Q4 2022 Richardson Electronics Ltd Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial stolen.
[music].
Good day, and thank you for standby and welcome to the Richardson Electronics earnings call for the fourth quarter of fiscal year 2022.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Ed Richardson Chief Executive Officer. Please go ahead.
Good morning, and welcome to Richardson Electronics conference call for the fourth quarter of fiscal year 2022.
Joining me today are Robert Ben Chief Financial Officer, Randy did they all Chief operating officer, and General manager for Richardson healthcare.
Patrick one general manager of our power and microwave technologies group.
And your ends Rupert General manager canvas.
As a 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.
They are based on current expectations and involve risks and uncertainties.
Therefore, actual results could be materially different.
Please refer to our press release and SEC filings for an explanation of our risk factors.
Fourth quarter sales were 61 6 million.
A highest quarterly sales we've achieved since the sale of RFID in 'twenty of 11.
Fourth quarter gross margin improved to 32, 7%.
Versus 31, 8% in the third quarter.
Total sales for FY, 'twenty, two where $224 $6 million.
An increase of 26, 9% over the prior year.
In addition, backlog rose again to $206 $2 million.
Nearly double to where we ended FY 'twenty one.
This supports the continued growth we expect to achieve in FY 'twenty three.
Well power grid tube, there still are significant and growing part of our business our expanded focus on designing and manufacturing products, it's driven sales to new levels and positioned us for continued growth in the face of tougher economic conditions today.
Today more than 60% of our business comes from products, where either manufacture or.
<unk> manufactured exclusively for us.
In addition, we continue to experience year over year growth across all three of our business units during the fourth quarter and full year.
Power management solutions that support a green environment is an important growth opportunity and strategic focus.
Demand for alternative energy in the face of unprecedented low prices is growing.
We're benefiting from this trend.
From the ultra capacitor module using GE wind turbines to future applications.
<unk> production of Green hydrogen using microwave generators are existing and new products are capturing attention and solving customer problems.
Demand for our six kw magnetron a product I was told was back in the eighties, who would not be around in five years.
To grow exponentially and more consumers choose manmade synthetic diamonds over traditional diamond mining.
Diversification is an important component to our long term success.
It's no longer just the semiconductor wafer fabrication market driving the upside in our revenues.
Although this business was particularly strong for us in the Q4, six 7% of our business in the quarter came from new products.
Also saw growth in our <unk> product lines to both existing and new customers.
Canvas continues to add blue chip customers to its list of new custom display product wins.
Carefully.
Our business is firing on all cylinders and I believe we're just getting started.
Through a lot of hard work and dedication of our sales engineering and manufacturing teams and the support of our experienced supply chain finance and maintenance teams, we're taking the company to new Heights.
In fact Q4 was the most profitable quarter in the company's had since <unk> seven which was prior to the sale of two of our divisions.
Okay.
Our challenge is growing our engineering and manufacturing capabilities quickly to take advantage of significant opportunities underway across many of our global markets.
We're investing in people and facilities to support the growth in backlog and to capitalize on new product opportunities that solidify our competitive position in the future.
I'll now turn the call over to Bob Ben Chief Financial Officer to review, our fourth quarter and full year financial performance in more detail.
And Greg Wendy Yang who will provide more details on our fourth quarter performance as well as our new programs.
Thank you Ed and good morning, I will review, our financial results for our fourth quarter and fiscal year 2022, followed by a review of our cash position.
Net sales for the fourth quarter of fiscal 2022 increased 22, 1% to $61 6 million compared to net sales of $50 5 million in the prior year's fourth quarter.
Due to higher net sales across all three business units.
PMT sales increased by $10 4 million or 26, 8% from last year's fourth quarter, driven by strong growth from our new power and microwave technology partners for various applications, including power management Green energy solutions and <unk> infrastructure.
Sales for several electron tube product lines as well as manufactured products for our semiconductor wafer fabrication equipment customers also increased from the fourth quarter of fiscal 2021.
Canvas sales increased by zero point $6 million or seven 1% due to strong customer demand in North America.
Richardson healthcare sales increased zero point $1 million.
Four 1%, primarily due to increases in parts sales and equipment sales, partially offset by lower sales.
After 750 tubes.
In addition to higher revenues total company backlog increased to $206 2 million in the fourth quarter of fiscal 2022 from $175 6 million at the end of the third quarter of fiscal 2022, and 110.1 million at the end of the fourth quarter of fiscal 2021.
This is the highest level our backlog has been since the sale of RFP D. In 2011.
Gross margin for the fourth quarter was 32, 7% of net sales compared to 32, 4% of net sales in last year's fourth quarter.
Cft's margin increased to 34, 4% from 32.8% due to product mix, including higher sales of the Altra 3000.
And improved manufacturing efficiencies.
Canvas gross margin decreased to 37% from 35, 3% because of higher global freight costs and foreign exchange effects.
Health Care's gross margin was 10, 8% in the fourth quarter of fiscal 2022 compared to 29, 4% in the prior year's fourth quarter due to a lower level of absorption and higher level of scrap expense.
Operating expenses were $15 2 million for the fourth quarter of fiscal 2022 compared to $14 <unk> million in the fourth quarter of fiscal 2021.
The increase in operating expenses resulted from higher employee compensation expenses, primarily due to increased incentive expense, resulting from the highest level of profitability since the fourth quarter of fiscal 2007.
