Q2 2022 Richardson Electronics Ltd Earnings Call
Yeah.
Pardon me. This is the operator today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Good day, and thank you for standing by and welcome to Richardson Electronics earnings call for the second quarter with final well its fiscal year 2022. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and.
And the answer session.
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I would now like to hand, the conference over to your host at Richardson.
He's executive Officer. Please go ahead.
Good morning, and welcome to Richardson Electronics conference call for the second quarter of fiscal year 'twenty 'twenty. Two we hope everyone has a happy and healthy holiday season and new.
Year joining.
Joining me today are Robert Ben Chief Financial Officer, Wendy to Dell, Chief Operating Officer, and General manager for Richardson Healthcare, Greg powered Quinn General manager of our power and microwave technologies group and Yen's Rupert General manager of canvas is there.
Reminder, this call's being recorded and will be available for playback.
I'd also like to remind you that we'll be making forward looking statements are based on current expectations and involve risks and uncertainties.
Therefore, our actual results could be materially different.
Please refer to our press release and SEC filings for an explanation of our risk factors.
Yeah.
I'm very happy about the positive momentum underway across our business.
Net sales for the second quarter of fiscal 2022 were $54 million.
97% higher than last year's second quarter.
Second quarter revenue was our highest revenue quarter in 11 years.
It also marked our sixth consecutive quarter of sequential revenue growth, which benefited from exceptional performance by all three business units.
<unk> revenues combined with higher gross margin produced second quarter operating income of $4 $5 million.
Or eight 4% of revenue we've not experienced this level of profitability since we sold our S. P D in 2011.
The business is firing on all cylinders and our backlog continues to increase.
The core business is strong and our growth initiatives are creating new revenue streams.
We are achieving this level of success in the face of increasing global supply chain.
<unk> logistics challenges.
We continue to uncover new opportunities that put us in an excellent position for future growth.
I'll now turn the call over to Bob Ben Chief Financial Officer to review, our second quarter financial performance in more detail.
Then, Greg Wendy and Yen's, who will provide more information on our second quarter performance as well as our new programs.
Thank you Ed and good morning, I will review our financial results for our second quarter and first six months of fiscal year 2022, followed by a review of our cash position.
Net sales for the second quarter of fiscal 2022 increased to 54.1 million up 27, 3% compared to net sales of $42 4 million in the prior year second quarter.
Due to higher net sales across all three business units.
PMT sales increased by $8 8 million or 26, 7% from last years second quarter, driven by strong growth from our new power microwave technology partners for various power and microwave applications, including power management and <unk> infrastructure as.
As well as increasing shipments of the Altra 3000.
In addition sales for certain Elektron two product lines increased from the second quarter of fiscal 2021.
Canvas sales increased by $2 4 million or <unk> 36, 5% due to strong customer demand in North America and Europe.
Richardson healthcare sales increased <unk> 3 million or 10, 9% year over year, primarily due to an increase in demand for off the 750 tubes.
In addition to higher revenues total company backlog increased to $146 9 million in the second quarter of fiscal 2022 from a high of $126 5 million at the end of the first quarter of fiscal 2022, and $81 1 million at the end of the second quarter fiscal 2021.
Backlog increased in all three business units when compared to both second quarter last year and our most recent first quarter.
Gross margin for the second quarter increased versus the first quarter to 32, 7% of net sales, although down compared to 33, 8% of net sales in last year's second quarter.
PMT margin decreased to 33, 5% from.
From 34, 2% due to a higher mix of lower margin PMG sales, partially offset by increased shipments of wind turbine modules.
Canvas gross margin decreased to 31, 8% from 35, 5% because of higher global freight costs.
Health care gross margin was 24, 5% in the second quarter of fiscal 2022 compared to 25, 6% in the prior year second quarter.
Primarily due to increased component scrap expense.
Operating expenses were $13 1 million for the second quarter of fiscal 2022.
Compared to $13 5 million in the second quarter of fiscal 2021.
The decrease in operating expenses resulted from lower legal fees, partially offset by higher employee compensation expenses.
The company reported operating income of $4 5 million or eight 4% of net sales for the second quarter of fiscal 2022, the highest level since the company sold its RFP business in 2011.
In addition, operating income expanded significantly from zero point $9 million or 2% of net sales reported in the second quarter of last year.
Other income for the second quarter fiscal 2022, including interest income and foreign exchange was <unk> 2 million.
Two other expense of <unk> 1 million in the second quarter of fiscal 2021.
The income tax provision of <unk> 6 million for the quarter.
<unk> did a provision for foreign income taxes.
And the offset of U S tax provision against the valuation allowance.
In addition state income taxes for Illinois increase due to suspension of net operating loss carryforwards until the end of fiscal 2023.
Net income was $4 1 million or seven 6% of net sales for the second quarter of fiscal 2022.
As compared to a net income of zero point $7 million or one 6% of net sales in the second quarter of fiscal 2021.
Earnings per common share on a diluted basis in the second quarter of fiscal 2022 were <unk> 30.
Compared to <unk> <unk> per common share on a diluted basis in the prior year second quarter.
Turning to a review of the results for the first six months of fiscal year 2022.
Net sales for the first six months of fiscal year 2022 were $107 7 million.
An increase of 32, 6% from.
From $81 2 million in the first six months of fiscal year 2021.
Net sales increased by $21 6 million.
Or 34, 1% for PMT, $4 2 million or 31, 1% for canvas.
Zero point $7 million or 15, 3% for Richardson healthcare.
Gross margin decreased to 31, 5% from 32, 9%.
Primarily reflecting an unfavorable product mix in PMT.
And higher global freight costs, and canvas, partially offset by improved manufacturing efficiencies for health care.
Operating expenses were $26 6 million for the first six months of the fiscal year, which represented an increase of zero point $1 million from the first six months of the last fiscal year.
The increase was due to higher employee compensation and travel expenses, partially offset by lower legal expenses.
Operating income for the first six months of fiscal year 2022 was $7 3 million.
