Q4 2020 Richardson Electronics Ltd Earnings Call
Ladies and gentlemen, today's conference will begin shortly please continue to standby and thank you for your patience.
Your conference call will begin in approximately two minutes.
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Ladies and gentlemen, thank you for standing by and welcome to the Richardson Electronics fourth quarter fiscal year 2020 earnings conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation they'll be a question and answer session to ask a question. During this session you'll need to press star one on your tell.
On the phone please be advised to today's conference is being recorded if your part any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today Mr. Ed Richardson CEO. Please go ahead Sir.
Good morning, and welcome to Richardson Electronics conference call for the fourth quarter fiscal year 2020.
Joining me today or Robert Dan Chief Financial Officer, When do you did Dell Chief operating officer in General manager for Richardson healthcare.
Gregg Gilbert Glenn General manager of our power and microwave technologies group.
Jens Ruppert General manager Candace.
We're all calling in from remote locations as a reminder, this call's being recorded will be available for audio playback.
I'd also like you remind you that we'll be making forward looking statements and they're based on current expectations.
Oh risks and uncertainties.
More so today than ever.
Therefore, our actual results could be materially different.
Please refer to our press release, unless you see filings for an explanation of our risk factors.
The fourth quarter was unprecedented and challenging quarter.
Never in the company's history have we seen in the world training so dramatically nearly overnight.
In the third quarter, the Corona virus negatively affected our business primarily in Asia.
The virus correctly spread throughout Europe in the Americas, leading it's mark and all of our businesses in the fourth quarter.
Our customers and employees correctly changed the way they work.
And it's been a central business, we continue to operate.
Just help prevent landslide in our revenues such as those seen and other companies in industries.
Well covered 19 negatively impacted our overall results the Richardson team demonstrated superior support to our customers and suppliers.
We're pleased to see sales growth in Kansas, North America, and in the semiconductor wafer fab equipment market.
Given the ever changing situation in the global economy, it's difficult to predict what the new normal will bring.
I'm convinced our business will be stronger with the team we have.
And with the ongoing investments, we're making in our growth initiatives.
I'll now turn the call over to Bob then provided detailed recap our fourth quarter and pool your financials.
And Greg when do unions will discuss individual business unit performance, including more details regarding the impact of the Corona virus.
Thank you Ed and good morning, I will review our financial results for our fourth quarter in fiscal year 2020, followed by a review of our cash position.
Net sales for the fourth quarter fiscal 2020 decreased 11.4% to 37.4 million compared to net sales of 42.2 million in the prior years fourth quarter, primarily due to cope with 19 and its impact on demand.
Although P.M.T. net sales decreased 2.7 million or 8.6% sales to semiconductor wafer fab equipment specialty products increased from last year's fourth quarter.
Canvas sales decreased by 0.8 million or 10.2% due to lower sales to medical Oems and its European market.
Partially offset by higher in North American sales.
Richardson healthcare sales decreased 1.3 million or 47.2% due to hospital closures restrictions on non emergency procedures.
And many people postponing care during shelter in place orders to help stopped the spread of the virus.
Gross margin for the quarter improved to 30.4% of net sales.
Compared to 29.7% of net sales in last year's fourth quarter.
This was primarily due to a favorable product mix and improve manufacturing performance in PMT.
Operating expenses were 12.7 million for the fourth quarter fiscal 2020.
Compared to 12.5 million in the fourth quarter fiscal 2019.
The increase in operating expenses resulted from higher salaries and severance expenses, partially offset by lower travel and I T expenses.
As a result, the company reported an operating loss of 1.3 million.
For the fourth quarter fiscal 2020, as compared to an operating loss of 6.4 million.
In the fourth quarter of last year, which included a non cash goodwill impairment.
6.3 million.
Other income for the fourth quarter fiscal 2020, including interest income and foreign exchange was 0.2 million.
