Q4 2021 Richardson Electronics Ltd Earnings Call
Today's conference is scheduled to begin shortly please continue to standby. Thank you for the patients.
[music].
Ladies and gentlemen, thank you for standing by and welcome to Richardson Electronics earnings call for the fourth quarter of fiscal year 'twenty 'twenty..1 at this time all participant lines are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask the question. During the session you will need the press Star then 1 on your telephone.
Please be advised of today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like the hand the conference over to your host today Edward Richardson Chief Executive Officer. Please go ahead.
Good morning, and welcome to Richardson Electronics conference call for the fourth quarter of fiscal year 2021 join.
Joining me today are Robert Ben Chief Financial Officer, Wendy The Dell, Chief operating Officer, and General manager for Richardson Healthcare Greg.
Greg Helicon General manager of our power and microwave technologies group and Yen's Rupert General manager of canvas.
As a reminder of this call's being recorded and will be available for audio playback.
I'd also like to remind you that we'll be making forward looking statements. They are based on current expectations and involve risks and uncertainties.
Therefore, our actual results could be materially different please.
Please refer to our press release and S. E C filings for an explanation of our risk factors.
I'm pleased to announce we finished FY 'twenty 1 on a high note.
In Q4 sales exceeded $50 million and the operating income was $2.3 million.
This was our best quarter since Q1 of FY 12.
All 3 of our business units performed well on the fourth quarter.
On a full year basis sales were $177 million up nearly 20 million over the prior year.
Operating income was $4.5 million, excluding this 1 time legal settlement.
This is quite an accomplishment considering the obstacles created by COVID-19.
I want to thank all of Richardson electronics suppliers and employees and customers, who found ways to make the business happen in spite of potential risks and closures impacting both supply and demand.
But you wanted a lot about our business and ourselves over the past 18 months.
Our challenge now of security those lessons into our new fiscal year.
And to continue new opportunities for growth and earnings improvement.
With that I'll turn the call over to Bob Ben Chief Financial Officer to review, our Q4 and full year financial performance, then Greg Wendy and Yen's will share more details about successes new programs into all of their challenges in each business unit.
Thank you Ed and good morning, I will review, our financial results for our fourth quarter and fiscal year 2021, followed by review of our cash position.
In addition, please note that I'll be discussing non-GAAP financial measures for fiscal 2021 full year results.
I refer you to our fourth quarter fiscal year 2021 press release for a reconciliation of non-GAAP items to the comparable GAAP measures.
Net sales for the fourth quarter fiscal 2021 increased to $50.5 million or 35, 1% compared to net sales of $37.4 million in the prior year's fourth quarter.
Primarily due to higher net sales across all 3 business units.
Richardson healthcare sales increased $1.3 million or of 92, 3%, primarily due to an increase in demand for the Alt of 750 tubes, reflecting the highest quantity sold in any quarter.
In addition, part sales increased partially offset by lower sales of pre owned <unk> scanners in the Latin America.
PMT sales increased by $9.6 million or of 32, 5% from last year's fourth quarter because of higher sales of semiconductor wafer fab equipment specialty products.
As well as power conversion of the RF and microwave components.
In addition power grid tube sales increased from the fourth quarter of fiscal 2020.
Canvas sales increased by $2.2 million or 33, 9% due to increased customer demand in both Europe and North America.
Gross margin for the quarter was 32, 4% of net sales compared to 34% of net sales in the last year's fourth quarter.
Canvas margin as a percentage of net sales increased to 35, 3% from 31.8% because of its product mix and foreign currency effects.
Healthcare margin as a percentage of net sales was 29, 4% in the fourth quarter of fiscal 2021.
Compared to -28, 6% in the prior year's fourth quarter, primarily due to improved manufacturing absorption.
And lower scrap of inventory reserve expense.
PMT margin decreased to 32.8% from 33, 2%.
Due to a higher percentage of lower margin <unk>.
<unk> sales.
Operating expenses were 14.1 million for the fourth quarter of fiscal 2021.
Compared to $12.7 million on the fourth quarter of fiscal 2020.
The increase in operating expenses resulted from our normal employee compensation expenses, including incentives and annual merit increases.
These increases were partially offset by lower legal and consulting expenses.
Throughout the pandemic the company decided to support its employee the regular merit increases and incentive plans and by avoiding layoffs and furloughs.
As of resolve the company reported an operating income of $2.3 million for the fourth quarter of fiscal 2021 as.
As compared to an operating loss of $1.3 million in the fourth quarter of last year.
Other expense for the fourth quarter fiscal 2021, including interest income and foreign exchange was less than 0.1 million.
Compared to other income of zero point $2 million in the fourth quarter of fiscal 2020.
The income tax provision of <unk> 4 million for the quarter reflected a provision for foreign income taxes.
Which was higher than in the prior year's fourth quarter.
And the offset of of U S tax provision against the valuation allowance.
We had a net income of $1.9 million for the fourth quarter of fiscal 2021.
As compared to a net loss of $1.3 million in the fourth quarter of fiscal 2020.
Earnings per common share on a diluted basis in the fourth quarter of fiscal 2021.
We're 14th.
Turning to a review of the results for fiscal year 2021.
Net sales for fiscal year 2021 for $176.9 million.
An increase of 13, 5% from fiscal year 2020, net sales of $155.9 million.
