Q3 2021 Richardson Electronics Ltd Earnings Call
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today and thank you for standing by a welcome to the Richardson Electronics conference call for the third quarter of fiscal year 2021 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 the question during the sessions. You will need to press star one of your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and Sarah. I will now hand the conference over to your speaker today Ed Richardson.
Good morning, and welcome to Richardson Electronics conference call for the third quarter of fiscal year. 2021 joining me today Robert been Chief Financial Officer. Wendy did not know Chief Operating Officer and general manager for Richardson Healthcare Greg deliquent general manager of our power and microwave Technologies Group and ends Rupert general manager of cake.
We're still calling in from remote locations as a reminder. This calls being recorded and will be available for audio playback.
I'd also like to remind you that will be making forward-looking statements. They're based on current expectations and involve risks and uncertainties there for our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors.
Given the ongoing impact of COVID-19 throughout the world. We're very pleased with our results for the third quarter of fiscal year 2021 our sales and a quarter were 18.3% above last year at the start of the pandemic.
After posting operating income of $852,000 last quarter, which was our best operating quarter since the first quarter of FY. Nineteen, we finished the third call Cisco 20-21 with operating income of 1.9 million dollars.
This excludes the one-time payment to settle our dispute with varex. We chose to settle the case to avoid further legal costs and distraction.
The ongoing strength in the semiconductor wafer Fab market and continued growth in both our health care and power and microwave groups contributed to increased profit sales of our price points also improved during the quarter as customers resumed operations canvas continues to improve its profitability as well in spite of customer. Push-outs Club depend demek.
unfortunately
Not out of the woods yet. Well COVID-19 SAR rolling out. Globally many countries are still under lockdown including Germany, France and Brazil our first concern about the safety of our employees are suppliers and our customers. I again say thank you to the entire Richardson team for following our guidelines by staying healthy and keeping the business that's running without disruption. Our continued success would not be possible without everyone working together.
I'll now turn the call over to Bob been who will provide a detailed recap of our third-quarter and year-to-date performance Then Greg Wendy and yuen's will discuss individual business unit performs. It's our successes and our opportunities for future growth.
Thank you add in. Good morning. I will review our financial results for our third quarter and first nine months of fiscal year 2021 followed by a review of our cash position. In addition. Please note that I will be discussing non-gaap Financial measures. I refer you to our third quarter fiscal year 2021 press release for a Reconciliation of non-gaap to the comparable gaap measures.
Net sales for the third quarter of fiscal 2021 increased to forty five point two million or 18.3% compared to net sales of 38.2 million and the prior-year is third quarter primarily due to higher net sales for Richardson Healthcare and PMT partially offset by lower net sales for canvas Richardson Healthcare sales increased 0.9 million or 41.7% primarily due to an increase in demand for the office 752s reflecting the highest quantity sold in any quarter.
in addition pre-owned CT scanner sales increased in Latin America
BMT sales increased by 6.2 million or 21.6% from last year's third quarter because of higher sales of semiconductor wafer Fab equipment Specialty Products as well as power conversion up in microwave components power grid tube sales continue to be negatively impacted by the pandemic. However sales a certain product lines increased from the third quarter of fiscal 2028.
Canvas sales decreased by 0.1 million or 1.7% due to Temporary decreased customer demand in Europe related to COVID-19 partially offset by an increase in North umber. No customers were lost.
Gross margin for the quarter was 34.9% in that sales compared to Thirty 3.1% in that sales and last year is third-quarter PMT margin increased 34.9% from 52.8% due to a favorable product mix canvas. Margin is 2% of net sales increased to 35.2% from 32.8% Also because of its product mix Juicery Healthcare margin is a percent of net sales was 33.0% in the third quarter of fiscal 2021 compared to 38.3% in the prior year is third-quarter primarily due to a small percentage of replacement parts sales operating expenses were fifteen point five million and non-gaap operating expenses were 13.9 million wage the third quarter of fiscal 2021 compared to twelve point seven million in the third quarter of fiscal 2020.
the increase in
Did a one-time cost at one point six million for a legal side and with the settlement with varex imaging Corporation Richardson did not admit liability, but wanted to move forward selling it's off the 750 tubes and avoid further legal expenses the increase in non-gaap operating expenses resulted from a zero point three million increase in legal fees and from our normal employee compensation expenses, including incentives and annual Merit increases. These increases were partially offset by lower travel expenses.
throughout the pandemic the company decided to support its employees through regular Merit increases incentive plans and by avoiding layoffs or furloughs
as a result the company reported an operating income of 0.3 million and non-gaap operating income of 1.9 million for the third quarter of fiscal 2021 as compared to an operating income of eleven thousand in the third quarter of last year other expense for the third quarter of fiscal 2021 including interest income in foreign exchange was less than zero point 1 million compared to other income of 0.1 million in the third quarter of fiscal 2020.