Or six 8% of net sales as compared to an operating income of zero point $2 million or 0.3% of net sales for the first six months of fiscal year 2021.
Other income for the first six months of fiscal 2022, including interest income and foreign exchange was <unk> 1 million as compared to other expense of zero point $5 million for the first six months of fiscal 2021.
The income tax provision of 0.7 million reflected.
The provision for foreign income taxes.
And the offset of U S tax provision against the valuation allowance.
In addition state income taxes for Illinois increased.
The company reported net income of $6 8 million or six 3% of net sales for the first six months of fiscal year 2022.
<unk> was a net loss of zero point $5 million for the first six months of fiscal year 2021.
Earnings per common share on a diluted basis in the first six months of fiscal 2022.
We're 50.
Compared to a net loss of <unk> <unk> per common share.
Diluted basis in the prior year prior year's first six months.
Turning to a review of our cash position.
Free cash flow for the second quarter of fiscal 2022 was $3 9 million.
The same as in the second quarter of fiscal 2021.
Cash and investments at the end of the second quarter of fiscal 2022 increased to $39 7 million compared to $36 4 million at the end of the first quarter of fiscal 2022, and $46 1 million at the end of the second quarter of fiscal 2021.
Capital expenditures.
Or is there a point 8 million in the second quarter fiscal 2022, compared to zero point $6 million in the second quarter of fiscal year 2021.
Approximately zero point $3 million.
Related to investments in our healthcare business <unk> 2 million was for our it system.
And another 0.2 million was for our manufacturing business.
We paid zero point $8 million in cash dividends in the second quarter of fiscal 2022.
<unk>.
Based on our current financial position our board of directors declared a regular quarterly cash dividend of <unk> <unk> per common share.
Which will be paid in the third quarter of fiscal 2022.
Finally during the second quarter of fiscal 2022, we repatriated zero point $3 million to the U S from Taiwan, bringing our total year to date repatriations to $1.1 million.
Also we plan on additional repatriation in fiscal 2022.
Our U S domiciled cash and cash equivalents balance totaled 23.1 million as of November 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 and good morning, everyone.
Sales of the power and microwave technologies group or PMT in the second quarter of fiscal year 2022.
Grew 26, 7% to $41 7 million versus $32 9 million in Q2 last year.
In addition to a strong sales quarter PMT achieved an excellent book to bill ratio of 145.
Our sales growth and strong bookings market solid launch to what is shaping up to be an excellent FY 'twenty two.
Our gross margin decreased in the quarter to 33, 5% versus $34 two in the prior year, which is mainly due to product mix.
Both business units in PMT supported the strong growth in bookings and billings in Q2.
John device group or EDG.
We had double digit growth in sales and even a stronger quarter in bookings as we continue to take market share from our competition.
Find new applications for our legacy tube products.
We are excited to see the strong returns in both bookings and billings over the past three quarters.
<unk> manufacturers in the industry, such as CPI tell us and JRC and photonics worked with us to manage customer requirements.
The second quarter of FY 'twenty to continue to prove that the demand for our products has remained strong we are even more excited about the trends in the bookings that will support strong revenue growth in the coming quarter.
One of the strongest areas of increased EDG demand is in our microwave product line.
Mega trends are used in various growing applications, including synthetic diamond manufacturing and the conversion of carbon into green type products.
Our semiconductor wafer fabrication business also remains strong.
We also continue to have excellent growth in our power and microwave business group or.
PMG.
Our key technology partners, such as <unk> may com, our Milky wave Alice materials, and Fuji semiconductor support our global field engineering organization designing of new products in the key markets and applications.
The business is benefiting from a growing line of new technology partners, and new products targeting RF wireless and power management applications.
These include <unk> infrastructure programs.
With communications and Satcom applications as well as in power management and energy storage applications that support numerous green initiatives.
With respect to <unk> wireless and power management.
Revenues increased by high double digits again in Q2.
As people continue to work for multiple locations, they must be able to send and receive large amounts of data.
Empowered management, specifically, we saw growth in applications for wind energy solar electric vehicle and energy storage.
Products, such as our patented ultra 3000 pitch energy module used in wind turbines continue to grain traction with increased sales and bookings in the quarter.
We are producing the ultra 3000 with remarkable results from the field and millions of accumulated hours of successful operation.
Our growing in house engineering and manufacturing teams did a great job supporting increased demand for current products and new product designs.
Our engineers in partnership with Battery Street Energy also developed the Ultra Gen 3000, which is currently in field tests with T mobile and AT&T.
We will continue to identify and develop and introduce new products using ultra capacitor and other technologies for power management applications.
And in 2022, we will be adding other products to our portfolio.
Our entire team has done an excellent job of identifying niche technology.
<unk>, who collaborate with us globally.
We continue to invest in and focus on resources to support these growth markets.
These resources, including design Engineers field engineers manufacturing and supply chain capabilities.
We will also be adding small niche suppliers to fill technology gaps going forward.
This strategy has been highly successful and will continue to use and develop new products and customers revenue and profits by capitalizing on existing demand can reach and infrastructure.
Like many businesses today, we remained challenged by longer semiconductor and component lead times.
This affects our component business and engineered solutions products to compensate we've taken an aggressive stance on inventory to fill the pipeline, ensuring we can meet our customers' needs and we're working closely with our customers and suppliers.
I cannot stress enough the value of Richardson electronics' model to our customers and suppliers.
Our unparalleled capability and global market strategy.
Our unique to the power RF and microwave industries.
They build a powerful business model, including legacy products, and new technology partners that fit well with our engineered solutions capabilities.
We are steadfast in greater focus on our customers, we will continue to excel by taking advantage of opportunities when they arise.
There is no question customers and technology partners need Richardson's products and support more than ever.
And with that I'll turn it over to Wendy to Dell and Richardson healthcare.
Thanks, Greg and good morning, everyone.
Sales for the health care group improved in Q2 to $3 1 million a quarterly record since we entered the replacement parts business.
For $2 3 million last quarter, and $2 8 million in Q2 last year, we sold a record number of kids during the second quarter led by increased sales within the U S.