Net sales increased by $18.8 million or 15, 9% for PMT.
By $1.8 million or 21, 7% for Richardson healthcare.
And by zero point $4 million or 1.4% for canvas.
Gross margin increased to 33, 2% from 31, 9%.
Primarily reflecting favorable product mix and PMT and canvas.
As well as improved manufacturing performance for PMT.
Operating expenses were $55.9 million.
And non-GAAP operating expenses were $54.3 million for fiscal year 2021.
Compared to $51.3 million for fiscal 2020.
The increase in GAAP operating expenses included a 1 time cost of $1.6 million for a legal settlement for the vertex imaging Corporation in the third quarter of fiscal 2021.
In addition, the increase resulted from higher employee compensation expense and legal fees.
Partially offset by lower travel and consulting expenses.
Operating income for fiscal year, 2021 was $2.9 million.
And non-GAAP operating income.
Was for $5 million.
As compared to an operating loss of $1.7 million for fiscal year 2020.
Other expense for fiscal 2021, including interest income and foreign exchange.
With zero point $6 million.
As compared to other income of <unk> 4 million for fiscal 2020.
The income tax provision of zero point $7 million, primarily reflected a provision for foreign income taxes.
And the offset of the U S tax provision against the valuation allowance.
We had a net income.
Of $1.7 million.
And the non-GAAP net income of $3.3 million.
For fiscal year 2021.
Compared to a net loss of $1.8 million for fiscal year 2020.
Earnings per common share on a diluted basis for fiscal 2021.
The 13th.
And non-GAAP earnings per common share on a diluted basis were <unk> 25.
We continue to closely manage our cash position cash.
Cash and investments at the end of fiscal 2021 were.
Were $43.3 million compared to $47.4 million at the end of the third quarter of fiscal 2021, and $46.5 million at the end of fiscal 2020.
Cash use in both the fourth quarter and fiscal year 2021.
Resulted primarily from an increase in working capital that was necessary to support the significant growth in all 3 business units.
Capital expenditures were 0.8 million in the fourth quarter of fiscal 2021.
Compared to zero point $5 million in the fourth quarter fiscal year 2020.
Approximately zero point $6 million.
Related to our healthcare business 0.1 million was for our it system and 0.1 million was for other projects.
Total capital expenditures.
For $2.6 million of fiscal 2021.
As compared to $1.8 million in fiscal 2020.
We paid 0.8 million of dividends in the fourth quarter of fiscal 2021, and $3.1 million.
In fiscal year 2021.
In addition, based on our current financial position of our board of directors declared a quarterly dividend of <unk> per common share.
Which will be paid in the first quarter of fiscal 2022.
Lastly, during fiscal 2021, we repatriated zero point $9 million to the U S from foreign locations.
Our U S cash and investments totaled $25.5 million as of May 29 of 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 and good morning, everyone. The <unk>.
<unk> microwave technologies group or PMT sales in the fourth quarter of fiscal year 2021 grew 32, 5% to $38.9 million versus $29.3 million in Q4 of last year.
In addition to an excellent sales quarter PMT achieved a book to bill of 129.
This incredible sales growth and strong booking numbers allowed us to finish FY 'twenty, 1 with 15, 9% growth and of 1.2 for book to Bill and put us in great position for a strong start to FY 'twenty 2.
Our gross margin decreased in the quarter to 32% versus 33, 2%. The prior year. This was mainly due to the product mix.
We continue to have excellent growth in our power and microwave group or PMG.
Our growing line of new technology partners, and new products supporting RF and wireless applications like <unk> infrastructure and power management applications led to this growth.
With respect to <unk> wireless and power management revenues increased by double digits again in Q4 as.
As the need continues to grow for people to work from home the <unk>.
City, the country and even the car.
Be able to send and receive large amounts of data for many of these locations quickly.
In addition, we had strong sales for my engineering solutions products supporting the semiconductor wafer fab equipment market in the quarter.
However, our legacy tube business also grew in the quarter was exceeding sales in prior year.
We saw on extremely positive booking trend and PMG.
Book to Bill on the quarter was $1.4 8 this was achieved by continued growth in the power management and the wireless communications market.
Guarding the bookings on the power management side, we saw growth in applications for wind energy solar EV and energy storage new.
New products such as our soon to be issued patented ultra 3000 pitch of energy module using wind turbines continues to gain traction with another excellent booking quarter.
In order for microwave applications of <unk> microwave communications and Satcom led the growth.
The team has done an excellent job of identifying niche technology partners, who collaborate and support our global demand creation model.
We continue to invest and focus on resources to support these growth markets.
These resources include design engineers field engineers and manufacturing capabilities.
We also have added numerous small niche suppliers to fill technology gaps.
In Q4, we added Wakefield for the thermal management products and semi queue for the silicon carbide MOSFET.
Both technology partners will be strong partners going forward as they fill technology gaps in our product offering this.
This strategy has been highly successful and we will continue to use it.
As it adds new products customers revenue and profit by capitalizing on the demand creation infrastructure.
I'd like to turn the device group or EDG experienced an increase in sales due to our semiconductor wafer fab customers.
However, we also saw our legacy tube business begin to come back the fourth quarter. Once again prove that the demand for our products and services did not go away with the pandemic, we're even more excited about the booking trends in the coming quarters.