Income tax provision of 0.1 million for the quarter reflected a provision for foreign income taxes, which was lower than in the prior Year's third quarter and the wage set of a US tax provision against the valuation allowance. We had a net income of 0.2 million and non-gaap net income of 1.8 million for the third quarter of fiscal to age Twenty-One as compared to a net loss of 0.1 million in the third quarter of fiscal 2020 earnings per common share on a diluted basis in the third quarter of fiscal 2021 was two cents and non-gaap earnings per common share on diluted basis was $0.14 a month.
Turning to a review of the results of the first nine months of fiscal year 2021.
Net sales for the first nine months of fiscal year 2021 one hundred twenty six point five million an increase of 6.7% from the first nine months of fiscal year 2020 net sales of 118.5 million.
Net sales increased by 9.3 million or 10.4% 4 p.m. T and 0.5 million or 7.3% for Richardson Healthcare, but decreased by 1.8 million or 8.2% for canvas.
Gross margin increased to Thirty 3.6% from Thirty 2.3% primarily reflecting favorable product mix and PMT and canvas as well as improved manufacturing performance for PMT.
Operating expenses were 41.9 million and non-gaap operating expenses were 40.3 million for the first nine months of the fiscal year.
Non-gaap, operating expenses increased one point six million from the first nine months of the last fiscal year due to higher employee compensation expense and legal fees partially offset by lower travel and Consulting expenses.
Operating income for the first nine months of fiscal year 2021 was 0.6 million and non-gaap operating income was 2.2 million as compared to an operating loss is 0.4 million for 39 months of fiscal year 2020.
Other expense for the first nine months of fiscal 2021 including interest in government foreign exchange.
Was 0.5 million as compared to other income of 0.2 million for the first nine months of fiscal 2020.
The income tax provision of 0.2 million primarily reflected a provision for foreign income taxes, which was lower than the prior-year his first nine months and the offset of a wage tax benefit against the valuation allowance.
We had a net loss of zero point two million and a non-gaap net income of 1.4 million for the first nine months of fiscal year 2021 compared to a net loss of zero point six million in the first nine months of fiscal year 2020.
Non-gaap earnings per common share on a diluted basis and the first nine months of fiscal 2021 was $0.11.
We continue to closely manage our cash position.
cash and Investments at the end of the third quarter of fiscal 2021
We're forty seven point four million compared to 46.0 million at the end of the second quarter of fiscal 2021 and forty three point nine million at the end of the third quarter of fiscal 2028 Capital expenditures were zero point six million and the third quarter of fiscal 2021 compared to zero point four million in the third quarter of fiscal 2020 approximately 0.3 million to our health care business 0.2 million was for our it system and 0.1 million was for other projects.
On a year-to-date basis Capital expenditures totaled 1.8 million as compared to one point two million and the first nine months of fiscal 2020.
Free cash flow was 2.2 million for the third quarter of fiscal 2021 and 2.0 million on a year-to-date basis.
We paid 0.8 million in dividends in the third quarter of fiscal 2021 in addition based on our current financial position. Our board of directors declared a quarterly dividend of $0.06 per common share wage, which will be paid in the fourth quarter of fiscal 2021. Lastly during the third quarter of fiscal 2021. We repatriated 5.7 million to the US from foreign locations are us cash and Investments totaled 30.1 million as of February 27th, 2021.
Now I will turn the call over to Greg who will discuss the results for our power and microwave Technologies Group.
Thank you, Bob. Good morning. Everyone the power microwave Technologies Group or PMT sales in the third quarter of fiscal year 2021 twenty 1.6% to 35.8 million vs. 28.9 million in Q3 last year.
in addition
To an excellent sales quarter PMT achieved a book-to-bill of 1.59 this incredible sales growth and strong bookings numbers has put us in a great position for a strong wage. I guess margin increase in the quarter to 34.9% versus 32.8% in the prior year gross margin improved through new designs and growth pact engineered Solutions are engineered Solutions products supporting the semiconductor wafer Fab market and another record quarter in terms of Revenue. We also continue to have excellent growth at 5 p.m. G or power microwave group. This growth was led by our growing line of new technology Partners supporting RF and wireless applications, like 5G infrastructure and power management applications.
