Richardson Electronics, Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Richardson's Electronics Earnings Call for the fourth quarter of fiscal year 2024. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you would 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 that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Ed Richardson, Chief Executive Officer. Please go ahead.

Good morning and welcome to Richardson Electronics conference call for the fourth quarter of fiscal year 2024. 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, 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'd 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 2024 was a difficult year for Richardson Electronics due to challenging conditions within our semiconductor wafer fab market. and program delays across several of our green energy solutions opportunities. Economic uncertainties and higher interest rates also contributed to lower sales in certain segments of our business. While these trends impacted sales and profitability during the year, our teams focused on improving gross margins, reducing inventory levels, strengthening our strong balance sheet, and investing in our long-term strategic growth opportunities. In fact, the fourth quarter marked the second consecutive quarter where we experienced reduction in inventory and the first year-over-year decline in inventory since fiscal 2017. In addition, the company generated $7.2 million in operating cash flow during the fourth quarter, and we ended the year with no debt and $24.3 million in cash and cash equivalents. While it was a tough year for sales growth, our business remained strong, and I'm pleased with the direction we're headed. The strategies we're pursuing include increased engineered solutions, leveraging our distribution partners and global customer base, and supporting opportunities such as green energy. During fiscal 2024, key successes included achieving a significant milestone in the number of wind turbine generator modules sold expansion of our global customer base in green energy solutions market, and the launch of starter modules used to replace lead-acid batteries in locomotives. In fact, within our GES business, we now offer multiple solutions for lead-acid battery replacements and several OEM turbines compared to the Ultra 3000 last year. Greg, Wendy, and Jens will provide more details on our business unit performance including an update on our growth strategies, new product development, program wins, and expanding customer relationships. First, I will turn the call over to Bob Ben, our Chief Financial Officer, to review our fourth quarter and fiscal year 2024 financial performance.

Thank you, Ed, and good morning. I will review our financial results for our fourth quarter and fiscal year 2024, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. A reconciliation of non-GAAP items to the comparable GAAP measures is available in our fourth quarter fiscal year 2024 press release that was issued yesterday. Net sales for the fourth quarter fiscal 2024 were 47.4 million compared to net sales of 58.8 million in the prior year's fourth quarter. PMT sales decreased by 1.0 million from last year's fourth quarter, primarily due to lower sales of RF and microwave products. Sales for GES declined 10.6 million from last year's fourth quarter, which included approximately 11 million of EV locomotive battery modules that did not recur in fiscal 2024. Canvas sales decreased by 0.5 million, primarily due to economic conditions. impacting medical OEM sales in North America. Richardson healthcare sales increased by 0.7 million, or 24.3%, compared to the fourth quarter fiscal 2023 as a result of higher systems, CT tube, and parts demand. Backlog totaled 147.8 million at the end of the fourth quarter fiscal 2024, versus 147.7 million at the end of the third quarter of fiscal 2024. The sequential increase was in GES, partially offset by slight decreases, primarily in PMT and Canvas, which remain healthy. GES backlog of 42.3 million increased by 5.5 million since the third quarter of fiscal 2024. Consolidated gross margin for the fourth quarter was 31.1% of net sales, a significant improvement compared to 27.9% in last year's fourth quarter. All of our business units had higher gross margin in the quarter versus prior year. PMT's gross margin increased to 31.1% from 29.0% due to a favorable product mix. GES gross margin increased in the fourth quarter of fiscal 2024 to 25.5% from 23.4% in the prior year's fourth quarter due to product mix. Health care's gross margin increased to 32.5% in the fourth quarter of fiscal 2024 compared to 23.7% in the prior year's fourth quarter as a result of an improved product mix and lower scrap costs. Canvas's gross margin increased in the fourth quarter fiscal 2024 to 33.5% from 32.9% in the prior year's fourth quarter because of product mix. Operating expenses were $14.8 million for the fourth quarter fiscal 2024 compared to $15.0 million in the fourth quarter fiscal 2023. The