Richardson Electronics, Ltd.

Greg, and good morning, everyone. Canvas engineers, manufacturers, and sales custom displays to original equipment manufacturers across global industrial and medical markets. It is our mission to deliver high-quality display solutions tailored to our customers' needs. Canvas reported revenue of $8.3 million in the first quarter of fiscal year 2026, an increase from $7.6 million in the same quarter of the previous year. Our gross margin as a percentage of net sales decreased to 30.9% from 34.3% in the first quarter of fiscal year 25, primarily due to product mix and higher inbound freight costs. The backlog at the end of the first quarter of fiscal 2026 remains strong at 38.4 million, providing a robust foundation for future business. During this most recent quarter, Canvas secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation, endoscopy, and human-machine interface solutions for the control of medical devices. Furthermore, our solutions are widely utilized in various commercial and industrial applications. For instance, our products enhance passenger information systems in trains and buses and improve HMI technologies used in printing, vending, milling, and packaging equipment. Our initiatives focus on increasing Canvas' visibility and market leadership by seeking new opportunities, building customer relationships, and collaborating within the industry to drive growth. Looking ahead, while the business is still project-focused and can therefore vary quarter over quarter, we are cautiously optimistic about improving demand in our markets. Positive indicators such as increasing requests for quotes and encouraging customer feedback suggest steady growth. Our dedicated sales team continues to explore new opportunities while I focus on implementing strategic plans to ensure sustainable growth and deliver long-term value for our shareholders. I will now turn the call over to Wendy.

Thank you, Jens, and good morning, everyone.

While our healthcare business is now included in PMT, I want to provide some additional color as we go through this transition period over the next several quarters. As a reminder, we sell CT tubes exclusively to DirectMed as provided under the terms of the January 2025 sale and distribution agreements. I am pleased to convey we are making excellent progress finalizing production of our Alta tubes. We've also made good strides over the last quarter validating new equipment and materials required to improve our processes for the prepared Siemens tube types. Comparable healthcare sales throughout most of FY26 will be lower than prior year, given DirectMed acquired the healthcare parts business. The sale concluded in January 2025, so this unfavorable comp will continue through Q3 FY26. We anticipate the financial impact of the retained CT tube business will turn positive in the fourth quarter of FY26 or shortly thereafter. Last quarter, after the sale of Richardson Healthcare, we discussed our focus on accelerating growth and improving efficiency. In the first quarter, we were pleased to see year-over-year growth in PMT and Canvas, as well as the wind energy portion of GES, reflecting our ongoing investments in these sectors. Of particular importance is the success we continue to see with our engineered solutions growth strategy. We also see some initial benefits from the Big Beautiful Bill. There are implications in the bill that are fostering wind turbine repowers, which lift sales of our wind turbine modules, as well as sales of products from our technology partners. Wind management companies need to upgrade their towers to receive comparable tax benefits in coming years. In the quarter, we announced our participation in the REV Illinois program. which provides significant tax credits in return for investment in alternative energy technology development in the state of Illinois. We're making progress developing a world-class battery energy storage demonstration site at our LaFox facility. As we've mentioned before, the demand for battery energy storage continues to accelerate, and our turnkey solutions position us to capitalize on that growth. Our Made in America marketing campaign recently kicked off with the addition of a dedicated business development manager. We are highlighting our capabilities on our website and through trade show attendance. In addition, we are leveraging our existing sales organization and global customer relationships throughout the company. Finally, we are seeing increasing demand for our engineered solutions in the semiconductor wafer fab equipment market. Our large customers in this segment indicate sustained growth relating to the ongoing benefit of AI on equipment demand throughout the world. Rest assured the management team remains focused on efficiency and cash generation as well. The end of the significant inventory growth in support of one of our largest suppliers who will soon terminate production of power grid tubes is in sight. In this regard, we are working closely with other partners to ensure ongoing sources of supply but we are in a good inventory position to execute this strategy over several years. Longer term, we remain committed to driving growth both organically and through strategic acquisitions. We're being thoughtful in our approach. We are looking for the right opportunities to utilize our capabilities and accelerate our growth while making full use of our global infrastructure. We believe our current strategic initiatives will drive revenue and profitability growth over the next several years, while we consider longer term strategic acquisitions that further enhance our business. I will now turn the call back to Ed.