Also supporting the growth and the quarter was our Legacy to business which sales exceeded the prior-year.
We saw an extremely positive booking Trend in PMG.
I booked a bill in the quarter was very strong.
And drove the overall the bill of 1.59 for PMT. This was received by continued growth in the power management and Wireless Communications Market regarding the bookings off on the part management side. We saw growth and applications such as wind energy solar EV and energy storage.
In our for microwave applications in 5G microwave Communications and sat, led the growth with respect to 5G Wireless and power management sales revenues increased double-digit in Q3 as the need continues to grow for people to work from home the city the country and even their car they must be able to send and receive large amounts of data from any of those locations.
The team has done an excellent job identifying Nick's technology Partners who collaborate with us. Globally we continue to invest in focus on resources to support these growth markets. We have a dog a small Niche suppliers who feel technology gaps and in Q3, we added Asia and single microwave and also new products from current key technology Partners, which will be key to our country is working in 5G microwave and power management applications. This strategy has been highly successful and we'll continue this as we add new products customers and revenue and profits off using our same demand creation infrastructures are electron device group increase sales that was driven by semiconductor wafer Fab customers are Legacy to business is also coming off. However, even with the strong quota results, I believe COVID-19 is still having a Slowdown effect on our business. I continue to use the word slow down.
Because we have proven again in Q3 the demand for our products and services did not go away with the pandemic. In fact, we are even more excited about the bookings Trends in this quarter.
We continue to look extensively how to do things differently to achieve success. We did let several unique strategies to support our Global customers designs and products while working with the restrictions on travel and face-to-face meetings as mentioned these strategies include adding new technology Partners what we have technology gaps from our current markets.
We are also increased communication to customer and supplier focus webinars and major web upgrades Richardson's go to market strategy has allowed us to grow multiple business opportunities during the pandemic to create a processes and communication procedures. We're committed not only to bounce back but the balance forward coming out of this pandemic the Q3 results Show excellent progress in this strategy.
This quarter we continue to receive support from our key Partners such as qorvo make a note United sic LS mtron in future semiconductor and key to key suppliers in the industry suck CPI. Tell us n g r c and put Thomas of all worked to help us manage customer requirements.
Our in-house engineering manufacturing teams did a great job supporting increased demand from our Global semiconductor wafer Fab customers. This team also introduce new products for new designs 40,000. It's such as the ultra 3000 which has patent-pending technology for the wind turbine Market.
Headwinds going into Q4 and into FY 22 is long semiconductor component lead times this affects our component business and Engineering Solutions products as these lead times continue to wage and we will have to be very aggressive an inventory. And so the pipeline to make sure we can meet our customers needs.
Looking at results during the coming out of this pandemic. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers are unparalleled capability and Global go-to-market structure are unique to the power and RF microwave Industries. We've developed a powerful business model for legacy products and new technology Partners to go with our Engineers Solutions capabilities. Do I steadfast and create a focus on customers? We will survive this pandemic by taking advantage of opportunities when they arise the demand for our products has not gone away our customers and Technology Partners need Richardson's products and support more than ever and with that. I'll turn over to Wendy to doubt in Richardson Healthcare.
Thanks, Greg and good morning, everyone. I am pleased to announce that the Healthcare Group had sequential growth in total revenue. And in the number of altitudes sold again in the third quarter and our last call reported higher altitudes sales than any prior quarter. We achieve this again in Q3 total sales in the quarter were 2.9 Million a forty 1.7% increase over sales of the same period last year sales of Parts equipment and tubes all increased over prior Year's third quarter gross margin improved a 33% from 25.6% in margin was down versus 38.3% in the third quarter of FY twenty. We continue to have some supply chain challenges related to covet primarily wage or deliveries on key components this limited the number of tubes. We made in the quarter while we were able to meet customer demand. We still have additional production capacity. We've added resources to support the growth wage.
And we are in good shape as we get.
Need to launch the G and the Siemens repair programs later this year.
Pre-owned CT scanners continue to be in short supply as hospitals face Financial challenges and hold onto their equipment longer. We believe Supply will be constrained until the pandemic is under control and financial performance in the healthcare industry improved while this will limit our system sales for the near future. We believe this creates more opportunities for higher-margin replacement tubes and parts. We are prepared to offer this man as far as new developments. We launched our to be loading program in China late in the third quarter. We are just beginning to feel it's positive impact on revenues. We are optimistic that this will be a good growth market for us new tube development remains on schedule with the Alta 750g launching later. This summer Siemens repaired tubes will follow later in the month and into calendar year 2022. We continue to add experienced Engineers to round out our capabilities and speed up development time.