Operating expenses as a percentage of net sales improved to 24, 6% during the fourth quarter of fiscal 2022 compared to 27, 7% during the fourth quarter of fiscal 2021.
The company reported operating income of $5 8 million or eight 1% of net sales for the fourth quarter of fiscal 2022 versus operating income of $2 3 million or four 6% of net sales in the fourth quarter of last year.
Other expenses for the fourth quarter of fiscal 2022.
Including interest income and foreign exchange.
Youre up <unk> 2 million compared to other expenses of less than zero point $1 million in the fourth quarter of fiscal 2021.
The noncash income tax benefit of $3 5 million for the fourth quarter of fiscal 2022.
Resulted from the $4 8 million partial reversal of the tax valuation allowance due to evidence of profitability for realizing a portion of the deferred tax assets in the future.
Net income was $8 3 million or 13, 4% of net sales for the fourth quarter fiscal 2022.
As compared to a net income of $1 9 million or three 7% of net sales in the fourth quarter of fiscal 2021.
Without the $4 8 million tax valuation adjustment net income for the fourth quarter of fiscal 2022.
Was $4 3 million or six 9% of net sales.
Earnings per common share on a diluted basis in the fourth quarter of fiscal 2022.
<unk> 59 compared to 2014.
For common share on a diluted basis in the prior year's fourth quarter.
Excluding the tax valuation allowance adjustment.
Earnings per common share on a diluted basis were <unk> 31 for the fourth quarter of fiscal 2022.
Turning to a review of the results for fiscal year 2022.
Net sales for fiscal year, 2022 were $224 6 million, an increase of 26, 9% from $176 9 million in fiscal year 2021.
Net sales increased by $40 8 million or 29, 7% for PMT.
$5 9 million or 28% for canvas and $1 <unk> million or 10, 1% for Richardson healthcare.
Gross margin decreased to 31, 9% from 33, 2%, primarily reflecting product mix and PMT.
Higher global freight costs, and foreign exchange effects and canvas and.
That increase component scrap expenses for health care.
Operating expenses.
Were $55 7 million for the fiscal year, which represented a decrease of <unk> 2 million from the last fiscal year.
The decrease was due to the non recurrence of a $1 $6 million legal settlement in fiscal 2021.
And lower legal fees.
These decreases were mostly offset by higher employee compensation expenses, including additional incentive expense due to the strong profitability.
Operating expenses as a percentage of net sales improved to 24, 8% during fiscal 2022 as compared to 31, 6% during fiscal 2021.
Operating income for fiscal year, 2022 was $16 <unk> million or seven 1% of net sales as compared to an operating income of $2 9 million.
Or one 6% of net sales for fiscal year 2021 other.
Other expenses for fiscal 2022, including interest and foreign exchange.
Whereas <unk> 2 million as compared to other expenses of <unk> 6 million for fiscal 2021.
The income tax benefit of $2 2 million resulted from the $4 1 million partial reversal of the tax valuation allowance.
The company reported net income of $17 9 million or 8% of net sales for fiscal year 2022.
Versus net income of $1 7 million or is there a <unk>, 9% of net sales for fiscal year 2021.
Without the 4.8 million tax valuation adjustment.
Net income for fiscal 2022 was $13 9 million or six 2% of net sales.
Earnings per common share on a diluted basis fiscal 2022 were $1 31, compared to <unk> 13 cents per common share on a diluted basis in the prior year excluding.
Excluding the tax valuation allowance adjustment.
Earnings per common share on a diluted basis were $1 <unk> for fiscal 2022.
Moving to a review of our cash position.
Cash and investments at the end of the fourth quarter of fiscal 2022 were $40 5 million compared to $39 1 million at the end of the third quarter of fiscal 2022, and $43 3 million at the end of the fourth quarter of fiscal 2021.
The company continues to invest in working capital to support its growth initiatives inventory grew to $84 million from $73 7 million at the end of the third quarter of fiscal 2022, and $63 5 million at the end of fiscal 2021.
The largest portion of the increase for both.
The fourth quarter and fiscal year 2022.
Was due to increases in components and work in process for our manufacturing business.
Also accounts receivable increased to $29 9 million from $25 1 million at the end of fiscal 2021.
Primarily due to the high sales growth.
Capital expenditures were $1 8 million in the fourth quarter of fiscal 2022 versus <unk> 8 million in the fourth quarter of fiscal year 2021.
Approximately zero point $7 million related to the investments in our manufacturing business.
0.2 million was for our health care business.
0.1 million was for our it system.
Total capital expenditures were $3 1 million in fiscal 2022.
As compared to $2 6 million in fiscal 2021.
We expect the higher level of capital expenditures in fiscal year 2023, as we make additional investments in our manufacturing capabilities and facilities.
We paid zero point $8 million in cash dividends in the fourth quarter and a total of $3 2 million in fiscal year 2022.
In addition, 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 first quarter of fiscal 2023.
Finally during fiscal 2022, we repatriated $1 $5 million to the U S from several foreign locations.
Our U S domicile cash and cash equivalents balance.
<unk> totaled $25 5 million.
As of May 28, 2022, the same balance at the end of fiscal 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 fourth quarter of fiscal year 2022 grew 26, 8% to $49 3 million versus $38 9 million in Q4 last year. In addition to a strong sales quarter PMT achieved excellent book to Bill ratio of 169.
Our sales growth and strong bookings confirm another solid quarter to achieve up to be an excellent FY 'twenty, two with 29, 7% growth over prior year.
Gross margin also increased in the quarter to 34, 4% versus 32% in.