Compared to other income as zero point, Threemillion and the fourth quarter fiscal 2019.
The income tax provision.
0.2 main for the quarter.
Reflected a provision for foreign income taxes, which was lower than the prior years fourth quarter.
And no use tax benefit.
Through the valuation allowance recorded against the net operating loss.
Although there is no tax benefit shown on our financial statements from U.S. net operating losses, we can use our net operating losses to offset any cash tax liability.
Reported in our U.S. federal income tax return.
The amount of federal anywhere else and 17.6 million.
Overall, we had a net loss of 1.3 million for the fourth quarter fiscal 2020.
As compared to a net loss of 6.4 million.
The fourth quarter fiscal 2019.
Turning to a review of the results for fiscal year 2020.
Net sales for fiscal year, 2020 155.9 million.
<unk> decreased to 6.5% from fiscal year 2019, net sales of 166.7 million.
Net sales decreased by 10.4 million or 8.1% for PMT.
But increased by zero point, Ninemillion EUR, 3.4% for canvas.
Sales Richardson healthcare decreased by 1.3 million.
Or 13.2%.
For the year due to lower sales in the fourth quarter fiscal 2020, resulting from the impact of the krona virus.
Gross margin increased.
The 31.9% in fiscal 2020 from 31.0% in fiscal 2019.
Primarily reflecting a favorable product mix and improved manufacturing efficiencies for PMT.
Operating expenses were 51 point Threemillion for fiscal 2020.
Which represented a decrease of zero point Ninemillion.
From the last fiscal year.
The decrease was due to lower travel severance legal and I T expenses.
Partially offset by higher employee compensation expenses.
Throughout the pandemic the company decided support its employees through regular merit increases.
And incentive plans and by avoiding layoffs or furloughs.
Operating loss for fiscal year 2020.
Was 1.7 million as compared to an operating loss of 6.8 million.
Inclusive of the noncash goodwill impairment in fiscal 2019.
Nearly all of the lost for fiscal 2020.
Came during our fourth quarter.
Other income for fiscal 2020, including interest in foreign exchange.
What's your point 4 million versus 0.5 million in fiscal 2019.
The income tax provision of 0.6 million for fiscal 2020.
Primarily reflected a provision for foreign income taxes, and no U.S. tax benefit.
Overall, we had a net loss of 1.8 billion for fiscal year 2020.
Compared to a net loss of 7.3 million.
For fiscal year 2019.
We continue to closely manage our cash position.
Cash and investments at the end of fiscal 2020.
Were 46.5 million compared to 43.9 million.
At the end of the third quarter fiscal 2020.
And 50.0 million at the end of fiscal 2019.
Capital expenditures were 0.5 million in fourth quarter fiscal 2020.
Compared to 0.7 million in the fourth quarter fiscal year 2019.
Approximately 0.2 million related to our health care business.
0.2 million less square manufacturing business.
And your point 1 million was four I T system.
For fiscal 2020.
Capital expenditures totaled.
1.8 million as compared to 3.9 million in fiscal 2019.
Free cash flow was 3.8 million.
For the fourth quarter fiscal 2020.
We had 0.14 7 million for fiscal year 2020.
Both were significant improvement from the respective prior year period.
We paid 0.8 million any dividends in the fourth quarter and a total of 3.1 million in fiscal 2020.
In addition, based on our current financial position.
Board of directors declared a quarterly dividend of six cents per common share.
Which will be paid in the first quarter fiscal 2021.
To end on a positive note during the quarter, we repatriated total of 1.0 million from foreign locations.
Total cash repatriated for fiscal 2020 was 8.5 million.
U.S. cash was 30 point threemillion at the end of fiscal 2020.
Now I will turn the call over to Greg who will discuss the results for our power and microwave technologies group.
Thank you Bob and good morning, everyone.
On T. cells in the fourth quarter of fiscal year, 2020, or 29.3 million versus 32.1 billion in Q4, F. why 19.