Sales of parts and P. Three agreements also exceeded prior year levels, while equipment sales declined due to ongoing lack of system availability.
Gross margin in the second quarter was 24, 5% versus 25, 6% in Q2 last year.
Gross margin was impacted by our production level and our scrap rates.
However, gross margin improved slightly over the first quarter as we increased the number of tubes produced and continue to address component quality from our suppliers.
Most of this progress was made in November the final month of the quarter, reflecting changes made earlier in the fiscal year.
We believe health care segment gross margin will continue to improve in the third quarter barring any unforeseen issues.
Currently we still have one 750 G tube and data and it continues to perform well.
We anticipated a full rollout before the end of the calendar year, but we delayed the launch until the second data tubes site is fully validated now planned for the end of January.
We also work through various supply chain issues to ensure we have sufficient components for production.
Sales growth will be gradual as we get the ultra 750, <unk> into the market and canon scanners come off of OEM service contracts.
We made good progress on the Siemens repair tube program in the quarter, while we did not ship any repaired scotton fees. We are on track to release all for the Siemens types in calendar year 2022 with revenue starting in fiscal year 2023.
Siemens <unk> install base is significantly larger than canon and there are no third party replacement options for Siemens types, making this an attractive market.
We still have additional production capacity and having a broader range of tubes to offer our customers will have a positive impact on sales and improved gross margin as we leverage alright manufacturing operations.
Our ongoing goal is to shorten the time it takes for health care to provide positive operating contribution to the company.
I'll now turn the call over to Andrew to discuss the results for canvas.
Thanks, Wendy and good morning, everyone.
Canvas engineers manufacturers themselves custom displays to global equipment manufacturers in industrial and medical markets.
Canvas delivered outstanding performance and set a new quarterly record with sales of $9 2 million.
For the second quarter of fiscal 2022.
Customer demand globally drove a 36, 5% increase in sales over the same period last year.
In addition, we continued to experience a nice pick up in demand after the COVID-19 related slowdown in the previous year.
Gross margin as a percentage of net sales was 31, 8% during the second quarter of fiscal 2022 down from 35, 5% during the second quarter of fiscal 2021.
The decrease in gross margin was related to increased freight costs impacting many companies across the global supply chain.
In addition extended lead times on several key components and increased freight costs remain an issue.
However, our close relationship with customers and partners overseas and enables us to procure long lead time components, which has helped us achieve a new record backlog.
$43 9 million this quarter.
We are optimistic that the high demand for custom monitors touch screens and all in ones will continue in the foreseeable future.
During the quarter, we received several new orders from both existing and first time medical OEM customers.
Some of these applications include.
Cryolife policies.
Robotic assisted surgery.
Medical device control and fully integrated operating room.
So as you can navigation.
Patient monitoring.
Surgical video documentation.
Radiofrequency ablation.
Technology and medical training simulators.
In the nonmedical space our products are used in a verity of commercial and industrial applications, including <unk> scanners for inspecting luggage at airports and control rooms.
We are very pleased with the performance of our team the new sales record combined with our record backlog position us for future growth.
From the Verity of customers and applications <unk> the value of orders from existing and new customers. It is clear we offer our global customers outstanding products and local service.
While our sales organization as they focus on new opportunities I continue to review and adjust our business strategy to improve the operating performance of the division.
Maximizing cash flow is an ongoing priority.
We 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 Jen.
Canvas had another phenomenal quarter with excellent growth.
You raised the buyer for the canvas team and for the company well done.
We're very happy with the company's performance the business has never been stronger.
Everyone presenting on today's call played a role in the continued improvement.
Hi, thank them and their teams for the years of hard work and perseverance, it's now paying off but now is not the time for us to get comfortable.
With this level of growth comes more hard work investment and people equipment and inventory.
It's not an easy task given the supply chain challenges in labor shortages I'm convinced however that we will continue to be creative and strong willed and will overcome these challenges.
I'm also pleased that the company generated cash in the quarter, despite ongoing investments to support growth.
We're not quite cash flow neutral for the year, but with our strong second quarter, we're trending in the right direction.
We will continue to closely manage our cash it will be needed to support the growing backlog and the many growth opportunities. We are pursuing at this point, we'll be happy to answer a few questions.
Thank you and as a reminder to ask a question simply press star one on your telephone.
We draw the question press, the pound or housekeeping.
One moment, while we compile the Q&A roster.
First question comes from Howard <unk> with Wellington Shields. Your line is open.
Thank you.
Good morning Howard.
And Wendy.
Greg.
All of you congratulations on a great quarter.
Alright.
Thank you.
A couple of questions Greg you mentioned.
So instead of diamonds for manufacturing of hydrogen.
Can you explain.
What you're doing what kind of business.
What kind of backlog.
Kind of opportunity.
Contracts in each area.
This is doing okay.
Yes so.
That's a huge growing market.
As many people know this synthetic diamond deposition.
Growing diamonds with clarity thats better than real diamonds.
The technology is looked at solid state but.
There's products legacy tube business that actually supports those applications.
The application is better.
And Richardson has an amazing product gets a <unk> hundred.
<unk>.
Is kind of becoming the product of choice for a number of customers in this industry, we booked a very very large order.
With one of the larger.
Companies that do synthetic diamonds in Asia, and we also booked a very large order for a company that builds those products also in Europe. So it's really a global capability.
The <unk> 600, Ed you know that better than anyone in the industry sure I think Howard you mentioned hydrogen production.
And that's done with a 915 megahertz magnetron that 100 kilowatts or 75 kilowatt.
And there are a number of new startups in the United States that are taking.
Methane gas collected from garbage dumps in other locations and they turn it into acetylene and hydrogen.
Settling of course is used and torches and all kinds of cutting applications, but hydrogen is meant to be the fuel of the future talking about running locomotives and boats and ultimately trucks and cars.
Hydrogen, which will certainly solve the global warming problem.
We stopped using fossil fuel.
And at this point they are.
Startups were three companies in United States.
We're working with that want to buy 100 generators.