decrease in operating expenses resulted from lower incentives expense partially offset by higher R&D expense. The company reported an operating loss of $0.1 million for the fourth quarter fiscal 2024 versus operating income of $1.4 million in the fourth quarter of last year. Other expense for the fourth quarter fiscal 2024, including interest income and foreign exchange, was less than $0.1 million compared to other income of $0.1 million in the fourth quarter fiscal 2023. Income tax benefit was less than $0.1 million and non-GAAP income tax benefit was $0.4 million for the fourth quarter of fiscal 2024 versus an income tax benefit of $2.6 million and non-GAAP income tax benefit of $0.2 million in the prior year's fourth quarter. The fourth quarter of fiscal 2024 included $0.4 million for an R&D tax credit for the current fiscal year and a one-time total credit of $0.5 million for fiscal years 2020 through 2023. In addition, the fourth quarter of fiscal 2024 included $0.9 million in income tax expense for the establishment of an Illinois state tax valuation allowance related to the limitation of NOLs. Net loss for the fourth quarter of fiscal 2024 was $0.1 million, and non-GAAP net income was $0.3 million. compared to net income of $4.1 million and non-GAAP net income of $1.8 million in the fourth quarter of fiscal 2023. Loss per common share diluted was one cent per share, and non-GAAP earnings per common share diluted were two cents in the fourth quarter of fiscal 2024, compared to earnings per common share diluted of 27 cents and non-GAAP earnings per common share diluted of 11 cents in the fourth quarter of fiscal 2023. Turning to a review of the results for fiscal year 2024. On a year-to-date basis, net sales for fiscal year 2024 were $196.5 million, a decrease from $262.7 million in fiscal year 2023. Net sales decreased by $35.6 million for PMT, $24.4 million for GES, and $6.9 million for Canvas. while sales increased by $0.7 million for Richardson Healthcare. Gross margin for fiscal 2024 was 30.5% in net sales compared to 31.9% during fiscal 2023, primarily because of product mix and manufacturing underabsorption in PMT, product mix in GES, and increased manufacturing underabsorption in healthcare, partially offset by a favorable product mix and lower freight costs for Canvas. Operating expenses were $59.5 million for the fiscal year, which represented an increase of $0.8 million from last fiscal year. The increase in operating expenses resulted from higher R&D and salaries expenses, partially offset by lower incentives. Operating income for fiscal year 2024 was $0.3 million compared to an operating income of $25 million for fiscal year 2023. Other expenses for fiscal 2024, including interest income and foreign exchange, were $0.2 million as compared to other income of less than $0.1 million for fiscal 2023. Income tax expense was $0.1 million and non-GAAP income tax benefit was $0.3 million for fiscal 2024. The income tax expense of $0.1 million for fiscal 2024 resulted from the $0.9 million establishment of an Illinois state tax valuation allowance offset by both current year R&D tax credit of $0.4 million and prior year's R&D tax credits of $0.5 million. The income tax expense was $2.7 million and non-GAAP income tax expense was $5.0 million for fiscal 2023. Net income for fiscal 2024 was $0.1 million and non-GAAP net income was $0.5 million versus net income of $22.3 million and non-GAAP net income of $20.0 million during fiscal 2023. Earnings per common share diluted were $0.00 and non-GAAP earnings per common share diluted were $0.03. for fiscal 2024 compared to earnings per common share diluted of $1.55 and non-GAAP earnings per common share diluted of $1.39 for fiscal 2023. Moving to a review of our cash position. Cash and cash equivalents at the end of fiscal 2024 were $24.3 million compared to $18.9 million at the end of the third quarter of fiscal 2024 and $25.0 million at the end of fiscal 2023. Cash generated of $5.4 million in the fourth quarter of fiscal 2024 was primarily due to decreases in accounts receivable and inventory partially offset by lower accounts payable. U.S. cash and cash equivalents were $6.5 million at the end of fiscal 2024 versus $5.2 million at the end of the third quarter fiscal 2024 and $7.6 million at the end of fiscal 2023. Capital expenditures of $1 million in the fourth quarter fiscal 2024 were primarily related to our facilities and IT systems versus $2.4 million in the fourth quarter fiscal year 2023. Total capital expenditures were $4.0 million in fiscal 2024 as compared to $7.4 million in fiscal 2023. We paid $0.8 million in cash dividends in the fourth quarter, and a total of $3.4 million in fiscal year 2024. 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 first quarter of fiscal 2025. As of the end of fiscal 2024, the company had no outstanding debt on its $30 million revolving line of credit with PNC Bank. Now, I will turn the call over to Greg, who will discuss the results for our PMT and GES business groups.