of intent So what we saw was huge shipments to our electric locomotive customers in the fourth quarter, which was a little more less margin than our overall margin.
spk02: So we should expect that margin then to kick back up into the low 30s as we push forward. And you're seeing substantial growth overall in the GES space in the coming year as well for us.
spk11: Yes, correct. The balance of the business is in the, you know, mid-30s.
spk02: Okay.
spk11: And the product.
spk02: Okay. And that's, so basically this is kind of an aberrational quarter. So the hit we saw this current quarter is really kind of a confluence of events, but it should self-correct it going forward.
spk11: We believe so, absolutely.
spk02: Okay. And can you talk about backlog? Has the drop in backlog been tied in heavily to semi-cap equipment?
spk05: Yes. Yeah. You know, we were running with a backlog in the semi-equipment business over $40 million. And it's the downturn. Two things have happened. LAM, for instance, they took everything they had on order, everything we were manufacturing for them. So we filled their supply chain, and so now you get a laugh in that. But as we did that, our backlog went down, and we don't have new orders to replace it.
spk02: But at the same time, they're indicating to you to be prepared to ship everything you can ship.
spk05: In the second six months, right?
spk02: Yeah, yeah, and they're covering costs. They're doing a lot of – they see a substantial ramp as we push over the next 12, 18 months. And, you know, a bigger business than you saw last year, you think, from them out 18 months?
spk05: That's what they're telling us. That's correct. And LAM in particular has a vendor conference call once a month. And the last conference call, they had over 300 vendors, and they were very optimistic about the second half of calendar 2024. being very strong, even stronger than what they'd seen in the past. We've also seen indications from the automotive industry that they still have a shortage on chips. And so that tells you that this MIFAB business has to pick up.
spk02: Yeah, no, it seems like this has been a tough year, particularly a tough year for shareholders in REL, but it seems like this is pretty much... we're at a nadir in that, in fact, if what you see happening happens, if we get the profitability that the upside here should be explosive and, quite honestly, probably justifies better than a 12 PE.
spk05: Absolutely.
spk02: So, I know you won't do it, but I'm going to ask for it. Can you guys buy back stock? I mean, can you borrow? You got cash. I understand that you have cash needs outside the U.S., but I myself might argue that it would make sense to have a net zero cash position or something of that nature and use that as a chance to do a Dutch auction in this market and buy back a million, million and a half shares. I don't think you'd get it bluntly. I just don't see, I think once you highlight and people start to actually think about where you're going to be in 12 or 18 months on an earnings power basis, it seems that you should get back in track with where we thought you were going to be at the beginning of this year, which is should be enough even to 12 times earnings to make the stock 50, 60% higher than it was, but at a higher than 12 multiple. It seems that this is a great place to buy stock.
spk05: Well, every board meeting we consider it. As a matter of fact, when we sold RFPD in 2011, we bought $65 million worth of stock back at about $8. Yeah.
spk02: And this strikes me as another opportunity of that nature, that you've got a total... the market is punishing you, equity market's punishing you for things that are self-correcting, and the next two years should be a real home run for you guys. So I'll pass that thought to the board and all.
spk05: Well, it certainly depends on what happens to the price of the stock, so we'll see.
spk02: Well, today it's down, so when you have your board meeting, you can... Yeah. Okay. Thank you. Thank you very much.
spk06: One moment for our next question. Our next question comes from Barry Menda with Mendel Money Management. Your line is open.
spk10: Hi, how are you guys doing?
spk05: Well, it would be better if the price of the stock was higher.
spk10: Yeah, I hear you. There was no mention of magnetron. I know you guys are increasing capacity substantially of magnetron. Can you talk a little bit about the capacity expansion and what you're seeing there?
spk05: Yes. Yeah, the demand for the YJ1600 for synthetic diamonds is far in excess of how many we can manufacture. We have improved our manufacturing process substantially, and our yields are back up to normal. And we think as we go along, we can ship. I think we're still back at around like 5,000 of those. And, of course, that's all dependent upon the quality of the product, which we think we've improved. But the demand is certainly there.
spk10: How much, what's your backlog? Do you have a dollar amount that looks in your backlog for that?
spk05: I don't know, Wendy. Do you know the total backlog for Magnetron? I don't have that handy. It used to run about 15 to 20 million. I'm not sure where it is today. But the YJ1600 sells for average price of about $3,000. And there's roughly 5,000 of those in backlog.
spk10: Okay. Okay. And what kind of gross margins on that product?
spk05: It runs about 35%.
spk10: So I would expect to see a substantial increase in shipments this fiscal year in the magnetron versus last year.
spk05: That's correct, yes. As long as we don't lose the formula, there's a lot of black magic in tubes.
spk10: And I assume in Wendy and healthcare that you still expect to break even by the fourth quarter?
spk03: We see the path to that. We're really excited about the progress we're seeing with the repaired Siemens program, not only from our own internal development perspective, which is going very well, but from the customer response. We've talked to a large number of some of the larger companies that aren't even necessarily buying the cannon tubes from us because they don't serve as cannon equipment. And those can be obviously game changers for us. So lots of interest, making really good progress on the development of the repaired program. So yes, we still feel good about Q4 at a break-even level.
spk04: Okay. Great. Thanks. One moment for our next question. Our next question comes from David Schneider, who's a private investor.
spk06: Your line is open.