The generator, we manufacture about 75000 to $100000 unit.
And it uses the 915 megahertz tube that we also manufacture that's about 7000 dollar unit.
So between the three of them there is an opportunity there 300 generators and 300 tubes in the tubes last about two years and Gaston operation. So it's an ongoing aftermarket and we really think thats a major opportunity it's interesting.
I was totaled 25 years ago, the two business wouldn't exist and this year, the two business growing 20%, 30% and what new applications, particularly in microwave.
Can you quantify synthetic diamonds in terms of magnitude of the business.
Right now we have.
Orders for about 3400.
Y J <unk> hundreds and they sell we'll probably average about $3 $4000 a piece. So that'll give you some kind of idea but.
The 915 megahertz.
Yes, 75 to 100 kilowatts is also used in that business.
I would have a difficult time, telling you what the world market is.
So large we can't produce enough tubes, right now I can tell you that.
You just talked about an opportunity annually.
$90 million.
Does that.
Is that something that starts this year or are you talking about in 2020.
So I just wondered you only three excuse me.
Probably 2023, it's in startup stage right now.
We have lots of competition on the generators.
We normally get the two business. So the question is do we get $7 a unit or do we get $100000 a unit and we will get some of both.
Alright, let me continue then.
Ultra 3000.
Greg You had mentioned electric vehicles are there any.
I think other areas core ultra 3000.
Yes.
Component business and just the whole power management group with Ultra capacitors, but also for other power management type products is just boomed, especially in the second quarter.
We have design wins.
Five different customers that are.
Electric vehicle.
We did get a design win at Vince Vince Smart, which is the Vietnam manufacturer of electric vehicles.
As for the DC to DC converter within the car.
And we booked four very large orders for EV charging stations with four different companies and all three of them.
One was in Asia one of them.
Europe and one is in North America, So our global footprint really helps.
We also have 3000 Thats just <unk>.
Again as you know Howard we introduced that.
Six months ago, and the bookings and billings continue to grow.
We are.
Great work by our global supply chain.
A few old relationships that have new positions in the semiconductor industry, we were able to get.
The components to increase our build we're shipping just over 2000 units a month.
Out of this facility and we're looking to double that.
The third quarter.
Route 2022, and we have the backlog to support that so.
We had four.
Prototype orders and production orders at the beginning of the quarter, we now have nine.
Separate customers that either we have a beta site order a prototype order or a production order.
In house, so it is going nowhere near as fast as we'd like but the opportunity is still there we seem to be becoming the incumbent.
With zero to no failures in the field.
So we're very excited about it we have new products coming out.
In 2022.
For the wind turbine market using ultracapacitors.
As you know the Altra Gen product, we have beta site testing going on with that and we will also be producing a.
A.
Power supply that's used in wind turbines. That's also led acid battery today that they want to convert to ultra capacitors. So.
As you know we also got our second patent so product and the technology. We feel is very locked up and we'll be announcing here sometime in the third quarter our partnership.
With one of the largest.
Builders of solar and wind farms in North America, it's kind of a different avenue to get to market kind of a different customer base, but definitely a different way to go to market with our products. We're very excited about that that will be announced sometime this quarter.
So everything is kind of we're just checking the boxes and increasing our capacity will be rolling out.
Our own internal PCB and conformal coating line.
Right here in La Fox, Illinois, which will increase our capacity by a minimum of 35% to 40%.
<unk>.
We're looking to literally double our backlog in 2022 calendar year.
So how are things are going I would say.
Well, considering all the conditions out there with Covid customer lead times capacity component lead times, and introducing a new product into an industry.
Every time you answer a question I developed another question can you quantify electric vehicles charging stations in terms of.
I'm wondering if you've gotten any potential orders.
This is accomplished.
Yes.
Multimillion.
The exact number I don't have it in public to want to share that with our competitors, but it's a multibillion dollar backlog of.
Products going into electric vehicle I'll call. It applications Howard because some go into the card itself and then mainly goes into charging stations.
Two more questions Greg.
One what do you do with Goldman.
With Garmin.
Goldman.
Garments.
<unk> is one of the company's largest customers.
Bolt on the component level for their radars and their GPS Ed on the on the EDG side, they've been a customer for <unk>.
20 years, they're used in weather radar systems. Both in plays your boats and commercial boats and also in aircrafts. So garments business is up about 30% this year and Theyre, saying next year, it will probably be up 50% and we also sell to Honeywell.
Honeywell is primarily aircraft radar and their business is up substantially.
We're proprietary on those products and we sell the Raymarine Barry anyone that's making a marine or weather radar systems.
Thats.
Pulse microwave versus the CW microwave that Houston synthetic diamonds.
Producing hydrogen and things of that nature.
Can you quantify what you just talked talk about 30% and Honeywell is there a dollar amount per unit than we could.
Make assumptions about.
All of the business together is probably $10 million.
Going up 30% something like that and that's just the weather radar business.
So if we can take a look and this is the last comment and question and then I'll, let somebody else.
If I take a look at this business for this year you're talking about.
$220 million in revenue.
And highly profitable what can I look for in general terms for 2023 in terms of.
Revenue earnings whatever you can.
Comment on.
Well you can see we went from $177 million last year and it looks like will be $2 15 or $2 20. This year.
So thats, 20% increase something like that right now we have 146 and a half million dollars backlog, which is the largest backlog in the company's history, and we hope to ship a large percentage of that yet in this fiscal year. So I think you can look at about 20% growth a year.
Just sort of ballpark.
Thank you that's all I have I'll jump back into queue. Thank you congratulations to all of you very much.
Thank you our next person is Brett Davidson your question. Please.
Good morning, this is <unk>.
Might be a little.
Long winded here, but eventually I'll get to the point, it's been very entertaining.
Watching the company's new products gained traction.
And the employees deserve the employees and management deserved hearty congratulations.
Sure.
Part of that goes back to your decision to keep employees on when Covid first hit.
Yeah.
I don't know maybe a bonuses do we're a grant of shares or something along those lines.