In the prior year, which was mainly due to continued success in our engineered solutions products for Green energy applications, and an extremely strong quarter for our semiconductor wafer fab equipment business.
Both business units in PMT supported the strong growth, we achieved in bookings and billings in the fourth quarter.
<unk> device group or EDG had an extremely robust quarter in bookings as we continue growing market share from our competition.
And finding new applications for legacy II products, specifically magnetron <unk> used in the development of synthetic diamonds and other green solutions.
We also continue to experience excellent growth in our power and microwave group, our PMG business unit.
Over the years, we have added new technology partners, and new products targeting RF and power management applications.
This includes <unk> infrastructure programs as well as programs dedicated to the consistently growing power management and energy storage applications that support green initiatives across our global markets.
With respect to <unk> and power management revenues increased by high double digits again in the fourth quarter with a very strong book to Bill ratio.
<unk> experienced exceptional growth in demand for green energy applications, such as wind energy electric locomotives and energy storage.
Our recently introduced products such as the patented ultra 3000 pitch energy modules used in wind turbines continue to gain traction and increased sales and bookings in the quarter.
We are producing the altra 3000 with remarkable results in the field and millions of accumulated hours of operation shipping over 22000 units in FY 'twenty two.
We also saw a major increase in bookings with the now <unk> energy Evans and numerous other owner operators of GE wind turbines.
We are in discussions with a major wind turbine OEM for private label development of numerous products, which we hope to announce in the second half of FY 'twenty three.
During the fourth quarter. We also received an $18 million order for our power management module used in electric locomotives. This module along with products like our ultra three and ultra Gen 3000 extend our leadership position by further supporting innovative power management solutions using various technologies to replace lead acid.
<unk> across numerous markets and applications.
Our patent pending auto Gen 3000 designed for generators in cellular base stations and critical facilities had great success in the alpha product trials.
We anticipate beta testing should be completed by the end of the calendar year as I mentioned, we continue to add new products to our portfolio and we are on schedule to introduce new products and technology partners throughout FY 'twenty three.
Our RF and microwave components business also part of PMG continues to benefit from the high demand associated with the <unk> microwave communications and satcom applications.
Use of these applications is driven by people working from remote locations requiring the capability within large amounts of data.
Our entire team has done a great job identifying niche technology partners, who collaborate with us globally, and we added more small innovative suppliers in the fourth quarter.
We also continue to invest in and focus on resources to support our growth. We are adding design engineers field engineers and manufacturing capabilities across our organization. Our growth strategy has been highly successful over the years and we will continue to develop new products as well as increase their customer base revenue and profits are capitalized.
And our existing demand crease in infrastructure.
We are excited to see that over the past fiscal year, our legacy <unk> business had a strong return in both bookings and billings.
Quarter of FY 'twenty, two continued to prove that the demand for our products and services did that go away with the pandemic and we are even more excited about the trends in bookings that will support strong revenue growth in the coming fiscal year.
We continue to receive support from our key partners such as <unk> may come a Nokia wave Ellis materials.
Ammo Greentech and Fuji semiconductor key tube manufacturers in the industry, such as CPI, Talis, MGIC and photonics work with us to manage our customer requirements.
Our growing in house engineering and manufacturing teams did a great job supporting increased demand for current products and new product designs. The team also supported product designs for key growth markets focusing on Green energy solutions as the patented ultra 3000 patent pending ultra Gen 3000, and power management module electric locomotives I am pleased.
With the progress we are making.
We will continue to identify develop and introduce new products and technologies for Green energy and other power management applications, we remain challenged by longer semiconductor lead times and the overall supply chain. This effects, both our component business and engineered solutions products. We are aggressively investing in inventory that should position us to fill the pipeline.
Sure we can meet our customers' needs, while we collaborate closely with our customers and suppliers.
Starting in Q1 FY 'twenty three earnings release in October we will be announcing the new Green Energy solutions Group. This group is formed out of PMT and will be managed by PMT as we continue to focus on power management applications that support the green energy markets globally.
I cannot stress enough the value of Richard electronics model for our customers and suppliers.
Our unparalleled capability and global go to market strategy, our unique to the power and FRE market industries, we have developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions capabilities.
Steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities as they arise our backlog has never been stronger and the execution of our strategy has never been better Theres No question, our customers and technology partners need Richardson products and support more than ever and with that I'll turn it over to Wendy to del <unk>.
<unk>, which is in health care.
Thanks, Greg Good morning, everyone.
Quarter sales for the health care group for $2 9 million, an increase of four 1% over Q4 and FY 'twenty one.
Sales were lower than our prior quarter and prior year due mainly to lower sales in China and Ukraine.
Sales from replacement parts and systems are strong.
Unfortunately, we had a significant supplier issue in the quarter, forcing us to scrap a number of targets as well as by two before we temporarily suspended production.
As a result gross margin in the fourth quarter was 10, 8% versus 29, 4% in Q4 last year.
While we are disappointed by this issue we were able to determine root cause.
Now back in full production.
Healthcare full year sales were $11 4 million in FY 'twenty, 210% about FY 'twenty, one sales of $10 3 million.
Both tubes and part sales increased.
System sales were flat due to limited supply.
In May we completed our second Alta <unk> hundred 50 G data.
And we're able to do a soft launch of the two.
We're still waiting to receive CE approval, which is required to sell the G tube in Europe and Canada.
This is the second to the canon theory, and it works on Newark, Canon Cte scanner model.