This quarter, we continued to receive support from our key technology partners, such as Corvo may come of Nokia wave, the United Sick Ellis materials and food your microwave.
Key tube manufacturers in the industry, such as CPI Talis N JRC and photonics worked with us to manage the customer requirements.
Our in House engineering, and manufacturing teams did a great job supporting increased demand in our global semiconductor wafer fab customers.
They also introduce new products designs for key growth markets, such as the ultra of 3000 with our soon to be patented technology for the wind turbine market.
We also signed a technology partnership with DSC disagreement includes exclusive rights to manufacturing distribution and new design development collaboration we'll be introducing products using ultracapacitor technology in power management applications for Mis agreement beginning in Q2 FY 'twenty 2.
1 red flag.
Going into Q1, FY 'twenty 2 as longer semiconductor component lead times this effects of our component business and engineered solutions products, including the ultra 3000.
This leaves the lead times continue to extend will be very aggressive letter of inventory and to fill the pipeline to make sure. We can meet our customers' needs. We are coordinating closely with our customers and suppliers to keep everyone in alignment.
We continue to look for extensively on how to do things differently and achieve success we developed several.
The strategies to support our customers' designs of products, while working with the restrictions on travel and face to face meetings as mentioned the strategies include adding new technology partners, where we have technology gaps for our key markets. We also increased communication through customer and supplier focused webinars and we implemented a major web.
Good.
Richardson Global go to market strategy has allowed us to grow multiple business opportunities during the pandemic through creative processes and communication procedures, we're committed not only the bounce back but the bulk of forward coming out of this pandemic the.
Q4 results show excellent progress in the strategy.
Especially during and coming out of the pandemic I cannot stress enough the value of Richardson electronics model to our customers and suppliers are unparalleled capability and global go to market strategy or unique to the power and microwave industries.
Develop the powerful business model, including the legacy products and new technology partners to go with our engineered solutions capabilities the word.
Steadfast and create a focus on customers will survive this pandemic by taking advantage of opportunities when they arise.
The demand for our products has not gone away or customers and technology partners need Richardson electronics products and support more than ever.
And with that I'll turn it over to Wendy the Dell and Richardson healthcare.
Thanks, Greg and good morning, everyone.
Please to announce at the healthcare group had another good quarter.
Number of Alta tubes sold hit a new high strong demand in Europe and the.
On a reloading program positively impacted sales.
Total sales in the quarter were $2.8 million, a 92, 3% increase over sales in the same period last year.
Sales of parts and tubes increased over prior year's fourth quarter.
Net sales fell short versus the Q4 of last year due to the.
The ongoing lack of uct's gainers as hospitals hold onto equipment longer.
We're starting to see this loosen up in the current quarter.
FY 'twenty 1 sales on a full year basis for $10.3 million 21, 7% higher than FY 'twenty sales.
Sales of parts and tubes increased over prior year, while equipment sales were down slightly.
We're very pleased with the team's performance given the challenges created by Covid earlier in the year.
All of the care team had the honor of working every day with people on the front line and we thank them for that.
And sacrifices.
Gross margin in the fourth quarter was 29, 4% versus the negative $28.6 in Q4 last year.
We continue to have lingering supply chain issues related to COVID-19, primarily slower deliveries on raw materials and key components.
The number of claims the need in the corner.
To meet customer demand that we still have additional production capacity.
Gross margin on a full year basis was 25, 1% versus 24, 4% in FY 'twenty.
We anticipate margin will improve as we move more tube types into production and leverage our production capabilities.
As noted last quarter, we have added resources to support the gross and we are in good shape for increased production requirements.
New tube development remains on schedule the <unk>.
All of the 750 G is now in data for.
We'll rollout based on acceptable beta site results will be late summer early fall, we anticipate sales growth will be gradual as canon scanners come off of the OEM service contract.
We will begin shipping our first repaired Siemens Mr. Xie in small quantities in the fall.
Siemens types the annex.
And next day and NXP 46 will follow in calendar year 2022.
There are no third party replacement options for Siemens tubes.
And Siemens T market share is significantly larger than Canada.
Well. This is the repair program, we must follow all of the same development of stats to ensure the product we make available exceed customer expectations.
Having a broader range of kids to offer our customers will increase on points of the healthcare supplier and support our mission to help reduce healthcare costs.
It will have a positive impact on sales and improved gross margin as we leverage our manufacturing operations.
We also continue our efforts to expand the number of countries in which our tubes of registered.
We recently completed the initial medical device single audit program or empty fab audit the.
This is required to sell our kids into Canada, Japan and Australia.
We hope to receive Canadian registration are top priority before the end of calendar year 2021.
I will now turn the call over the answers to discuss the results of the canvas.
Thanks, Wendy and good morning, everyone.
Candice, which includes the engineering manufacture and sale of custom displays to original equipment manufacturers in the industrial and medical markets delivered an outstanding performance with sales of $8.8 million during the fourth quarter of fiscal 2021, and the increase of 24, 7% over the most recent of third quarter.
And the increase of 33, 9% over the same period last year.
We set the new sales cycle at this quarter based on increased customer demand as our customers thought to compensate the supply chain uncertainties, especially in the electronic component market.
On a year to date basis global sales grew by 1.4% to $29.3 million and.
In fiscal year 2021, due to the addition of new customers.
This was a remarkable accomplishment considering the COVID-19 pandemic and the serious impact.