Gross margin improved in the quarter to 33.2%.
This is 30.1%.
The prior year as we improved our manufacturing inefficiencies.
Issues related to covert 19, including temporary business closures and shelter in place orders primarily caused the Q4 sales declined when compared to prior year.
One positive trend was our bookings.
Book to Bill was 1.20 in the fourth quarter.
Strong EG bookings tied to our wafer fab customers as well as a new technology partners and P.M. Gee I power <unk> microwave group drove this growth.
Our bookings growth for IGI business was based on continued engineering and logistic support.
For the wafer fab in global infrastructure markets benefiting both our OEM and MRO customers.
The growth in PNG bookings is due to our new technology partners.
Demand creation model numerous design wins high growth markets.
Nick Global business model.
With the increase in backlog over 6.6 million in the quarter, we will continue to improve I go to market strategy.
You can keep business development resources to greatly improve an increase our customer contact any more efficient manner.
These actions I lost to generate more opportunities in growing the markets using our existing global infrastructure and head count.
Our new technology bookings growth is supported by key partners, such as Corvo, Maycom, Nokia wave, United Sick, El Centro <unk> and food you semiconductor key to manufacturers in industries, such as Cpis tell us and GRC info tightness as well as their own manufacturing capability support I guess.
Mobile legacy business.
Covert 19 did cause a slowdown.
In Q4, the reason I used the word slowdown is the demand for our product did not go away. In fact, we're excited about the booking trends in the quarter. During this global pandemic.
In reviewing the business the last four months, it's still my opinion of the strong demand for our products before the pandemic did not go away.
The demand for a power management products did not go away. The thousands of two sockets, we support on a global basis daily did not go away.
And the demand for Fiveg infrastructure did not go away in fact, just the opposite.
Looking specifically at Fiveg, I've talked to our customers and suppliers and they have confirmed that the pandemic has called every country.
Customer.
In person the world to realize they must have the ability to work from anywhere in the world.
I must be able to work from home the city. The countries are cabin and car and they must be able to send and receive large amounts of data from any of those locations quickly.
This will expedite implementation of Fiveg infrastructure, just look at the demand increase from the number of people that will be working from home going forward.
The consensus of the market is koeppen 19 will affect the 2020 forecast for Fiveg and other markets supply chain issues manufacturing.
And design delays, resulting from the Ben can make a pushed out rollouts and design cycles.
However, we are seeing majority is delays on the handset side.
And the infrastructure side, where we play could show strong growth in 2020, we're seeing a double digit increase and the adjusted Fiveg forecast for 2021 and 2022 over the pre cobot 19 forecast.
Especially during and coming out of this pandemic I can't stress enough the value of Richardson electronics, because customers and suppliers are unparalleled capability and global go to market strategy is unique to the power and RF microwave industries.
Through our steadfast focus on customers, we will survive this pandemic.
The demand for our products has not gone away I customers and technology partners need Richardson products and support more than ever.
So with that I will turn over the when do the Doe and Richardson healthcare.
Thanks, Greg Good morning, everyone.
That's why 20 began welcome to health care Grant.
We received CE approval, allowing us to offer that all to 750 for sale in Europe.
Adjusted our pricing policy to be aggressive in flexible we made a concerted effort to identify where can see T systems are located throughout the United States.
And number of P. three contracts doubled anywhere as did the number of customers sign the all to 750.
Nearly 20% of our new customers outside of the Americas.
The first three quarters, an f. whites funny CTG to sales were trending up like every no we run the right track.
And the pandemic hit, causing hospitals to close and suspension of noncritical procedures.
Additionally, healthcare organizations reported that C.T. scans would help diagnosed companies 19.
Unfortunately, any quote unquote real increase was more than offset by the significant decrease in patients without the virus people in general has been avoiding hospitals atmosphere catching kind of it.
We felt the impact on our call volume early in the fourth quarter and both the United States in Europe.