We've done a lot of that sure.
Good.
That's good to hear.
Because youre going to need them.
I wish I had more.
So I've done the math on the backlog.
It's up over $20 million from the prior quarter.
Quarter over quarter, it's a 16% increase.
Yeah, that's that's unsustainable.
Sustainable.
At this rate.
At the end of the third quarter, the backlog would be $171 million at the end.
The fourth quarter, it would be $198 million.
You are talking about pushing towards a year's worth of sales.
So.
It's not a problem at the same magnitude of being cash flow negative, but it is a problem.
So what I'm looking for.
Is a qualitative.
Ballpark estimate.
The impact that's creating this backlog so you know.
I am sure labor plays into it.
Supply chain plays into it.
The strong bookings play into it so so where.
What is it that's contributing to this large increase in backlog and maybe if you could just put like percentages that these impacts.
In a general fashion.
Well I look at it like we have a table with six legs.
Right now of five of those legs, there are hitting on all cylinders and healthcare is making progress.
Some of it.
All across the board I think as we.
We sort of got out of temporarily out of the Covid issue last year that for instance.
With weather radar and people started running pleasure boats and so they bought new radar systems and executive aircraft are used more in so they bought radar systems and people are spending money on diamonds, a synthetic diamonds have taken off and so forth and so on.
I don't think we can anticipate that surge the last forever, but I think 20% growth across all the lines of the business is probably a good.
Good good number.
It's a complicated answer but every one of our businesses is experiencing phenomenal growth right now we haven't seen anything like this since we sold our <unk> in 2011.
What is the primary driver of the increase in the backlog is that labor shortage is that just the strong bookings alone.
Yes, well it is.
All across the board you know, we sell into the semiconductor wafer fab industry.
Because of the demand for integrated circuits, they're new wafer fab going in all over the world.
Yes.
In that segment of the business is about $25 million of our business and its up.
Nearly 15%, 20% this year and anticipate it to continue like that.
Every business and microwave business, we talked about is up 20% 30%.
Your capacitor is new to us and we.
We have $15 million backlog right now that will be shipping in the fiscal year and it looks like we'll do $25 million next year and just go on and on.
It's a complicated footprint we're in so many different businesses, but on the other hand that makes the company very very stable, we sell 20000 customers all over the world and 60% of our business is outside the United States.
<unk>.
The nice part about it is it's very stable, it's only taken US 75 years to get here.
Hey, it's okay better late than ever.
Yes.
Correct me, if I'm wrong, but.
In order to kept backlog flat you guys would've had to have done $75 million in revenue. This past quarter. So how do you get there.
Well, that's the problem right now we need more engineers.
Greg talked about the <unk> hundred and our best year, We produced 801 600.
We have.
In house orders were $3450 right now.
And we're trying to gear up to build them, but I can tell you at the moment delivery is.
Way out there and Thats all across the board if we could get more engineers and if we can get more raw material and all the raw material of oxygen free copper in.
In silver in platinum and gold that we use in tubes.
Prices have skyrocketed as long as well as the logistic costs.
It's.
Really unusual period, probably our biggest.
Issue is supply chain.
Got it getting products and raw materials.
So so based on that then we can probably expect to see that backlog just keep growing the rest of the year.
Well it certainly has some.
In the last year I don't think its going to grow like that forever, but.
Certainly in the next year I'm sure that's the case.
Got it.
The only other question that I wanted to address is.
The <unk> dividend is great looked.
It looked really big at a $4 share price don't don't look quite so big anymore.
But cash is going to start to pile up has there been any discussions.
How to best put that to use.
Well I think we'll cross that bridge when we get there right now the board is really concern that we have.
<unk> cash to fund the growth of the company.
But it looks like next year will go cash flow positive and then we can start to consider what we'll do with that cash but at the moment, let's get there first.
Yeah, well I'm pretty confident on my side that youre going to get there, but do me a favor.
Give everybody a hardie Pat on the back and a good job.
And thanks, so much for taking the time to answer my questions.
Well. Thank you very much it takes for 150 people to make it work so.
Great.
Okay. Thanks, a lot.
Our next question comes from Mike Hughes with <unk> capital. Your line is open.
Good morning, Thanks for taking my questions.
Morning. My first question. Good morning, first question just high level Youre thinking 215 round $215 million in revenue this year and that could potentially grow 20% next year is that is that what you said previously.
Yes, maybe 15%, 20% I'd rather.
You know under promise and over perform up again.
Sure sure so even 15% growth would be roughly $30 million in incremental revenue.
And the gross profit dollars incrementally on that would be at least I would think $10 million. So if that did happen how much of the $10 million would fall to the bottom line, meaning how much does opex need to go up to support that type of growth.
Well, it's interesting when we sold our SPD, we had we have 24 foreign subsidiaries all over the world.
That infrastructure is required to support the tube business, which is obviously our foundation as a $100 million even yesterday.
And it took us all these years from 2011 up until last year to finally fully absorb start to absorb that infrastructure at about $160 million, we weren't profitable 177, you can see what.
What happened last year and at $2 15, it really starts to add in.
So what happens is because we don't have to add infrastructure, a large percentage of that falls to the bottom line I can't quantify it for you exactly but.
We certainly don't need to add infrastructure to grow the business other than engineers, if we can find well occasionally.
Usually we estimate about 5% year over year, Australia.
Okay, 3% to 5% SG&A increase is what we're estimating a lot of that is tied to.
Alright, Okay. So off the top line at 5% of SG&A Wood.
Would add about $2 $5 million. So if you had to incremental gross profit of roughly $10 million subtract, maybe $2 5 million and then maybe some sales commission.
$657 million of that could fall to the bottomline in rough terms, what would you agree with that.
No that's pretty close.
Okay. Good excellent.
On canvas, which is the business has performed very well over time.
I know everyones, having freight cost issues, but how quickly can you recover those and.
The margins back to where they were a few quarters ago the gross margins.
Yes, so would you like to answer that.
Sure. Thank you very much yeah. That's a good question so we actually.
Yes.