In FY 22, we will have a broader range of tubes to offer to our customers as we expand our list of medical certifications. This will also expand our Geographic footprint into countries such as Canada.
I will now turn the call over to Jen's Rupert to discuss the results for canvas.
Thanks, Wendy and good morning, everyone canvas which includes to engineering manufacture and sale of custom displays to original equipment manufacturers in industrial medical markets delivered a good performance package with sales of 7.1 million during the third quarter of fiscal 2021 an increase over last quarter, but a small decrease of 1.7% or the same period last year with customer demand for equipment decreased temporarily due to the coronavirus and the resulting business impact on the OEM globally.
Some areas such as Germany and France are still on lockdown due to the increased cases.
Cross margin as a percentage of net sales was 35.2% during the third quarter of fiscal 2021 up from 32.8% during the third quarter of fiscal 12020 increase gross margin was related to a favorable product mix.
LCD backlog along with a number of projects that are currently in the engineering stage position as well for continued growth. Assuming no long-term impact from COVID-19.
We continue dealing with extended lead times that likely won't recover until the end of this calendar year some key components such as LCDs have standard lead times of October Thirty weeks. Now we have cameras are fully committed to eating any burden on our customers and we are working closely with a manufacturer's keeping the impacts to a minimum.
We continued compensating for the lack of face-to-face customer visits and Rachel's during the pandemic by focusing on our online awareness.
We are adding application stories on our newly designed website and regularly issuing newsletters that feature Unique Products where we see good potential for new business office. We are confident that our online strategy will result in New Leads and business growth.
During the quarter we received several new orders from both existing and first-time medical OEM customers some of these applications include Rio like policies systems that breakdown that sells by cooling of body fat.
Cataract and refractive surgery systems laser systems for therapeutic and refractive applications of cutting-edge corneal surgery.
This a trip see systems we have pulsed laser is used to break down stones in the kidney and gallbladder.
Robotic-assisted surgical that runs to improve precision and accuracy in knee surgery.
microsurgery systems where our displays are mounted on surgical microscopes
Patient monitoring systems and radiotherapy systems where highly customized this place are embedded in a remote control to control ceiling mounted cameras that monitor patients during the radiation treatment in the non-medical space. We received orders for various display products. Our products are used as electronic rear view mirrors on Thursday and trance as human machine interface for high-speed high-precision Milling machines and Taylor prompter and talents assistance for well-known news stations.
Products include this place and all-in-ones monitors with an integrated PC.
From the Verity of customers and applications as well as the value of orders from existing a new customers. It is clear. We offer our customers outstanding product and service while our sales organization says phone needs a new opportunities. I will continue to review and adjust our business strategy to improve the operating performance of the division maximizing cash flow is an ongoing priority. We will continue to work with our partners to help reduce inventory while being able to meet the demands of our customers particularly during the pandemic and the challenges it brings to our supply chain. I will now turn the call back over to Ed.
Thanks. Yen's you and your team continue to produce excellent work in the face of adversity or the last several years you added many new high-profile medical and Industrial customers with that effort is helping the display division, whether the short-term Decline and Equipment purchases through careful component selection and inventory purchases. You've met our customer demand while managing come down. There are many reasons to be optimistic about Richardson Electronics future. We're seeing our growth initiatives improved revenue profitability and cash flow new develops within our engineering and Manufacturing groups will help deliver sequential growth.
this includes new
CT Tube replacement options as well as products that support 5G and alternative energy.
Well COVID-19 continues in the long-term effects. Remain unknown. We will continue to challenge our teams to produce more products and sources of Supply to improve our operating performance off. Our business model is complex, but the variety gives us an opportunity to balance the highs and lows of the separate businesses will continue to carefully manage expenses and maximize cash flow lessons. We learned during COVID-19.
At this point we'll be happy to answer a few questions.
Thank you, and I saw a reminder ladies and gentlemen to ask a question. Simply, press star one of your telephone to withdraw your question, press the pound or haschke. Please stand by while we compiled a Q&A roster.
Again, that is star one to get in the kids.
We have a question from the line of Eric Landry with BML Capital, please go ahead.
Good morning, Eric. Hi, Greg. I'd like to talk about the ultra 3000 for a second. If if I couldn't hear. So have you any idea what the install base on these Mills is of the batteries that this product aims to replace?