Many of my third party sort of customers reporting up to a 75% dropped call volumes.
Although hospitals are now reopening most imaging and radiology personnel are working fewer hours and they are not responding to sales related costs.
We continue to reach out by a phone email and social media hurt by all of our health care customers that we are available 24, seven provide technical support and to ship to some parts on demand.
We noticed critical to help the hospital stay up and running into effect on cost effective alternative.
The pandemic also affected Latin America, which was already experiencing significant economic issues.
It was further depressed our system sales in the quarter.
As hospitals are close and suffering major financial life, not buying you see t. scanner, they're also not buying new scanner.
This is affecting availability of used systems on a global basis that would result in lower revenue from the sale referred to systems and F like 21.
The good news is that should help us, let's see T two than parts demand in two ways.
Hi, there will be fewer systems on the market for other companies to harvest perplexing to.
I can't hospitals will keep their existing CP scanners longer increasing demand for replacement parts to you in service.
Because of these market conditions, we made the decision to put all to 750 production on hold during the quarter and to focus the entire team on development as well manufacturing and process improvement.
Everyone within the health care organization to continue to work on various projects throughout the shelf trying to place orders.
These efforts put us in a good position to grow as economies and hospitals reopened.
Sales in the fourth quarter 1.4 million versus 2.7 million last year.
Sales were down across all product categories.
On a full year basis sales were 8.5 million versus 9.8 million prior year.
Seeking to revenues were up 17.2% and that's why 20 nurses definitely 19th.
Due to significantly lower sales, resulting from the pandemic as lot of manufacturing under absorption gross margin dropped to a negative 28.6% in the quarter.
In the fourth quarter of last year gross margin was 15.3%.
On a full year basis gross margin was flat, 24.4% versus 24.5% and that's why 19th.
Okay. Thank considerably less on capital expenditures and that's why 20.
Inventory was also down year over year.
In spite of the pandemic and its impact on our suppliers, we still anticipate launching the all to 750 G. Early in the calendar year 2021.
We're also making good progress on our next to too.
We plan to lunch than solutions later in calendar year 2021.
Finally, our efforts to secure registrations for additional countries continue.
We recently recertified under ISO 13, Foureighty five, indicating a quality management systems me U.S. medical device manufacturing requirements.
We also initiated the medical device single audit program, our MD SAP.
Andy SAP as a program that allows a single audits that satisfies the requirements from multiple countries, including Australia, Brazil, Canada and Japan.
Andy Stapp aligns closely with the new medical device regulations for Europe that go into effect next may.
And the fat and your new regulations require even tighter control of the quality management process.
At this point I will turn the call Liberty and throughput to discuss fourth quarter results for campus.
Thanks, Wendy and good morning, everyone.
And this potential synergy money section say of cost of displays to original equipment manufacturers in the does sort of medical markets that live at solid performance with phase of 6.6 million.
In the fourth quarter fiscal 2020 degrees of 10.2% over the same period last year.
The revenue decreased for the quarter was related to decrease cost somebody imagine Europe, because I'll pick up the corona buyers.
At the recycling impact on the Oems.
Many of our European customers.
Production also decrease in demand.
Sales in North America actually stronger than prior years fourth quarter.
Ted talks to higher demand for patient monitoring instead of youth in intensive care units that H. nice ustwo move wide body aircraft.
On the year to date basis Global States crew, 3.4% in fiscal year Twentytwenty.
All right the corporate Nike pandemic amphitheaters distance impact compared to a very strong fiscal year 2019.
Gross margin as a percentage of net sales for 31.0% during the fourth quarter fiscal Twentytwenty.
Down from 32.1% during the fourth quarter fiscal 2019.
The decrease gross margin was still very strong for display business, what's related to an unfavorable product mix and foreign currency effects.
On the year to date basis fiscal year Twentytwenty gross margin as a percentage of phase decreased slightly to 32.2% from 32.5% versus fiscal year 2019.