Gross margin as a percentage of net sales of 35, 3% during the fourth quarter of fiscal 2021 up from 31.0 percentage during the fourth quarter of fiscal 2020.
The increased gross margin was related to a favorable product mix and currency effects.
On the year to date basis, our fiscal year 2021 gross margin as a percentage of sales increased to 35.0% from 32, 2% versus fiscal year 2020.
Our healthy backlog along with the numbers of projects that are currently in the engineering stage position us well for continued growth assuming no longer term impact from the current supply chain obstacles.
We continue dealing with extended lead times for selected components from our Asian suppliers.
We are making progress with our online awareness initiatives.
We are adding new applications stories to our websites and publishing press releases and social media footage promoting our new product platforms.
As of 10.1 inch high definition monitor and the 15.6 inch full high definition on the tour with USB C interface.
We are confident that our online strategy will result in new leaps and business growth.
Joined the quarter, we received several new orders from both existing and first time medical OEM customers.
Some of these applications include Crayola policy of systems that break down fat cells by cooling of by the fed.
Cataract and refractive surgery systems laser systems for a set of politics and refractive applications of cutting edge corneal surgery.
The robotic assisted surgical platforms to improve.
Decision and accuracy in knee surgery.
Medical device control, capturing high resolution images and life video from up to 2 surgical imaging devices.
Laser system for the treatment of peripheral and coronary arterial disease with photo ablation.
Dental treatment centers, where patients can review radiographic images of life video from and into or out of camera or other media feed such as educational videos of promotion.
Patient monitoring systems and surgical navigation system.
In the nonmedical space, we received orders for various display of products. Our products are used in commercial C. P scanners for scanning luggage in airports sea.
Skinless insertion of application of a better threat detection at much faster present the throughput.
We also received orders for all and once wanted to us with an integrated P. C to control high speed high precision billing machines and for product expenses Houston retail stores.
And displays for of Teleprompter and talent systems for well known news stations.
From the verity of customers and applications as well as the value of orders from existing of new customers. It is clear we offer our customers outstanding products and service.
Our sales organization stays focused on 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.
To help us reduce inventory, while being able to meet the demand 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, Yens another great year for canvas.
I know you had many challenges with hospital closures and the if.
Financial condition of the healthcare industry.
With your flexible display solutions, you were able to create new opportunities and support demand for patient monitors and other critical equipment.
As we start at the bottom of the mountain again in FY 'twenty 2 I'm very excited about the future of Richardson electronics.
The power grid tube business is as healthy as ever with continued strong operating contribution.
We've always said that you can't make a business, where the single tube and healthcare will be launching several new tubes in the next year the Sir.
The conductor wafer fab market continues to grow as demand for integrated circuits invades every corner of our lives.
Our newest Green initiative Ultracapacitor modules used to replace batteries in wind turbines and other critical applications.
For us considerable upside for the company in FY 'twenty, 2 and is a good complement to our growing <unk> business.
Our patent pending designs are unique in the industry and our engineering and manufacturing teams are working around the clock to ramp up production to meet demand.
We're taking additional steps to control of our supply chain and to increase production levels. The only thing holding us back is component supply.
In FY 'twenty, 1 we did not use much cash our goal is to protect our cash position.
To continue operating frugally to ensure we have free cash flow to invest in new opportunities.
We are of Kyprolis is by controlling expenses and focusing on the margin to improve the bottom line.
It's an exciting time in the company and at this point, we'll be happy to answer a few questions.
Thank you I've been in line.
Ask the question you will need to pass the 1 on your telephone.
Let's try your question Thats the turnkey please standby, while we compile the Q&A of assay.
Your first question comes from Howard <unk> with Wellington Shields.
Line is open thank you.
First of all allow me to congratulate Ed you and Wendy and the the whole team on just a great quarter every way you want to look at it so congratulations.
Thanks, very much Howard you're very very welcome and secondly, I was not able to be on the conference call last quarter. So allow me to congratulate Wendy on.
Joining the board of directors.
Thank you.
You're very very welcome.
So wall Street always is pleased about the past, but let me talked with you about <unk>.
Going forward.
And you did mentioned 1 in the press release and to just now ultra 3000.
And you talked about increased bookings for ultra of 3000 is this something a number that you plan on releasing quarter by quarter of year by year or not at all.
I'll, let Greg address that Yeah, Hi, Howard Hi, Greg Hi.
Youre very welcome.
Served.
We had another strong quarter in bookings on the ultra 3000 for the GE turbines in the fourth quarter.
Can tell you we have the backlog of over.
$10 million north of $10 million that is scheduled to.
To ship this fiscal year.
As Ed mentioned, we're dealing with component deliveries so.
But we will flow.
We will serve that market very very well.
Well.
Just to specifically address the market.
Based on my research there of about 350000 wind turbines in.
Worldwide.
60000, roughly in the United States growing at multiples of thousands of year.
Can I get a sense of what you're looking at in terms of.
1 the well.
Well your belief of your market.
Annually, if you will.
And totally what's the Tam.
Annually, what what's the.
What does it overall and then last but not least can comment or was that and I know on a temporary basis, we have shortages of certain parts that shortage will go away probably between now and the end of the year.
So can you give me some sense of some information please.
Sure Yeah. How are you are correct on the on the global Tam, It's obviously, a huge opportunity not only for the Altra 3000, but we of other products coming out to support wind turbines that will go into the same wind turbines right now of what we're focused on and winning.