Awesome.
Through our freight cost increase to our customers.
To use even their own trade for what they believe.
Expensive and all of those customers came back and said no we.
We are fine with you. Please continue so we are passing it on that line item to be transparent to our customers.
So I'm pretty sure that you would get to the gross margins, we had before and within the next six months or so.
Okay, great. Thank you and then just same question on <unk>.
Health care I think one do you mentioned that the gross margins there may improve in the current quarter can you just.
Speak to that.
Yeah.
That's correct.
As we stabilize and increase the number of tubes, we make each quarter that will reduce the amount of under absorption. We've experienced historically, which has been one of the major drain on our gross margin.
And as I mentioned as we exited.
The second quarter. So November was our last month it was already much stronger and just kind of taken a sneak peek into the third quarter. We finished December things are looking good. So it doesn't mean that piece of equipment.
<unk> or something can't break down, but right now the increase in production.
After over quarter is what I think will really help improve the gross margin for health care.
Okay, Great and I may have missed it but did you say what the ultra capacitor 3000 revenue was for the just reported quarter.
No we didn't.
I don't want our competition to know what we're shipping because they can do the math, but we're shipping about.
<unk> 2000 units.
<unk>.
And.
Which is about.
<unk> million and a half to $2 million a month off the door. What do you have in backlog right now backlog, we have about $13 million in backlog right.
Okay on the last call you indicated that that business could potentially do $12 million to $14 million in revenue over the next three quarters.
You have the November quarter in the books now so do you think the $12 million to $14 million is still achievable.
Yes.
Okay great.
As I mentioned before the <unk>.
<unk> has done a great job, improving our capacity and output.
So.
We will we're going to have a great Q3, and great Q4.
This fiscal year and that will get us to that run rate absolutely.
Okay last question for Ed you kind of touched on the semi cap equipment business I think on the last call or maybe the prior when you had an expectation of maybe $25 million of revenue for that business.
Is that still tracking around that number.
Yes, yes, it would probably be we may exceed that a little bit.
Our largest customers land in there.
Thinking about because they pointed us in all of their vendors, but they're having supply chain issues and so their growth hasn't gone quite as.
Hi, as they thought it would or easy to the power over there as you know a public company and they may announce all these figures but.
They were talking about doing 6 billion at quarter and I think they are under five right now.
They're seeing thats because of supply chain issues our business.
In that area has gone up.
About 25 million $26 million. There are several companies included in that besides but lamps the largest.
Okay and I actually just have one last detailed question how should we think about the tax rate over the next few quarters.
Hi, Mike This is Bob Ben while we continue to use our Nols, but you don't see it because they are offset against the valuation allowance and we anticipate.
That will have.
Enough remaining Nols through the end of the fiscal year.
To continue to not pay federal tax however.
However, next year, if things go keep going along as they are.
Then we'll be in a federal tax position, which right now is 21%.
I also mentioned.
That Illinois suspended the Nols that we're not able to use those through the end of fiscal year 2023.
So im looking at effective tax rate.
Next year of around 27%, but for this year.
I think you can take the first half tax expense.
And just double that.
For this year, so but next year again will be in the 27% effective tax rate position if things continue along as they are.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question comes from Bill Wilson.
Your line is open.
Good morning.
Bill.
I just wanted to.
Try to throw a few things out there first I wanted to just say that.
My my wildest expectations.
And that May sound, good, but it's but I am under invested so what I'm kind of.
Aiming at is even.
Uh huh.
Better clarity or I shouldn't say clarity, but even more expectations of.
For the future, which.
Which kind of brings me to the idea that may be.
No.
Something would be in order for the spin off or even Dutch auction.
Most free money from the banks right now.
And I don't know if Dutch auctions are even considered anymore.
By anybody, but it's just a wild idea that.
Thought I would throw out there.
And then the other thing is.
Even though I've read where a lot of the Silicon Valley Engineers are moving to New Zealand.
For various reasons.
And I would think that.
You know if the infrastructure is there.
And the Sox that.
There would be some outreach to some of that outflow.
And.
The company could command.
Just overnight that.
Doubling for small investors like myself that would would make it.
Something really worthwhile being in.
But that's a lot I threw out there just thought I'd get your thoughts and you don't even have to comment on the Dutch auction.
It's not even something considerably.
It's an interesting concept I haven't heard it talked about a long time.
Yes, right now or they are trying to.
<unk> cash to grow the business internally.
So we havent thought about those things, but we can certainly bring it up with the board.
Yes.
[laughter] we.
We'd like to hire some of those engineers, that's our biggest problem right now is attracting engineering talent.
Yes, I'm, just a big fan of organic growth I always have done but in times like this where there was massive amounts of money sloshing around the world.
And search all of those few products that are beneficial for our environment, etc, and healthcare obviously.
That it would be it sounds like a great idea to.
Because.
I just can't imagine with all the balls in the air that.
The management there would be.
Fully capable without.
Dutch auction aimed at.
Doubling doubling internal and external resources.
Which.
Good could be something that would be more easy easy.
Usually done then.
Normal you know.
But I.
I just.
I just wanted to thank you again, because it wasn't good.
While this.
Explosion of products innovation than it looks like it's going to continue so thank you.
Thank you.
The investment.
Okay.
Thank you. Our next question comes from Julian Glass, which sorry trading your line is open.
Hi, Thank you so much on behalf of glass.
On behalf of all of us still be trading where a collaborative group of individuals are very large collaborative group now. Thank you very very much. We came we came to you about half a year ago and it's been quite a hell of a journey, so well done on that.
Judge businesses by share price performance, you've done an amazing job.
So we have to thank you for the last six months.
If I could if I could ask two quick questions.
If I could ask two quick questions.
One very specific one much more general.
It was one <unk>.
Our bookstall gazing bold, but I'm English and a bit of a luddite. So my knowledge of Ultracapacitors.
Really stems from back to the future with with Michael folks, but.