spk12: Hi there. Just a comment or two, then a question. Regarding semiconductor demand, there was a news release from Stellantis Automotive OEM a day or two ago. They're scrambling to ensure supply of semiconductors globally for the next several years. So just to put a little thought in people's heads is that as vehicles go from internal combustion engine to electric, the semiconductor content increases dramatically. So, you know, that's a tailwind for you. You know, maybe not today, but it's there. And then on a potential buyback, because you do have a small dividend when you buy back a share, obviously you don't have to pay from after-tax cash flow dividend on the buyback shares. So I'm trying to give a little push for that. And I'm wondering on the move towards silicon carbide for automotive for high-voltage applications, if what you do with semi-cap equipment has anything special with that. And then on the Siemens wind turbines, common knowledge that they've been having some problems with a decent percentage of their installed base because they have some real crappy parts in there. So does that actually make them more interested in putting you in as, let's say, an OEM supplier as opposed to pulling out the lead acid batteries? That's about it for me.
spk11: All right, David, I'll touch on the Siemens question. It has no effect on our discussions with them so far with their network of wind turbines. They also service various wind farms that have different platforms, but we're full speed ahead with them on both the Ultra UPS, the new product we announced in the fourth quarter, and also the Ultra 3000, our variation of that for their turbines to replace what they currently have in there. So their issues are the same issues as all the owner-operators and wind turbine manufacturers have had in terms of replacement costs of batteries that fail every 18 months to two years, both in the PEM system and the UPS. And that's what we're focused on. And just today, we shipped over 40,000 Altura 3000s.
spk12: Those numbers will be similar as we roll out the ups to those same customers Okay And then the other question was on silicon carbide any any special Impact of that migration on your semiconductor equipment business No
spk11: In terms of delivery and parts being available, our technology partners, and as you know, we have numerous silicon carbide technology partners. We've been fine. We have a major win in the electric vehicle market with VinFast out of Vietnam for their electric car. So we haven't seen, David, anything that would slow down or subdue our our opportunities are growing.
spk12: Okay. All right. That's all I've got for right now. Thank you. Thank you.
spk04: One moment for our next question. Our next question comes from Michael Hughes with SGF Capital Management.
spk06: Your line is open.
spk09: Thanks for taking the follow-ups. Morning, Michael. Morning, Ed. Just you don't get a lot of questions on the legacy to business, but I think it's roughly 40% of revenue, so how did it perform and the just completed fiscal year and what what's the outlook for the becoming fiscal year.
spk05: Well, including the semiconductor wafer fab which has tubes in it and waveguides and microwave devices, it went from 100 million to about 120 million last year, so it was up substantially. And the core tube business is very strong. They told me 25 years ago we wouldn't sell tubes in five years, and it was up over 20% this year. And we own about half the commercial market, so we wish there were more businesses like the tube business. But we sell 20,000 customers all over the world. Probably 80% of those products are in aftermarket, so it's a very predictable business.
spk09: So the core business continues to perform well, and I think what's happened over time is maybe volume is in decline, but you take enough price each year to offset that. Is that how it works?
spk05: That's correct. That's right.
spk09: Okay. And then on the green energy solutions business, Greg, did you say that the backlog was $43 million? Is that correct?
spk11: Uh, yes, the backlog is 43 point something. Yes. Correct.
spk09: Okay.
spk11: I understand that. Okay.
spk09: I understand that business is rich with opportunities, but that, that number was down from, I think 54 million in the prior quarter. Is that just burning through some of the locomotive revenue, and should we expect a little bit of a pullback in the revenue for that division over the next couple of quarters and then a ramp in the back half?
spk11: That's exactly what it was. Again, that business, including most of the engineered solutions products in the green energy group, is project-based. Our bookings were through the roof, as you remember, in the first half of the year, and then we designed and built it and shipped it. And so we had huge shipments in Q4 to meet our customers' requirements so they could build their full electric locomotive. So I don't think we'll see production orders, as I mentioned, until Q3, Q4 of next year, large production orders. But we have some other products, I think as Ed touched on, with other electric locomotive manufacturers that should keep that top line growth going. But That's exactly it. It's project based. You're going to have that. You're going to have huge bookings one quarter and then huge shipments a few quarters after that and then wait for the production. It's all part of the new product introduction process. And these are all, as you know, new products that didn't exist, you know, two years ago.
spk09: Do you think the backlog that this was a low point and it can grow from here, meaning the book to bill would be north of one over the next few quarters for that division?
spk11: Yeah, I think our bookings will be strong in Q1 and Q2 of this fiscal year. And then our top line, I think, will be stronger than any quarter we've seen in the last couple years in Q3 and Q4. Okay.
spk09: And then last housekeeping question for you. Do you have the backlog for PMT and then Canvas?
spk05: Canvas is about $40 million.
spk07: $47 million for Canvas, yeah. Okay. Okay.
spk03: Yeah, $47 for Canvas, TMT in total, but that includes green energy solutions with $111.9. So I don't have it broken out here on my sheet, and healthcare was $1.7. Okay.
spk09: Thank you very much. Appreciate it.
spk11: Yeah, actually, I do have the backlog for PM – PMT, it was $69 million and then $42.8 million for a total of both groups of $111 million.
spk09: Okay, great. Thank you.
spk06: Ladies and gentlemen, this concludes the Q&A portion of today's conference. I'd like to turn the call back over to Ed for any closing remarks.
spk05: Thanks, Kevin. We appreciate your investment and interest in Richardson Electronics. And I'm really pleased with the performance of our teams throughout the entire last year and remain confident we're on the right track for long-term growth. We look forward to our ongoing discussions and sharing our fiscal 2024 first quarter with you in October. Please don't hesitate to call us anytime. We're always available to talk to you. Thank you.
spk06: Well, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day. thirteen dollars back just so you know
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