It's a very focused approach right now.
Our product goes into GE turbines.
E on a global basis has about 40 to 50000 turbines.
We're addressing right now the.
North American number and that's about 30000.
With that number.
We have production orders Elfa orders beta site orders all of that had been successful.
For about 40% of the installed base in North America.
So with that.
You know I always look at what the Sam is and to me Sam is.
The number that we have of products that either has the technology advantage of our pricing advantage of what we can address and so right now our Sam today with the product we have is about $85 million.
And we're very successful we have as I mentioned before there is for companies that make up about 40%.
Of that Sam.
And we have active and successful design in beta site design and production orders from all 4.
So it's really.
Catching on a product is quality zero failures in the field.
Along with the fact that it is.
On the patent will be.
Confirmed on next week so.
It's it's a it's a very strong market and we're doing a good job addressing it.
In the last conference call I had read that you talked about gross margins.
Either you or Wendy talked about gross margin could have been head. So I apologize in excess of 35% in the SG&A absorbed by the DMG group.
We're still comfortable with that number and then too.
If you're talking about Sam of 85.
Million do you have the capacity.
To build it.
Forgetting about the shortage of parts because that goes away certainly in the next few months.
Yes.
On the capacity side, we have great.
Suppliers that are also increasing their capabilities as Ed mentioned, we are also.
Doing things ourselves in terms of design engineers and.
Capital expenditures here to subsidize any uptick in the business.
Yeah, Andrew I look at manufacturing group Howard we are definitely adding the capacity it'll be through multiple shifts.
But to keep up with the demand the credit group is generating that we feel confident with that.
So you're looking to increase.
The <unk>.
Capacity by doing multiple shifts.
We anticipate about a half of million dollars' worth of pick and place equipment, that's being installed we've been outsourcing.
Most of the the board level taken place work and we're going to.
To protect ourselves we will take a large portion of that in house and that will also speed things up for us.
Compare this to batteries.
In terms of price structure and in terms of replacement of.
So the prices for a battery of our ex yours is why that last how long how long will yours last.
Yeah. So currently the lead acid batteries that are in these turbines last about 18 months the.
The ultracapacitor modules.
The last for about 15 years.
With that the really it's not a it's cost of installation.
It's very costly to get a organization together go up 300 feet take out the batter and replace it many of these things on a remote sites.
Also downtime when the turbine is down it is not producing energy and therefore is not producing any income.
So they've done an ROI and.
Based on our pricing.
We're able to make their ROI on putting these ultra capacitors and these turbines versus the lead acid and then of course, the environmental part of it is removing the lead acid.
They get subsidies from the government to do that so it's a.
It's really the ROI of the installation downtime.
Not a price for the battery versus the price for the module itself.
When you talked about the Sam that's domestic is that correct.
Yes.
How do you foresee going international and I know you have all sorts of throughout the whole world.
Yes, so right now 1 of our customers is in North America as the company called E Mail, they're based in Italy.
In the second quarter, we are going to have the alpha.
Right.
Design going on the run that for about 6 months.
We're also going to roll it out at the wind show in Europe like we did here in North America 14 months ago.
And whatever resources, we need over there we do have some people that are from that industry within our organization.
So we're gonna roll that out.
The.
Meaning specifically the key customers.
That would use this product.
Starting with 1 that we already have the relationship with in the North America called E Mail.
Alright last but not least the DSC.
You're talking about having a product for Q2 this year what what.
Type of numbers can we look at 1 in terms of the.
The revenue per unit and the Tam or Sam as you want to wish to use.
The product cost is very similar to us of the.
Ultra 3000. This product uses 5 ultra capacitors vs..6 in the author of 3000.
Of the Elfa products going out in August.
We'll do a beta site testing, we already have a letter of intent from the large service provider.
The test the product and they requested a letter of intent quote for 900 sites in Atlanta.
So it's going to go through the same process as the the ultra 3000 will get the alpha sites out in August of Beta site testing same amount of time, usually 4 to 6 months.
But they are very excited about it we've met with AT&T, Verizon and T mobile.
In the same situation Howard in that lot of these base stations of remote it's very costly to replace the lead acid batteries in these generators.
And then the downtime not only the fact that it's not being able to charge the customer, but if they lose any customers because of the person can't get a signal the.
The cost of churn, which is either getting a new customer of getting back an old customer is financially a disaster for them. So they're going to do whatever they need to do to make sure that site is always running and always supporting their customers in this product helps them do that.
Let me just go back to wind turbines, Texas wind turbines all froze as a result of the weather going back a bunch of months ago.
Ultra capacitors of not heat or cold sensitive is that a correct statement.
Yes in general they had to go and replace all of the batteries just like your car with.
With the cold weather, they would not start up again.
On the ultra capacitor modules if they were in those turbines at the time, you would've been able to start the turbines up or at least that pitch system part of the turbine.
Mediately and so that kind of we got a few phone calls and a few expedites after that the situation.
Great. Thank you again.
And Wendy and for the whole team great quarter looking forward to the next 1 thank you.
Howard we might add.
Our intention is that as this.
Also the capacitor business builds up that will make it into a separate strategic business unit or not sure yet.
The 1 year out of 2 years out, but we think it's the tremendous market share only addressing GE turbines at the moment and Siemens.