Thanks, Wendy. In closing, our results this quarter demonstrate the strength of our strategy and the resilience of our business model. By sharpening our focus on repeatable sales, driving strong cash flow, and building on our diversity across power management and alternative energy solutions, We're positioning the company for long-term success. At the same time, we remain disciplined in our commitment to improving profitability. These priorities give us confidence in our ability to deliver sustainable value for our customers, shareholders, and employees as we move forward. We'll open the questions now.

Certainly. 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 a follow-up until we have all had a chance for a question, after which we will answer additional questions from you if time permits. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Our first question will be coming from Robert Brooks of Northland Capital Markets. Your line is open, Robert.

Hey, good morning, guys. I wanted to ask you on where we're at with the Ultra 3000s getting onto GE's approved aftermarket vendors list. On your fourth quarter call earlier this summer, you had said that you did a final test in June and the engineering team sent it to GE Legal and it was sitting there. But that all indications were that the service agreements were not going to be in jeopardize if the Ultra 3000s are used. And so I just wanted to hear where that's sitting or any new developments on that.

Yeah, hi, Bobby. They update me every week. We actually talk to GE about other things, this included. So we're in communication with them. Their engineering team have signed off on it. And the last communication, which was last week, was that it's final signatures from legal. They're still waiting on it. And it was promised to us here in the next week or two. So that's the status of it. Once we get that final signature from their legal team, we will send them a number of units. They'll test them, maybe for safety, not for function, but for safety because their installers will be working with it. And so once that's done, they'll approve it. And then along with that, not only are we pushing, if you will, GE, but also two of our largest owner-operators are also pushing it. they have both tsa's and uh their own repair so the short answer which i just went long on is uh we expect it to be signed next couple weeks they'll do the um the audit of it for quality um safety and um we fully expect sign off here in q2 at some point got it and then you know the semi semi-fab sales were up 52 year-over-year which was great to see but i just wanted to make sure i'm thinking about it right wasn't one

Wasn't 1Q last year, we were at like a trough level for those sales? And then the follow-up with is, would you expect that year-over-year growth rate to continue through your fiscal 26? Or maybe at the minimum, the nominal level of semi wafer fab sales and 1Q stay consistent through fiscal 26?

Yeah, you're correct, Bobby. Q1 of last year was the lowest quarter of the year for LAM, although they recovered very well. And, you know, we don't get a lot of visibility from them, but the most recent information that they've put in the portal, it looks like that these larger numbers they've been talking about now, which seems like a year or two, we should start seeing strong, strong growth in Q3 and Q4 of our fiscal year. But we'll kind of be at the same run rate here in Q1 and Q2 with the large growth in Q3 and Q4 based on their forecast, which is Thank you.

And our next question will be coming from Anya Satterstrom of Siddoti. Your line is open.

Hi, thank you for taking my question. So I'm just curious with the wind orders you noted from some countries around the world, how meaningful were them and how do they compare to the actual opportunity there?

I'm sorry, could you repeat that?

Global wind outside the U.S., what was it like?

Yeah, so we've launched it hard to produce this product globally with the customer base. It's a smaller market than North America, but still a very strong market for us. We've been able to do a great job in introducing four new platforms, which will be more popular in Europe than GE, Nordic, Sembion, Suzlan, And SSB, we've done already in Q4 and part of Q1, alpha and beta testing with customers in Australia, India, France, and Italy. And they've approved that. And we've already received orders in our Q1 from customers in those four countries. And we look at this every week. If I look at the document that we track, all the opportunities that we're currently working on in terms of our Our teams worldwide, it's getting up to two or three pages. So it's active. It's just an education process to these customers that it's available. And this product is available for their specific turbines. And then, of course, like we did with North America, you'll have alpha testing, beta testing, and then final production. But I would say it's not going as fast as we'd like. Nothing ever does. But we're getting some good traction expanding this product. capability, if you will, outside of North America. Because, as you know, 70% of our business is currently in North America. So it's pretty much nothing but upside outside of North America.