Sales growth will be gradual as we get the altice WT LPG into the market and canon scanners come off with Oems service contract.
We anticipate sales of our ultra 750 D will also improve as more scanners become available and because we recently received our MD SAP certification and Canadian device license, allowing our ultra 750 D. C. P tube can be filled in Canada.
We continue to make good progress on the Stevens prepared tube program. This is a series of four kids, including the Stratton Z and NXP and NXP 46.
The Siemens install base is considerably larger than canon.
There are no third party replacement options for the tube types.
We are on track to release the repaired threatens the later in calendar year 2022.
The Amex and NXP theories will follow in 2023.
The Siemens program is a critical element to achieving our goal of providing a positive operating contribution to the company by Q4 of FY 'twenty four.
I will now turn the call over to Yan through to discuss the results for canvas.
Thanks, Wendy and good morning, everyone canvas engineers manufacturers SaaS custom displays to original equipment manufacturers in industrial and medical market throughout the world.
Canvas delivered an outstanding performance and set a new quarterly record with sales up $9 5 million for the fourth quarter of fiscal 2022 strong customer demand on a global base growth of seven 1% increase in sales over the same period last year.
Global sales grew by 20.0% to $35 2 million in fiscal 2022, the highest revenue in fiscal year 2013, due to an increased demand globally and the addition of new customers and programs.
This was a remarkable accomplishment considering the long term business impact of COVID-19 pandemic.
Gross margin as a percentage of net sales was 37% during the fourth quarter of fiscal 2022 down from 35, 3% during the fourth quarter of fiscal 2021.
Our fiscal year 2022, gross margin as a percentage of sales decreased to 32.0% from 35% versus fiscal year 2021. The decrease in gross margin was related to higher component costs increased freight costs and foreign currency effects, which impacted many companies around.
The globe like canvas.
Extended lead times on several key components remains an issue however, our close relationship with customers and partners overseas.
<unk> asked to procure long lead time components, which has helped us maintain our backlog at prior quarters record level of $52 4 million canvas as backlog increased by 52, 3% on a year over year basis.
Our customers.
Turing product availability in advance and you have orders on the books that are scheduled to ship after three years from now.
It is important to understand that we serve a highly specialized customer base for whom it is difficult and costly to change out components.
We are extremely proud to count many of the top 10 medical device companies worldwide.
Our long term customers in.
In fact, 76% of our fiscal year 'twenty two revenue came from medical Oems.
And all our products are custom designed to their needs. It takes yes, getting the product to market.
When we are the supplier of choice, we already signed in for many years to come.
Customer orders are binding and you won't find ourselves in an overstock position.
While we expect the growth in the backlog to level out in the near term we are optimistic that the high demand for our custom monetarist touch screens and all in one system will continue.
We recently released our 32 inch core K Monaco platform and the level of interest is encouraging.
The product offers high brightness white color gamut anaplastic housing to optimize the overall weight of the monitor.
This platform is customizable with 12, GE STI interface P kept touch and three Depolarizer options. This high end product meets medical requirements and is Dicom compliant.
We are targeting the robotic navigation and minimally invasive surgery space with this new platform and we are confident that our product strategy will reside in new leads and business growth.
During the quarter, we received seven new orders from existing and first time OEM customers. Some of these include cardiac.
Ablation.
<unk> second laser.
Tip pool flight and laser therapy.
<unk>.
Surgical navigation.
Sian.
Laser is Dr Zee medical.
Medical device control and fully integrated operating rooms.
Robotic assisted surgery.
Search video documentation.
Atherectomy laser and endoscopy.
In the nonmedical space our products are used in a verity of commercial industrial applications.
This includes <unk> scanners for inspecting luggage at airports passenger information systems on buses and trains human.
Human machine interface for process automation metal <unk> printing.
Product dispenser for retail applications.
We are very pleased with our team's performance our strong customer relationships together with a record backlog position us well for future growth.
From the verity of customers and applications as well as 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 stays focused on new opportunities.
They focus on improving the operating performance of the division maximizing cash flow and improving canvas is profitability.
There is an ongoing priority.
Continue to work closely with our partners to meet the demand of our customers, particularly with the challenges brought on by industry wide supply chain delays.
I will now turn the call back over to Ed.
Thank you Anne another amazing quarter and year for canvas.
As you can see there's a lot happening within Richardson electronics, and I'm encouraged by the positive momentum underway across our business.
Green energy to new uses for tubes that magna trends from custom displays used by companies like Medtronic and very very good <unk> tubes, our business is growing.
We're carefully preserving our cash that we can invest in our employees and our facilities to accommodate the positive demand we're experiencing for engineered solutions.
As of now we're not seeing the impact of the recession on demand for our products.
But we are closely monitoring activity and backlog growth across our global markets and we will react quickly if needed.
At the end of Q1, we will begin recording a fourth business unit core Green energy solutions.
This will highlight the growth in revenue generated from our new solutions as well with existing products using green applications.
Product roadmap is solid and we expect to grow sales from new customers, new products and new applications.
We look forward to sharing more details with you in the coming quarters.
At this time, we'll be happy to answer some questions. Thank you.
Thank you Mike.
To ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Anja Soderstrom with Sidoti Your line is now open.
Hi, and thank you for taking my question and congratulations on an exceptional quarter.
Lot of exciting things going on.
My first question is going to be around the health care and.
All of them.
If you could just clarify.
Put the weight on the margins data on what we can expect in the coming quarters in terms of that.