As the larger nearly so of market share in the rest of the world is GE.
<unk> and our ultra capacitors of work on Siemens equipment as well, so theres a tremendous opportunity here.
And also I want to add to that.
It's not going to be a 1 hit wonder where we're in process of designing and developing other products that go into the wind turbine to function in terms of power management. So we're going to have with the next 12 months of really strong portfolio of products, which obviously would be led by the altra 3000, which is getting us the relationships with these owner operators and <unk>.
North America, but we're going to continue to invest design and develop new products and have a portfolio.
Going forward.
Thank you I just wanted to let you know.
The large shareholder it.
It is not my intention of climbed up 1 of those wind turbines and surface not going on.
Happen.
Yeah.
Okay.
Thanks, Ed, Thanks, Wendy and Greg and the rest of the team that's all I have the thank you.
Yeah.
Thank you. Our next question comes and Lindsay with BMO capital. Your line is open.
Yeah.
Good morning, Eric.
Okay. So I just want to piggyback on the prior call here real quick.
For the batteries.
G.
Product.
You are in trials with.
With I guess, all 3 of the majors.
Wireless providers are you in competition with anyone here or are they just.
Looking solely at your product.
I don't know if theyre looking at others. There are other companies that have this capability.
Right now.
Theyre looking do test ours, I know the 1 that I talked to specifically.
Not testing anybody else's at this time.
But yes, there's going to be competition on this.
Okay.
And is it.
Are you having to go through the the.
The manufacturers and then.
2 of these.
Wireless providers or the wireless providers coming directly to you to pull the batteries of out of the Gen sets and put it in the ultra professor.
Yes, so it'll be a combination of both.
Like the ultra of 3000.
We're working directly with the service providers, who like the.
The Altra 3000 have.
The integrators that go and do this upgrade if you will to their generators throughout North America, but we're also talking to the Oems such as colored <unk> Cummings.
Debt or the key 3 providers of journey.
Generators to those specific service providers.
In terms of making it the standard equipment.
Our designing it into their standard equipment on.
Going forward, so it's kind of a combination of it got it okay.
Yeah.
Great.
The power management is that essentially.
All of them.
No and the power management strategy is what.
Developed and found and got us into and recognize the Altra 3000 opportunity we have a very strong organization line card.
Historical customers that deal on all kinds of what I'm, calling power management, but you guess you could call it renewable energy.
On the applications solar battery charging electric vehicles energy storage all of those 1 use ultra capacitors, but they also use a lot of other products that we have and as we go forward I think we're going to find more and more customers like the key customers. We're dealing with now on the altra of 3000 of that don't want to buy the ultracapacitor they want to buy that ultracapacitor.
The desert certain function and then they want some company to be able to have the ability on the global basis to send that product to their 25 wind farms in North America.
And also they have inventory throughout the world, which we have to our distribution organization, which was started obviously by the by the 2 business. So the overall strategy is to support this power management, which is growing very very fast green energy of of course.
And its products like this the Altra 3000, but were also designed interim of component point of view and a lot of applications.
On supporting the same type of products okay.
Because you said at 1 point for me to be.
Yeah.
That does debt debt does not referenced the ultra 3000.
As I mentioned before we did have a strong booking quarter, but.
That's not all of it.
Was there any.
Sales in the quarter.
Yes, we started shipping we started shipping in may of very small amount.
In terms of but we're in production.
Here in the in Q1.
But I'm gonna add.
What they what the scheduled to ship, we're still dealing with component and that is not going to go away. This calendar year, we're going to deal with this probably for another.
9 to 12 months.
The.
But we are in production in Q1, we shipped.
Number of beta site.
The products and then also some production products okay.
The large inventory number has something to do with these ultra capacitors.
Yeah, the increase as I mentioned before were very aggressive and I'm not kidding when I say if that product is available on a Tuesday, you grab it and get it in stock and you put it in.
And the inventory to support deliveries in 2 or 3 months because it'll go to 36 weeks. The next day. So this company has always been very aggressive, but it mainly aggressive in terms of supporting the customers' needs.
So yes, we did increase the inventory quite a few ultra capacitors in stock right now of areas the needless.
Needless to say, so I don't know, where you get sort of for the entire board.
So you might get some for Christmas just telling you.
Well that'd be great.
With the.
My conductor.
Wafer fab product not as prominent as perhaps you.
You were expecting I'm just mentioned.
You mentioned that because it looks like the the gross margin was about I don't know of 300 basis points lower than.
The prior quarter.
Assuming that the decent margin product.
For that for you now.
Yes, it was up substantially.
Our our semi wafer fab businesses.
The $22 million for the year.
In the the good news about that as the the market is telling us that their business is going to increase 50% in the year to come.
And we already have very substantial backlog. So we're we're counting on that business and as you know it's quite profitable.
But what what takes the margin down and.
I'll, let Greg tell you, but it has to do with the semiconductor business, which is the 20% margin.
Yes, just the.
Product mix, Eric the <unk> business is lower margin than the.
The wafer fab business and it just grew so much in the quarter.
That it just product.
Product mix lowered the margin of a little bit, but obviously increase the profit dollars because of the huge sales right.
And so for for fiscal 2022.
Somewhere around $35 million for semiconductor wafer fab is not out of the question.
What was the number of 35, that's basically 50 per cent about 'twenty 2 isn't it well.