Okay, thank you. And what do you expect in terms of capex for the year given your expansions in LAFOX and the Texas center?

So, I'll take that one, Anya. We're estimating it'll probably be in that $5 million range, so a little bit higher than last year, but last year was very low because there were some programs that were pushed into FY26. So, again, we'll stick with that $4 to $5 million range.

Okay, thank you.

Anya, real quick, on the REV Illinois program, and Greg, you can jump in here, the CapEx requirements themselves are not significant in this fiscal year. What we're looking at is some equipment that will help improve our manufacturing efficiencies and position us for new opportunities, primarily and particularly in the ESS solutions. So what we'll be looking at, the REV Illinois program allows us to account for people in addition to CapEx, in addition to other R&D related expenses. And that's where we're focused on right now is making sure we've got the engineering resources we need, the program managers we need, so that when we get our facility built here in FY26, we'll be ready to efficiently and effectively market that.

Yeah, I mean, this good example is the demo site. All that development goes towards the number that we've been to attain to get all the subsidies and rebates. And just one thing in the REV Illinois program, you know, we're going to apply for every single subsidy and tax credit we can get with this green energy program. Luckily, state of Illinois has the, even better than California, the most rebates and tax incentives for people doing wind, solar, energy storage, green energy itself. So we found out about this from some local contacts. We applied. You have four years to do it. And it's approximately $8 million in total investment and a number of headcount. But we have four years to do it. So we're not doing things to get that credit. We're doing things to grow the business and increase shareholders' value. But our estimate is we'll hit those numbers very easily, so we might as well take advantage of it.

Okay, great. Thank you. That was all for me.

Thanks, Anya.

And our next question will be coming from Brendan Kinney, private investor. Your line is open.

Hello, can you hear me?

Yes, we can hear you, Brendan.

Hi. So just one quick question. The operating income, you know, it was mainly due to a non-recurring gain. of 0.9 million, could you just go into a bit more detail about what that was?

Hi, Brendan. This is Bob Ben. First of all, the operating income, as I stated in my remarks, was 1.0 million, and that did not include the non-recurring gain that's below in other income, just to clarify. So operating income for the quarter more than tripled from last year's first quarter. But to specifically address your question on the $0.9 million non-return gain, as I stated in my remarks, that's from a confidential contractual settlement. So unfortunately, I'm not really allowed to say much about it other than that.

Okay. I missed that.

Thank you.

Thanks, Brendan.

And as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Our next question will be coming from Chip Rui. of management.

Good morning, guys. Good quarter. I have three questions. Maybe I'll just lay them out and you can divvy them up. First, I think, Wendy, your comment on the repower initiatives and the big, beautiful bill, could you expand on that? I think the sentiment has been kind of misplaced on you guys around wind anyway because you're not OE. You're pretty much all aftermarket. So now that there's a potential positive from the administration on repowering, I'd just like to dig into that a little bit more. Secondly, the operating leverage looked great. You know, on the operating income, can you just give us some thoughts on how the rest of the year will play out? Can we continue to see muted expense growth that would contribute to good leverage through the year. And last, maybe, Ed, I like the comments on kind of, I mean, clearly the semi-business and PMT is a really positive thing to hear the outlook there. But maybe dig into the other side, the legacy RF business seems like it's perking up too. So maybe some details there. Thanks.