I heard you mentioned that it could be converted for use to solar the altra three thousands I got that and then I had someone took about I had someone talked about cause and I'm just trying to work out I did see some pamphlet, which talked about the density of our capacity is at some point theoretically being sufficiently portable even to compete with lithium but I suspect I don't really know.
Love to understand its invest affinity and if I could also ask what Youll patent protection is in the field because I think you mentioned battery sweet collaboration.
They presumably design some of this so im trying to work out where where youll proprietary long term future lies in it because this is a huge field really leaving aside supply constraints. This week next week looking 2345 years out.
This is just the future really.
No we agree okay, great, yes, so I mean the.
The design of the Ultra 3000 was specifically designed phase one for wind turbines specifically manufactured by GE.
Youre exactly right.
The world wants to get rid of lead acid batteries, we see numerous applications where that needs to be done or green energy in those.
Those needs and so we designed the Ulster 3000.
Introduces the market and we've done a very good job.
In North America, or expanding into Europe, but North America.
Introducing this product getting beta site testing done and as we talked about the backlog continues to grow and the shipments continue to grow.
The next application and as you know we have a very large <unk> organization in terms of sales and technology partners in that business is growing.
Quite fast also.
Was the ultra Gen 3000, which is the same concept it replaces lead acid batteries and generators that your end customers today are people like T mobile and AT&T, but also people like <unk> and color and other manner.
Manufacturers and so there is a timeframe of grabbing market share we have well over 15 years to 20 years of ultra capacitor knowledge.
Building. These modules our design team is growing and doing that so to expedite it we formed a partnership with battery Street, who had a design started and it was down the path and they worked with our engineers here and we did some redesigns to it.
And that is I think I mentioned in my.
Update that we have at the middle of December Beta site testing at three locations one for T mobile and Phoenix AT&T.
California, and Verizon in Utah.
So.
That's how we're introducing that is in a partnership with DSC will be the exclusive manufacturer.
And we're looking at some patents for that.
Well, we did after the Alterra 3000 design was done.
We filed a patent for that.
And the patent overall for the project has about 20 embodiment.
Various things that if you do any of those environments.
You're infringing on our patent well and working with some of these large owner operators of wind turbines in North America, we've done a number of reps specifically for that.
The product as I mentioned before works great technically in the field, but theres some unique whistles and bells that they've requested so when we did those we realized that those are also patentable. So we applied for those patents and we got that second patent which has about the same number of embodiment on it.
In our Q2, so we're very comfortable that we have this product from a patent point of view and a competitive point of view lined up to grab market share and be the incumbent for this product now.
Now there is a number of applications that.
Can use ultra capacitor technology.
And those would be some new products, we're introducing here in 2022, one of them is a.
Power supply that is currently.
Rather than lead acid batteries and the other one is a bridge.
Unit.
Bridges, the power level, when a critical facility or any other type of facility.
Loses power.
So yes, no on the automotive side the.
The capacity is the ultra capacitors were working with a much higher power.
<unk>.
Ultra capacitors that go into these electric vehicles, they're looking at that technology, but are.
Involvement right now is on the component level <unk> DC to DC converters and other.
Components that go into charging stations and in this case with been smart into the vehicle.
So I think and we all believe that there'll be a number of applications globally that will be in place to remove lead acid batteries and any type of equipment or function.
Again based on the fact that they are like a car battery and so anything that you have to change remotely are go up 300 feet like a winter.
<unk> cost because these students fail every 18 months to two years. So the demand for this type of product and we definitely have a lead technically cost wise et cetera.
It's going to be huge for this company and we've already seen that just in literally the first six months that we've introduced the product to market.
Thank you for that that has a lot of flavor.
Pushing the boundaries further and I'd hate to be Don Quixote sailing of windmills.
But I.
I mean, if every house.
Ends up with solar panels and <unk>. The cost is it would it be potentially or is it too small.
These ultra capacity it has to be installed in every house.
The technology will be there eventually I think ultra capacitors.
We'll pretty much eliminate your.
Car batteries in those functions, we have another huge application that we're working on and we do have a prototype order.
For Ultracapacitors and locomotives.
Same thing they have lead acid batteries.
It's all backup power they want to convert because the technology's there in Richardson has the capabilities design application.
Asian specific modules using Ultracapacitors and we're currently working with caterpillar on that.
That'll be something we'll see in terms of large shipments and revenue in the second half of 2022.
So it wasn't just.
No I wasn't trying to pin you down to the actual day because this is about our business note about <unk>.
This next week, but I understand that.
Understand the path I appreciate that.
Yes.
If I could just come back to the Nitty gritty of now and I think one of my one of the people previously asked a question I think it was getting to the point, where the fulcrum point of earnings comes through because you've kindly telegraphed what your revenues would be a few weeks ago, but the other thing is I think probably surprised us all and it just seems to have reached that point.
The cost at all.
Almost becoming fixed.
Every dollar rent is marginal.
Our general profit and I think <unk> I think Youre right, you said that but if I've got it right.
Most of the revenue coming through from Hey, you're wrong at least in some of the divisions will flow through directly to profit 70% of it did I get that rightful does that feel a little bit I misstate.
The margin yes.
Obviously, we have incentives everybody hears incentivized on performance.
Should be theyre doing a great job.
The.
The overall infrastructure is large enough to handle a lot more business. So a large percentage falls to the bottom line.
Given the supply constraints.
Well done amazing amazing time, and hopefully the future Covid, hopefully COVID-19 will disappear and everything will return to normal and hope youll be at the forefront of new technology.
I hope one day to be able to invite them to get pats on the back from all of the investors at story trading, but I appreciate your side and thank you very much.
Thank you.
<unk> investment.
Thank you.
Our next question comes from Eric Landry with BMO capital. Your line is open.
Good morning, Eric.
Yeah.
Fantastic work all around I know you've heard it from everyone but.
We really appreciate it.
Especially you don't hear much from anybody.
On these calls, but we appreciate what youre doing so thanks.
To everyone.
Thank you.
Hugh.
<unk> hung in there whether it's Eric when we weren't doing so well so thank you for that.
Staying power.
Yeah.
