Richardson Electronics, Ltd.

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.

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.

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.