Thanks, Jeff. Hey, Chip, I'll just talk about the first question you had. It's a great question. So you hit it on the head. You understand it very well that almost all of our business, other than Suzelon, is aftermarket. And so with this administration kind of removing a lot of the subsidies you get for new turbines, kind of like your old car in college, you can't afford a new one, so you refurbish and fix up your current one. That's what's kind of going on, and the term in the industry is called repowering, where they, in some cases, drop the turbine to the ground and then replace everything they can, and then they'll have a turbine that's good for another 10 to 15 years. At that time, instead of putting lead-acid batteries back into the turbines, many of our customers and some of those larger orders we got in terms of our large we had a 1.25 book to bill in FY25, was people ordering parts for this repowering program. So they will put in our pitch energy modules, which will last up to 15 years instead of the lead acid batteries. And so that decision by the government, which is getting a lot of press, actually in a roundabout way supports us and hopefully will expedite some of the large orders we have on our books in terms of pulling them in over the next two to three quarters. The last thing with that, and the big bit of a bill, what Wendy was talking about, if they get it done by the end of this calendar year, they can put some of that money to the side or keep the current rebates and tax credits that they have now. So we're working with a lot of our owner-operators to get their forecast between now and the end of the year. So we, again, we grew 23% in FY25. We fully expect, based on the forecast and some of these other things, that GES will grow double digits in FY26. And then I guess operating... I'll take that one.

Okay, so in terms of leveraging and operating expenses, you know, I'm looking at our forecast for the full year. It'll be up just a little bit not not a lot over FY 25 as we invest in some of the programs that Greg has mentioned you know in terms of additional engineers additional people outside the US focusing on green energy growth but again chip we one of the things we do well as a company is really managing our SG&A level and keeping that increase under control So I would not anticipate a significant increase over FY25. Does that answer your question?

Yes. And then just thoughts on the RF side.

Right. Well, our RF2 business still remains about $85 million. We're going through a period where our largest supplier is actually going to exit the business over the next three to five years. And a lot of that equipment and technology we own, so we're in the process of trying to determine if we move it back here or work with other tube manufacturers around the world. But it's put us in a position where we built up our inventory very substantially. On the other hand, that inventory tubes are like good or fine wine, you know, they're under vacuum and they last forever. So we have no issue as far as obsolescence on the tubes, but our The difficulty at this point is finding other manufacturers or making a decision to bring some of that manufacturing back here. But what you'll see over the next three or four years is our inventory go down dramatically as far as that's concerned. But the business stays extremely profitable, and we're pleased to be, you know, pretty much sole source on tubes around the world. okay that's great um did you see i thought you said you saw a pickup in the kind of that core business in the quarter and some more positive signs in the tube business i think it's just about level what we are seeing is a pickup in the semi-fab equipment manufacturing business you know we we follow lamb's quarterly vendor meetings and listen to them and they're talking about a very positive increase in their business going forward. In the best year, we did about $40 million with LAM and people in that business. And I think right now we're running in the low 20s, Wendy, somewhere. So we see an opportunity to grow substantially in that business going forward.

And then on the RF solid state side, if you bring to that, because that was a business that we were in before, that also grew. And we're seeing a large uptick in military, defense, RF communications, drones, and then, of course, SATCOM globally to get 5G to all these remote areas. That's the business that picked up, and that's where the growth was on the solid state side.

Okay, that's what I was asking. Thanks for the clarification. And that sounds like that sector, the defense side,

pretty hot across the board do you see kind of accelerating participation into that end market yeah and it's you know because of this global infrastructure that had put in place decades ago it really is a benefit to a company like us we're seeing a lot of the drone manufacturers are in Europe and we have a great team there but you know it's military too but what we're seeing also is You know, urban development, homeland security, disaster management, forest fires. I mean, drone technology is expanding very, very fast. And we have some of the, if not the best, you know, technology partners like Macon, Corvo, 3R Wave that have great products for that. So we're participating in it, and that's where the growth is on the solid state RF and microwave side. Okay, thank you.

And I would now like to turn the conference back to Ed for closing remarks.

Well, we want to thank you very much for following our progress and growth. We're really pleased with the performance of the company. And if you have further questions, please feel free to call us at any time. Thank you very much.

And this concludes today's conference call. Thank you for participating. You may now disconnect.