Hi.
When did it out.
So yes. So we were disappointed obviously in the quarter with the margin and that as I mentioned in the presentation was associated with a supply issue.
A key part of the team that we use.
There was a change in the process and it caused us to lose both targets.
Five two.
So the margin is a result in the fourth quarter was down around 10% and was also impacted because we had to stop production. So we were considerably under absorbed I will mention that when we're when we close production in health care area.
We were able to relocate a lot of the people to other areas of the company. So we didn't lose them completely and we were able to take advantage of the skills that they have and have them work over in the Fox manufacturing area working on the wind turbine program and our land program.
Well that was a positive but what we can expect going forward we are back in production.
First quarter, we have not had any supplier issues.
Any significant equipment issue. So I would anticipate that the gross margin will go back into the mid <unk>.
No mid to upper Twenty's bar.
Barring any unforeseen circumstances it could still happen in the next six weeks now.
Thank you and I think you mentioned something about Ukraine in China in terms of the health care business.
What did you experience during the fourth quarter.
Do you expect that to be sustained.
Okay, well, thank you Danielle.
Good question, so with respect to the Ukraine, one of our significant customers is located there and they have started buying again, so I would expect to see gradual sales coming back from them, they're temporary located in Poland and so they are still able to service CPE equipment.
In China, that's a timing issue.
<unk>.
We already received and shipped a large order in the first quarter. So there is no question about the demand or any issue. There. It's just a timing issue. So I think we'll see that come back in the first quarter.
Okay.
Let's just isolated to the fourth quarter, then is just with Japan and China.
Ukraine in Syria, obviously, we'd have to wait and see.
Okay.
And then.
With the PMT business.
<unk> been talking about that.
No.
<unk> turbine business there.
And the large order with them.
Next era.
When do you sort of anticipate.
A follow up order from them and what to expect in terms of that.
Thanks.
Yes, Greg do you want to answer that.
Sure.
So we have.
Weekly calls with Nextera, we're working on a number of other products for their wind turbines.
That will be announcing here in the second half, we will be finishing up phase one sometime at the end of the summer.
We will probably receive the phase II order, which would be similar in size if not bigger.
In our Q2.
That was the status as of yesterday morning. So.
It's a great partner, but the good news is is that we over the past 18 months have now.
Nine different customers owner operators or wind turbines that.
That are purchasing this product so we have definitely become the incumbent for this product in the industry, especially North America and.
And we did receive in the quarter.
Amplified the strong bookings quarter exclusive of order and.
Shipments to NV energy and email which are.
<unk> now with Nextera three of the top owner operators of GE wind turbines in North America.
It's really.
We're really growing fast.
Okay, and then in terms of the beta test for that sort of power and steam.
Thanks, John .
One of those conclude that Alan do you anticipate some orders from there.
Yes, So we received an order for 12 cell towers.
T mobile.
Current.
Beta site testing is happening right now.
Their facilities are in Phoenix, Arizona.
Similar to the ultra capacitor 3000.
It's about a six month process for them to do all the analysis and get the beta site testing. So in terms of production orders I would expect those in Q3 of our fiscal year.
Starting with T mobile.
And then on the progress rail it seems like you also just scratching the surface there.
Can we expect there and are there other.
Use cases that Takeda also support them with.
While our progress is owned by Caterpillar and what the benefit of that entire program as we continue to see other opportunities for other products for progress rail and for Caterpillar The program to date is.
We booked in the quarter as I mentioned.
$18 million order.
This product is the lithium module.
That we.
The ship to Brazil, and then assemble it into the electric locomotive structure, and then ship that to customers outside of North America.
In the meantime over the past six months, we've developed the relationship where we're going to be the manufacturing arm and design arm for products being sold to North American customers, such as Union Pacific Long Island Railroad, we booked a $3 $5 million order to build not only the lithium module, but.
It's called the superstructure, which Lilly has the guts of the electric locomotive well this ship that to progress Railroad then ship it to their customers.
We fully expect an add on order to that.
In Q1.
The similar amount about $3 5 million.
In terms of content, the $3 5 million or content about $1 2 million.
For that per locomotive.
Any color.
Customer in North America is asking for in some cases demanding that as much content, whether it's the build assembly test support is in North America, and with Richardson's capabilities here.
And as you saw some press releases Union Pacific is placing 20 orders for 'twenty locomotives this fiscal year.
Yeah and then.
So just a lot of use cases with caterpillar as lalor.
Yes, but for different products.
B E.
Confirmed and.
Agreement as a.
Get you in a position where for example with progress rail.
Have a call every week and there's about 20 engineers on those calls and it's just amazing the opportunities as everybody tries to go green and we have this niche power management capabilities here at Richardson.
To take advantage of some of these I call them niche applications. They are quite large for us but to others that are kind of niche.
So I recommend if I could have anyone on that call because when you hear the 20 engineers talking anybody who thinks we're tube distributor.
We will realize.
Our realized real quick that we are that and so much more so much more.
Yes.
Okay, well, thank you for that color and then.
In terms of canvas its been very strong.
Loan growth for you.
Is that more.
Catch up from the pandemic or do you think thats going to be sustainable.
So hi. This is yes, so I absolutely think thats sustainable yes, we will continue to grow we have a lot of new opportunities in the pipeline now as I mentioned in my script too.
The go to market takes a long time, sometimes we talk 345 years to the engineers to get everything going so it's really a wow.