We're not planning a number like that but that's what the.
The lands of the world and the.
The MKS is that sort of thing.
Telling us how much of that will get it remains to be seen where being rather conservative in how much we add to our business plan for next year, but.
If you ran the numbers you're.
It could possibly be 30 million, but.
We'd be quite happy to see the end.
The 20% increase in the semi fab business next year.
Okay.
The real quick Wendy.
Okay.
Could you perhaps describe in detail a little bit more about the Siemens opportunities of this.
This is a different process than the canon where you're going in.
Opening the uncertain and replacing the.
I noticed in the cathode.
Is the margin potential.
And the volume, but I guess the volume of potential is much bigger for the Siemens but is this.
Sort of the lower tech repair for Siemens.
As for the cannon, and hence maybe the lower margin product or how does that work.
And so it's a good question on.
The answer is it's still a very sophisticated process to prepare the Siemens product and again there are several different types that we're working on and that adds a layer of complexity that we are actually going into the insert so even though it's not a new.
2 it is a repair process, we still of following all of the thing development procedures in terms of validating the repairs in terms of are they repeatable can we use existing parts.
For being obviously very very careful on to avoid any patent issue.
And as a result of that like I said, it's a it's the process, it's going to take us at least through calendar year of mid calendar year 2022, before we feel like we have a repair process that will meet customer expectations as far as margins go we feel good about that we I mean, there again.
No third party replacement for the Siemens tubes.
On the ones that we're working on the NXT on X P. <unk> 46 in the Scott.
So we will have the only alternative solution to the OEM the.
OEM is very expensive, they're very protective of their market and we think again that we can be in that you know.
<unk>.
Close to $80.90000 range with their warranty.
So that's what we're looking at the margin will be a it's mostly labor in terms of on the repair process and I think it'll be a really good margin.
Okay. So then I guess the next question is why do you think it is that no..1 has done this if it's such a large market with decent margin I would think of it.
Somebody would have.
The prior to you guys.
Well, it's interesting if you look at our competitors and the third party market space.
They don't really do repairs.
They only do new to the development.
And there because of the patents were not doing new tubes here is will not be new on we will not violate those patents and I think that's really what kind of the market on more.
Yeah, not not with third party replacement.
Answer, though really is the we have $30 million worth of investment in new equipment and probably the most modern <unk> factory in the world and it takes all of that equipment and the engineers there.
Find it to come up with the repair process, it's repeatable.
And we've added Siemens engineers, now as well, which is a big hill, so, but it's the investment to get into that business and the sophisticated technology necessary to repair the tube it keeps anyone else out.
Okay.
1 more before I, let someone else on here I don't want.
On the Holdco is.
14 million of somewhere around a decent run rate for <unk>.
For this year as far as your G&A.
I'm, sorry, 14 million for G&A.
For the.
For the corporate average per quarter.
Programming index.
Okay.
Yeah, yes.
The fact that sounds about right.
Great. Thanks.
Okay. Thanks, Eric you sound really quiet, we hope you are okay. There.
Yeah.
Thank you for our next question comes from Anthony carry on.
With key equity investors your line is open.
Good morning, everyone and congratulations on an outstanding quarter.
Thank you.
A couple of questions. The first 1.
You talk about book to Bill ratios in different sectors of the business do you have on overall book to Bill ratio for the company just to get a sense of how.
Quickly the whole company is growing.
Yes, we can give you the.
Bob do you want to yes.
Hi, Anthony this is Bob Ben.
Yes for the whole company are going out of the fiscal year, our book to Bill was 125, okay.
That sounds good that sounds excellent.
The second question.
With regard to healthcare as you look between just for the quarter 3 of the quarter for a slight drop in revenue is that meaningful or is that just normal fluctuation is much much reported.
That's normal fluctuations from quarter to quarter.
So you would expect that to grow as you go into the year, maybe running more of like over 3 million maybe perhaps.
That is our goal, yes, and as we introduce the new tubes that will help us get there okay.
Okay.
That sounds good.
And the the final question is on cash management, you know as we look at the share price. Obviously, it's moved up some but I think you would agree that the share price is undervalued at this point have you given some thought and has the board given some thought to the share buyback program.
Well, we talk about it all the time, but the answer is.
If you look at our board members, they're all been Ceos of their own company many of the amount of the 2 business.
And they're very concerned that we have adequate cash to fund the gross.
In the future.
Our goal right now is to get to the point where were cash flow positive rather than burning cash right, but in the.
Meantime, we're going to the sort of keep our powder dry and maintain the cash we have for running the business.
And then you are at this point you would anticipate being cash flow positive given how the business is running after the fourth quarter. It looks like you will be cash flow positive going into fiscal 2022 Oh.
Well I think right now, we're showing a small use of the.
Cash in our projections, but if the numbers come in.
On the way I think I think it will be cash flow positive within 12 months or so.
Okay. Okay that sounds good. So you still think the cash I mean, you have a nice cash position at this point obviously it gives you a lot of flexibility with the business but.
The use of a small portion of the tour of share buyback just kind of showing the market that you think you know you are very positive on the outlook for the company or whatever kind of send the message.
The you know you you believe that the company is going to continue to do well.
Well, we look at it every quarter, but the answer normally from the board is no keep the keep the cash for their investing in the business.
It's something that it's the topic of discussion every quarter so sorry.