We're quite glad we did so anyway.
And I remember speaking of when things were so good years to go in and.
All the way up until.
I don't know maybe several quarters ago, you've mentioned many many many times that health care.
And the tube the CTO of business was the future of the company.
I suspect now.
It's got some competition.
As far as the future of the company goes correct.
Yes.
It's amazing.
The Green energy business.
With the ultra capacitor, leading it right now it's just a phenomenal business, we've only invested about $1 billion in that business in the first order was $10 million.
With 35% margin.
The.
The served available market out there for these products is just unlimited so we're still.
We believe in health care, it's a huge market.
Aftermarket for service and parts.
Eight or $9 billion in the CD space.
As we say we're pregnant we've invested $35 million.
And it looks like by 2024, we will start making money in that business as well, but if you compare the return on investment to the Green energy business.
There is no comparison and I've never seen a business like it frankly.
Yes, yes, it's very very exciting I guess I kind of wish it wouldn't wouldn't say that investment number is going to attract all kinds of people.
To the business, but.
I guess it is yes. It is what it is well.
Well.
We take advantage of it while we're there Fortunately we have patents on what we've done so far that protect us at least in the wind turbine space, but.
I'm sure there are lots and lots of people looking at.
Green energy, we're not alone and we just need to move faster.
We need engineering talent, that's what we need.
Yeah Yeah.
Everybody else.
Greg is there anything you can mention about the sort of the timeframe of these cell tower field test is are we looking at a year and a half like it took for wind or is this this faster slower.
The overall market will end up being somewhat similar smaller big or anything you can sort of mentioned about the cell towers, though.
Yes, I think it's going to be a similar rollout.
That we saw with the Altra 3000.
In talking to.
This specifically and by the way the first test.
With T mobile in Phoenix was fantastic.
We are great but.
It is.
Cell tower.
And so any downtime on a cell tower, just like a wind turbine.
When would they can't charge somebody for using it is billions of dollars.
So I think theyre going to be a little bit more cautious I think the beta site cycle will still be six months to a year.
But I think we're going to see probably.
A nice start in terms of a large production order with one of the service providers.
Potentially the second half or late calendar year 2022.
The market to us.
It's similar in size.
But it is expandable once you get into probably the Oems.
Like a <unk> or a cooler.
But.
They way they do it is for example, right now we are testing in Phoenix, and Theyre going to expand it into another region expanded into a number of more towers.
Push it and making sure that it works perfectly before they convert to.
Ultra capacitors versus lead acid batteries. So.
I don't see any large revenue coming in 2022 and I'm talking calendar.
Right now, Eric, but I think I think we're going to see some strong bookings in the second half of 2022.
Great and you mentioned nine is that nine additional wind customers you're talking to right now.
When I say talking to so we're talking to a lot more than nine but theres nine.
Current.
Customers that were either.
Have a prototype order.
Production order or beta site order with.
And at the beginning of Q2, I think as you know Eric and I think you know who they are where we had four so we expanded that in the quarter to five others and they are big name people I mean, it's.
It's.
Big name.
Wind turbine manufacturers and farm wind farm owners.
Gotcha Okay.
I'll wrap it up here quickly because I know, we're running late on time.
And you mentioned, 20% growth a few times during the call.
So not to pin you down but is that something that you expect over the next 1234 10 20 years, what is there any <unk>.
Number of years did you expect 20%.
Well I would think that our visibility is probably out two or three years and after that it's who knows but I'd say in the next two or three years, 20% growth.
Something that we anticipate.
Good Okay. So will pencil in 'twenty three and then we'll pick it up to <unk> 40 for the three after that.
Thank you I hope wouldn't expect any less in Europe.
Yeah.
You guys have a wonderful 2022, and I'm sure he'll talk to you in the interim but.
Congratulations and good work there.
Thanks, very much Eric Hello to Brad Yes.
Will do thanks.
Thank you and we have a last question from the line of John Francis from Francis Capital. Your line is open.
Hi, Greg can you provide us with a bit more color on the locomotive market for ultra capacitors. Please.
Yeah. So.
We're in long.
Long conversations with.
Two companies one is a division of caterpillar and what it is it's very similar to.
The wind turbine market or the sell side generator market, where these locomotives today.
A lot of their backup power for all aspects of the locomotives.
<unk>.
Lead acid batteries, and again same concept like a car battery cold weather you name it.
Fail every 18 months to two years and it's very costly to replace them.
So.
They actually contacted us after they saw the ultra 3000 press release.
And asked US if we could design a module for locomotive.
So we've been working with them and the initial order.
That we booked in the second quarter was about $800000.
And this was for the.
Components, we're looking at building that module here in.
The Fox, Illinois.
And that market opportunity for US right now just with the two we're talking to.
Is a $5 million to $6 million market.
Which you know it's.
It's interesting we were in a lot of stuff, but we don't go outside of our niche and I. Just think that's another huge attribute of Richardson electronics. We are 75 years in power management power applications and then of course in the past few years and prior before we sold that huge.
Participate in the <unk> infrastructure market.
And.
So this is just to US is another power management application that in this case, we're looking at both Emerald Green Tech, which I believe you saw that press release.
Partnered with them in the quarter also and Ultracapacitor modules.
To replace the lead acid batteries in their locomotives.
Okay. Thank you very much thank.
Thank you.
John.
Thank you and I'll pass it back to Mr. Richardson for his final remarks.
Alright, well. Thank you for your interest and investment in Richardson Electronics, We're obviously excited about our future.
And we hope you are as well.
I'd like to discuss our results.
Don't hesitate to call US we are a flatter organization.
Wendy and I and Greg in Yens are available anytime and Bob Ben.
And when the timing is right we'd love to hear you visit our facility in Le plaque, Illinois, where about an hour west of O'hare.
And it's much easier to show you, what we do than to tell you about it it's a complicated footprint. So.
So we look forward to discussing our third quarter year quarter performance with you in April Thank you.
You very much Carlos anytime.
Thank you and this concludes today's conference call. Thank you for participating and you may now disconnect.
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