Not another short term thing, it's a mid and long term things. So we have definitely new opportunities working on so I anticipate this is Scott.
To grow yes.
Okay. Thank you and then.
What kind of currency impact do you have can you just go over the puts and takes that.
Or we should think about that impacting your results in the coming year.
Bob do you want to address that please.
Sure.
You saw there was a more more of an impact on the currency in the fourth quarter, mainly due to the drop in the euro versus the dollar and we expect that to continue.
On the other hand.
The forecast I've been reading.
Coming up in fiscal 'twenty three.
It could go the other direction, what the dollar going down so youre going to see ups and downs.
So I would expect in the first quarter, we will see probably a similar impact to what we had in the fourth quarter, but after that I would expect.
Improvement.
So your euro largesse.
Our biggest exposure is correct yeah.
Thats correct.
Okay and then you also mentioned you're retrofitting.
Your facilities.
And you're expecting higher capex.
This year can you quantify at all.
Okay.
Yes, we're probably.
Going to spend $2 million or something like that.
What we're doing with the Covid situation more and more of our employees are working from home.
We have a lot of space.
Especially on the first floor that we're converting into manufacturing and moving out of a private offices upstairs.
The building was built in 1986 and so this is the first time, we've done a major renovation and it will take two or three years, but probably capital expenditure will be $3 million to $5 million over that period.
Okay. Thank you that will flow from me. Thank you so much thanks.
Okay.
Our next question comes from Gogol Kannan with emphasis your line is open.
Oh.
<unk>. Your line is now open please check your mute button.
Our next question comes from Denis Amato shareholder your line is now open.
Thank you.
And Mike Congratulations hi, thanks for taking the call.
I wanted to add my congratulations.
Super quarter.
I just had two questions one sort of a general one.
Given the great quarter and given the really good backlog numbers anybody have any idea why the market reaction so negative today.
That's very sure that the company has never done better than it's doing now I think.
And our 75 year history by the way this is Eric 75th year.
And I have been around 60 years.
The most profitable.
Year and quarter that.
Ever had and with the $206 million backlog.
It looks like we'll do 250 or $55 million next year without any problem.
I think where we are on track to be a $500 million company here in the next five years and the extremely profitable.
Yes, I just wondering if you've heard anything from from analysts or shareholders, which.
Would indicate why anyone would have been disappointed with.
With the results.
I think what's happening is that we have some major shareholders that have been on board for 10 years in.
They are finally able to take a profit on their holdings and you can't blame them for that and I think thats whats happening and bailing, but the good news is that for every share that so there is also a buyer.
Okay.
My second questions for Bob Ben.
It appears that in this quarter, you've segregated out for the first time.
Cash and investments rather than all cash and equivalents can you comment on two things.
Those are the investment component consist of.
<unk> given the fact that we now have finally positive interest rates on short term treasuries et cetera, what do you see going forward is your ability to.
Finally earn a decent return on <unk>.
All the cash that you've been been holding.
Yes.
Yes. So you just noted that we did make some moves some of our money into investments specifically those are at the C D and as rates go up.
We will continue to look at that.
Yes.
I would expect that given some of the increases that we should expect this year.
By the end of the fiscal year, we should get some.
To get some more investment income then certainly that we've had in the recent past.
Okay. It seems like.
90 day T bills now are at like two and a half.
Actually better than CD rates and more liquidity.
Is there ability to put more of that.
The other money into.
Short term treasuries, yes.
Yes, there is that ability and we're always looking at that we have an investment committee.
That reviews that every quarter. So we will certainly be looking at that.
But.
As I mentioned on my remarks, we have.
Over $25 million in cash in the U S and $15 million approximately overseas. So.
Well, we're constantly reviewing opportunities and we'll do so going forward.
Okay. Those are my questions. Thanks.
Thanks very much.
Our next question comes from David Schneider Private Investor. Your line is now open.
Hi, Thanks for taking my call.
And looking at the May quarter, and the fiscal year in general.
Just looking at cash flow from operations for the fiscal year total it was.
Let's say a very small percentage of net income.
Just wondering what factors might.
Change that going forward so that.
The company sees more.
From operations relative to net income.
Bob do you want to address that please.
Sure well.
Obviously with cash flow from operations, there was quite a few things in there.
The main drivers of course, our net income depreciation accounts receivable inventory and accounts payable.
And as we saw in FY 'twenty twos, we had significant increases.
Accounts receivable and inventory specifically.
And those were as I mentioned in my remarks.
Accounts receivable increase was largely just due to the growth in sales we did keep our DSO.
Fairly constant at approximately 39 days, so that was really a function of a sales increase on the inventories we talked about that.
Greg mentioned in his area, specifically that we're buying everything we can get in terms of components.
So that we can stack up and shipped our.
Our new products as quickly as possible. In addition, our manufacturing business as I mentioned.
Is doing similar things and has a lot of work in process.
Particularly in the semiconductor wafer fab area. So I expect that to continue but maybe at a lesser.
Right in FY, 'twenty, three and I, certainly expect higher net income.
Will help that so I think it's a combination of.
Higher net income and managing our working capital as best as we can but as we've noted it's.
For reasons with the supply chain and a very high growth rate in the business.
It's a bit challenging to keep keep that.
Under <unk>.
But we're certainly doing our best.
Yes at least how I calculated your days inventory outstanding.
<unk> for the last it's been pretty flat for the last five quarters. It does bounce around a little bit, but nothing to write home about.
Pretty much the same thing with days sales outstanding.