Talk about it and on the other related front is there any thought to actually raising the dividend that's another way to send the message to the you know.
Sort of the market that you, believing that you're on your earnings of good and you build the degree consistent.
It's kind of a.
A strong way to make a statement the to the market.
No I understand I don't think of it for the foreseeable future that we'll be raising the dividend either.
Okay. Okay, I appreciate that I understand and again, good luck and congratulations again on a fantastic quarter.
Thank you very much we really appreciate it.
Thank you. Our next question comes from Mike Hughes of SGS Capital. Your line is open.
Good morning, Thanks for taking my questions.
On the <unk>.
Morning.
On the the 2 business I think the medical equipment manufacturers in the past have said to the customers. If you don't use our tubes.
You risk the warranty and President Biden of few weeks ago signed an executive order I think it's called the right to repair order I think it was mainly consumer oriented but as your general counsel looked at that does that potentially help of how help your case and prevent the Siemens of the world from Duke.
Nah and invoking that threat.
And Mike that's a good suggestion and we certainly follow that along with it and we're waiting to see we read a lot of it ourselves it doesn't have a lot of cheap at this point.
It's more of a concept, but we think the concept works in our favor and so we're very anxious to see where the government goes with it and yes, it will help us.
Okay great.
And then on the ultra capacitor ramp I think you said $10 million in revenue for this fiscal year I know, it's tough to know well get them the.
On the supply chain issues, but how does that kind of ramp throughout the year, meaning do we start with a couple of million dollars or is the number more nominal early on the year and then really hockey sticks later in the year, how do you envision that unfolding.
Yes.
Component issues of lead times in the allocations is so fluid. It is very hard as you mentioned however on paper it is scheduled on paper.
On a large percent of it 75% of the the scheduled to ship this calendar year and the balance in the fiscal year.
Okay, and kind of evenly by quarter is that how to think about it.
Yeah for the most part that day.
It's interesting they are taken.
We will ship to 12 or 13 different sites.
For their installation so there's a lot of scheduling on their side to make sure of their integrators are there.
To do it but on pay per yeah.
For the most part.
Will each month.
Oh, Okay in that business. The ultra capacitor business has gross margins kind of consistent with the the PMT business isn't that right.
Yeah, well actually it's accretive to the the <unk>.
Company's business overall margin, so it'll it'll it'll be accretive.
Okay. Okay. So just kind of stepping back you just put up $50 million in revenue.
And it sounds like kind of on a go forward basis, the ultra capacitor business is going to contribute maybe.
Million to $2 million a quarter on revenue it sounds like the semi cap equipment business is just going to step up a little bit.
The PMG business I assume that that is going to continue to perform at the level that you just reported the healthcare business getting a little bit better. So just just on a go forward basis is it safe to think that the the $50 million for the next few quarters at least is kind of a floor and you know my minutes.
Maybe you put up a number in the mid fifties over the next few quarters.
I think if you look at the the total year debt.
We will come close to making the 50 million dollar average for each quarter.
We're looking for an increase in the coming year to be something you know.
Like what we did in the past year and so that would almost gets you there.
The percentage increase similar to the to the your you just finished is that what you're saying.
That's correct yes.
Okay. Thank you very much appreciate your time.
Thank you.
Thank you.
And our next question comes from William Wilson with Richardson I'll, let Chuck Your line is open.
Okay.
Good morning.
Just a quick question or speculation of a question I'm not sure what but.
I'm trying to rationalize the price drop as I looked at the screen today and I'm just wondering.
We serve.
Yeah.
I'm ecstatic.
At the.
On the direction of the company.
And I'm kind of thinking that maybe the company is in limbo between our value proposition of value managers and growth.
Uh huh.
And so my question is whether.
Considering the number of green bonds.
And the market and the excited ability for that what society needs you would probably command maybe a 5 times what the price of the stock is today fully recognized the that's where you're going.
So I'm just wondering if there will be any of outreach to.
For some of those new.
Loans are managers.
I know with the with the Covid, it's kind of difficult.
But at the same time it seems there is such a.
I know the the managers have been picking up shares, but I'm wondering if they've got it completely out of the computer program too.
Ill squeeze out individuals like myself to capture those chairs and it's quite disconcerting to.
To see that disconnect I think you're heading in the gross the clear growth, but 1 that should be greatly rewarded for what you're doing and so I'm just hoping that there will be more outreach.
We certainly agree.
Do a small financial conference, it's virtual but in August and see if we can.
Get the story out there a little more of it as the new investors at the same time, a as I mentioned earlier.
In the coming years, we will break out the <unk>.
The ultra capacitor business as a separate SBU, because I think the that.
That will get attention of the investors that are looking for green investments and it certainly fits that category.
And we think that will probably help as well.
Do you think that could be of spin off or something like that.
No not today.
Not too bad.
We'd like to get the whole company, but the vet.
Successful before we spent anything on.
Okay great.
I appreciate it.
Alright, Thank you for your investment and for your questions.
Okay.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Edward Richardson for closing remarks.
Okay well. Thank you for your ongoing interest in Richardson electronics, and we're certainly optimistic about the future and hope you are as well.
If you have any other questions. Please give us the call.
We're here.
And happy to answer those questions. We look forward the hosting our annual shareholder meeting and discussing our first quarter performance with you in October.
Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
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Okay.
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