Yeah, we have the numbers of the number of GE and and Siemens wind turbines that are in North America and Europe and that is the market we're going after.
How about how about the size of that? I mean any general description of of how big that market is and and and how penetrated you are currently am. Well the number of wind turbines that are top and that's who we're working with today are top for owner-operators is about 5,000. Um, I'm sorry 6,000 turbines in North America.
Okay, and I mean just generally I mean you you feel you're maybe five percent ten per-cent penetrated and what sort of the potential for for this Market? Yeah. It's it's uh, that's the total number from the time that this replaces acid batteries is about two years. So obviously you're not going to do them on the same year, but we hope to get ten to 15% of that market. We feel we have a product that does that the results so far from the beta sites. I mentioned on the last call a very very successful zero failures and Thursday we had um, one of the largest owner operators in North America place a production order in in Q3.
Okay.
So right now this is the business is rather nascent. I'm assuming I mean, is there any chance that it could become I don't know rival ring, you know, maybe your semiconductor business in mid cycle or or something like that. I'm just trying to get my arms around what what kind of size this this new business would grow to yeah it it'll be equal to if that based on the opportunity because this will generate a portfolio products the stuff we do for for the wafer Fab mom is billed to print for the most part right now and so we can expand this product into into Europe. So I think that the total markets larger, but it'll be equal to to not you know a little bit higher than the current semiconductor business that we do.
Okay, great and on the semiconductor business, I think last week talked Ed mentioned that your customers were telling you everything looks looks fine through calendar 21 if I remember correctly. Is that still the case?
Yes, we just had a a conference call yesterday with our largest customer in the semi Fab space and they told us on that call that they're currently producing a four billion dollars a quarter and they anticipate in not anticipate but their plan is to go to six billion dollars a quarter in the next month's calendar year and if that happened our business would increase 50% so and we're right now running at the highest level of business with um with that customer in combined with some smaller ones, uh, we've ever had so unfortunately, we're we're off their dead.
I won't use the right adjective but we used to be on their bad list because we couldn't produce product fast enough and we have a new manufacturing manager over the last few years and he has his folks flat screen and and we're delivering the product on time and and to their requirements. So we're really pleased with the business. Unfortunately, it can go up and down like a roller coaster. But right now everything says it's going up so well, congratulations on graduating from that list. If I if I heard you correctly there ad you indicated that that your largest customer is indicating $20 off is going to be a booming year as well as did I hear that correctly.
Yes. Yeah, they're saying they're going to go for billion to six billion a quarter, you know production. That's great to hear about it in in windy. So I'm assuming that the the settlement covers the as well as the D right so there will be no issues with either of them.
Well, the the patents on the G are expiring so, you know quite often they could come back after his own the patents on the G if we were to violate them, but we don't tend to we have workarounds on the patents and we told them he wouldn't take the G to Market until the patent expires. And that's I think it's actually in April actually tomorrow tomorrow it expires. So I am going to Market with a G and and probably the first quarter of our next fiscal year and Eric earlier that the the G version does not use either of the patents that are expiring that were on the Deep.
Okay, good looking at the the Siemens tubes. What is the IP office surrounding that too, but this similar to what it was like with Canon or is it a different environment altogether?
Siemens is probably the largest supplier of CT scanners in the world. And so they're the market is probably ten times the size of the job market and the other side of that at this point. There isn't any alternative supplier those too. So we're real optimistic about the opportunity, you know to to sell the they're actually repaired tubes. It's a much different to walk then the the cannon to we've added some Siemens into tears a lot of experience wage Market by the end of the calendar year.
Okay. So when when you say repaired I'm assuming that's not repaired like changing the oil and and sending it back out like like some of the smaller shops do with the the Canada tubes. No, no, no, not at all. I mean, it's there are things like replacing the bearings and the Target and things of that nature that we have the capability to do Thursday and no one else is doing this right now know they're not right great. That's thanks for taking my call. I will I'll get back in line if I have anything else. Thank you. Thank you Eric. Thanks, Eric.
Kenneth a reminder to ask a question simply, press star one on your telephone keypad.
All right, and I will like to turn the call back to Ed Richardson for his final remarks.
Okay.
Okay. Thank you Carmen, and thanks to all of you for joining us and your ongoing interest in Richardson Electronics. We look forward to discussing our fourth-quarter and full-year performance with you in July either and we wish you continued good health and success. And if you have any further questions, please feel free to call us. Thank you very much.
Thank you, and this concludes today's conference call. Thank you for participating and you may now disconnect dead dead dead dead dead.
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