Days payable outstanding.
Cash conversion cycle.
It was 153 days in the May quarter.
Pretty steady for the last five quarters.
Yep.
So.
Yes, I guess you described.
Yes.
Sorry.
No I was just going to say I do expect improvement, though in FY 'twenty three in cash flow from operations. So I don't think I, specifically said that but definitely.
I expect improvement.
Okay I'll ask goodness.
And regarding the.
The word Ukraine did.
Come up in the call once or twice and given the unfortunate situation there.
If we were to take a.
Worst case scenario and just give it a zero going forward, how long how relevant would that be to the company.
It's very small.
$200000.
Mhm, Okay, I, just wanted to kind of get that out there.
Alright, Thats all for me. Thank you.
Our next question comes from Ross Taylor.
Rs investment partners. Your line is now open.
Thank you and gentlemen, congrats how are you guys doing.
Well thank you.
I'm going to say you beat my estimates and my expectations for the quarter. If I had to guess I would say I think youre seeing selling it looked almost like a retail type thing where people are looking for something they didn't get it and they are running out the door because they don't necessarily understand what they own.
Away from that real quick you mentioned some things I thought were very interesting and I wanted to follow up you talked about a white label opportunity.
The wind turbine space.
Could you is that the domestic or foreign.
Customer you'd be white labeling for.
Greg do you want to answer that.
Sure its the private label thing we're talking about.
Major winter with manufacturers as it would be a global agreement the products are used in other wind turbines.
We already have beta site.
Sites confirmed.
As I mentioned before we are still in the design stage.
B actually to start out with the North America, India, and Spain will be the three sites that will be testing the product for them.
Okay, and I'm sure you can't tell us who the customer is but is it is the key.
Customer domestic domestic U S player or European player.
It's a global player, but mainly Europe .
Okay.
That's actually really exciting.
Not last sorry, I thought you I didn't think you'd answer that question that way.
Okay. So then looking at some other things obviously, you're just you guys. Just commented on the fact that you've been building up inventory. This is a very common thing I've seen in a lot of my companies given the uncertainty.
People, who are looking at rapid ramp ups how.
What do we need to see in your supply chain together, so that youll be comfortable pulling those inventories down to more historic levels.
Turning them into cash next year.
Well I think.
Have a lot of issues.
Particularly on integrated circuits that we use in the ultra capacitor module.
Delivery is like 48 weeks, and we're just sort of and amount. So anytime we have a chance to put inventory and we do.
For instance, where the ultra capacitors, we bought all the ultra capacitors.
Well in advance.
No that we have orders coming through for.
And we'll continue that as long as Theyre shortages out there.
We'd much rather have inventory so that we can address our customers' demand.
As you know we have $40 million in cash.
Issue.
And then what Youre doing is prudent and it just it seems that at some point.
Eventually we will get to a more normalized.
Our supply chain and as that happens, we should expect to see.
I'd think cash conversion out of there that could be meaningful overall.
I think Thats correct, I think youll see this year, where we sort of cash flow neutral maybe spend a few million dollars and then in years to come we're going to be.
Our cash flow positive.
Building, a substantial amount of cash.
Cool now you talked about a soft launch in the second canon.
Serious tube.
Do you think.
These tubes that have always been a little bit of a holy Grail.
Out there you've got a great product you haven't been able to really drag the topline across that you would hope to have Greg cannon are you seeing any market reaction to what you are in and what kind of topline leverage do you think we should be seeing as you bring the second two bond and perhaps additional tubes on over this fiscal year.
So we do like I said, we do expect the growth to be gradual we do however anticipate.
A pretty nice level of growth in our fiscal year in that business segment and that will be partially from the G. The new too.
Part of that will come from the additional detail now that we have the G and the D. We can cover more of the canon market and so people who might have been reluctant to take their system.
Service contract with Canon now do that and know that they can get.
Almost the majority of their systems covered by a third party service company.
So with that we would anticipate some growth in those sales.
For us again really the bigger driver of growth is going to be that Siemens program.
Okay, and then and you did comment, yes, obviously and what kind of time horizon are we looking at for Siemens do thanks.
We're hoping to have the first one out which is the Stratton Z. We're hoping to have that out before the end of this calendar year. We've got a few that are ready right now that are going to go first.
And let's just call it a close friend test and their location and then if they if they perform as we anticipate they will then we will look at beta sites for them and if that all goes well again, we will see those lines.
Three.
Three to six months.
And the bigger part of the line as the Amex theory.
Three tubes, and that and that'll be in calendar year 2023, we're still a little bit of ways on that.
And when they launched you you commented that you think you get mid to high twenties operating margin on a recovery after what happened in the last quarter do you think that as you launch them that operating margins should be able to stay the same do you think you grow it.
<unk> operating below.
Some of the other areas in the company definitely yes, we're really counting on that Siemens program to help improve when you say operating margin I'm talking about gross margin, yes, yes, yes, we do we do anticipate that going up for two reasons. One is that when we sell them. It has nice margin and then too.
It takes out some of the excess.
Capacity that we have in our plan. We've told you before that we've got the capacity to make up to 1000 tubes over three shifts and we're still making less than 300. So the more tubes, we can get into production the lower the cost per chip.
So it's a win on the top line and it's a win at the gross margin line.
Sounds fantastic and can you two other areas can we talk about the market potential and the ramp up from T mobile and others in the wireless space.
Greg you want to address that.
Sure.
I think it's going to be similar obviously start with North America.