Our backlog continues to be strong.
Increased on a year to year basis by 30%.
The healthy backlog position along with a number of projects that are currently the engineering stage position us well for continued growth before considering any longer term impact of Kobe 19.
My losing customers and trade shows continues to be a problem on the cold at 19, I would say set forth focused on online marketing and cold calling during the quarter. We received several new orders from both existing and first time medical OEM customers applications, well, just because I used on numerous some of these include.
Peter to radiotherapy formal by chest X Ray systems.
Patient monitoring where I want to Telesats talk at the patients, but for a remote locations such as for central destination.
But if the device controlling for fully integrated operating theatres and dental treatment centers for patients can review radiographic images are like video from an intra <unk> camera father video feed.
Such us educational videos promotions.
In the non medical space, we received waters for various display products applications include displays for are obese remotely operated vehicles exploding subsea <unk>.
As I mentioned earlier Coovick 19 hit their business in general to hop in Q4 fiscal year 20.
Because it's nearly impossible to predict.
When our business will return to normal.
Optimistic that Ela business in Europe will bounce back in the second half of fiscal year 2021.
North America appears to be behind Europe by about three months, we're now seeing the called at 19 impact in our North American markets as well.
Fortunately, we haven't lost any programs due to covert 19, some project materialize laid up an expected at the majority of our customers engineers still working from home and product Validations and approval study later.
We are seeing one more customers, placing smaller orders some water commitments.
Our customers with existing waters pushing out scheduled delivery dates have ongoing travel restrictions chrome that say forces at hospitals under pressure to reduce postponed capital expenditures.
He wants to continue dealing with extended lead times for selective components from our Asian suppliers.
Yes thing optimistic going that's economy that bounce back eventually at if you do ready to deliver products.
That would be needed veteran defense.
I would now trying to call back over to it.
Thanks again for a good quarter in spite of the current pandemic.
I know, it's been a difficult on all three of our business unit managers to maintain sales momentum and keep employee morale up.
You've all done an excellent job our teams are used to working face to face with co workers customers and suppliers.
We're taking a very conservative approach in order to keep everyone is safe and healthy as possible.
We continue to limit the number of employees working from a Richardson facility. The majority of our employees in our plant serve in product development.
Manufacturing in support of supply chain.
Also restricted travel and face to face meetings.
With the recent increase in covert cases throughout many states.
Not to see any change to this arrangement in the near future.
The neighborhood to serve our customers and suppliers through telecommuting and with a limited staff im going to facilities will continue to do this so until the virus is under control.
Our employees, our most important asset and their safety must come first.
We're not happy about losing money in the quarter, both Greg and Wendy pointed out areas for growth supported by our investments and you can be explained that the decrease in Kansas revenue was temporary.
For this reason, we elected not to lay off employees, but instead to focus on key initiatives that will drive revenue long term.
Given that our sales effort is continued without interruption, we're confident that overtime will again see sales growth.
We do not know when this will happen.
This is contingent upon the economy's getting back to work and demand for equipment and services increasing.
No more than ever will continue to stay focused on cash management. Our S. DNA was lower and therefore, I 20 than the prior year and we can't conservatively last on capital expenditures.
Our cash position remained strong.
Finance team did a good job repatriating cash in our bad debt ratio remains low.
We will continue to spend conservatively, while investing in our growth initiatives and we'll adjust resources based on ongoing changes in demand.
At this point, we'll be happy to answer a few questions.
Thank you as a reminder to ask a question press the star than the one key on your Touchtone telephone.
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Please press Star then the one key to ask a question.
And there are no questions in the queue I'd like to turn the call back too.
Ed for any closing remarks.
Thanks Catherine.
Thank you for joining us in your ongoing interest in Richardson electronics are we wish you continued good health, we look forward to discussing our physical 2021 first quarter with you in October.
With that Katherine will end the call.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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