We do have Verizon and AT&T in line to do some beta site testing this fall.
So the ramp up again like I kind of mentioned I think production orders will.
Start seeing in our Q3 from T mobile.
And then we will be finishing up the beta site testing with Verizon and AT&T.
At the end of our fiscal year I will add in addition to that we are in the process of.
Pretty large program with a critical facility a hospital network.
Here in Illinois.
That will also use this product for the same generate the same type of situation.
But that would be also something we've probably seen that to a Q3 or Q4.
But we continue to add customers continue to do the beta site testing and again as I mentioned before is similar to the altar 3000, where we had just an absolutely excellent results in terms of beta site testing and lack of failures.
We're seeing that with this too so I think it's going to go from zero to 100 like Altra 3000 didn't I don't but I don't think thats going to detailed <unk> third and fourth quarter of this fiscal year.
Okay, but obviously, it's a pretty exciting area, where you talked about.
Comfortable with talking about per site revenue that you expect out of this.
Oh, I'm not going to talk about numbers, but for example, the altra 3000, there is 18.
Per turbine.
With this in terms of the cell tower Theres only one for cell tower.
But obviously there is a.
<unk>, yes.
Kind of the mix.
Okay and that switch over to the rail N. Gen Electric rail on Gen.
So basically what youre looking at about a 1 million to two rail alright.
For <unk>.
<unk> engine is that what we're looking at right now, yes, thats approximately our content now as they build.
Build these out these are what I'll call commuter trains.
And those are used in either shipyards or the one from the Fox to Chicago.
They are developing now what we're doing on these calls is obviously for long range strength.
Hauling products across United States.
Our content with that will obviously be a lot more because youre getting a lot more lithium modules.
But right now at 1.1 point $2 million is approximately our content today.
$1 $2 million is kind of like what you think as you said is a commuter rail or switching and type engine.
And so how much I mean, obviously the engines youre talking about I assume you are using the ones that <unk> when youre out west in the Transco for two miles or something.
Type of use you are talking about.
Two miles or farther yes, yes, how long right.
Yes.
And so yes and yes.
When I mentioned earlier in the call the.
Access if you will do we have to these type of programs. We're talking about this program and then the second half of the call is for new products and that would be for what's called long range electric locomotives and right now.
The content there will be much higher than one two it's amazing the number of.
Cells are talking about right now to run that locomotive that far.
That could would it be wrong to think it could be an order of magnitude.
But yes, but I don't know what that order of magnitude would be I don't know if its five times six.
Until im comfortable with what that will be all I'll share that obviously as we get closer to a pro.
Okay.
That's a hugely exciting opportunity that.
Switching into that because that's obviously a huge market from the number of engines that are operating okay, and then I think go.
Go ahead.
Why does it can say and they all have initiatives, whether internally or government.
To get their emissions down to certain levels by 2030 in 2050.
So it's really.
One of those markets were not a matter of.
When I mean that in a matter of if a matter of when and so it's just you hit it on the head it's really exciting to be.
Here in La Fox downtown the Fox and be working with these type of programs and then read press releases, where these huge railroads are announcing how many electric locomotives youre going to buy and you know that youre going to get.
Over half of that because today the two.
Main providers of those is.
So Jay transportation and progress rail so and we're in an amazing partnership with progress rail.
Okay. Thank you.
It really knocking the cover off the ball in here.
I would agree I don't quite understand why the market is running away.
Like they just seen a mouse, but I think that gives opportunity too.
Not in getting in because.
Just listening to you guys.
You're talking about getting to $500 million, you should be able to retain a grow your operating margins as you push that direction I would think.
No absolutely.
Okay.
Comes huge okay, especially on the small share count Okay, I'll pass it on to anyone else who wants to pick up.
Thanks very much. Thank you. Thank you.
Thank you as a reminder to ask a question at this time. Please press Star then one on your Touchstone telephone.
Our next question comes from Walter Schenker with <unk> Partners. Your line is now open.
Thank you hi.
Let me speak.
Speak.
Ed.
You've indicated again I think you said that the current fiscal year revenues could be in my number, but you've said it.
Roughly $250 million range.
It's.
Getting the outlook is good this was the 60 million plus dollar quarter and so.
To get to $2 50, you need on average $4 60 plus million dollars quarters.
This quarter had some issues on.
Positive or negative.
Increased freight a tough quarter for medical.
But the question is if I look at how profitable you award this quarter with 60 plus million dollars in revenues.
Is it reasonable to say this is how you would expect and this is the level of profitability broadly a lot of moving pieces, you would expect in 60% to $65 million quarters.
I'm backing you into making a forecast, which you don't want to make.
I can ask questions, which you might be able to answer.
I think I think the level of profitability.
Well at least sustained just about where it is now.
And with $206 million backlog going into the year.
Certain we can make that two.
$2 $52 55 number without too much trouble.
Okay.
If not it wasn't great, but there were some moving pieces is there an ability to go either.
Either a surcharge or somewhat raise prices to offset you and everybody else is having freight cost issues.
It was a couple of percent on margins is there things you can do to recover some of that or not.
Yes.
Do you want to address that because most of their freight issues.
And canvas.
Sure. Thanks, Yeah. So we have of course, our contracts with our customers and as soon as they expire.
Increased pricing of course, we would pass on the.
Freight cost increases from our partners and from the freight forwarders and we.
We are very transparent there yet of our customers for example, say if they can be cheaper we are not making money on freight we are happy that they take care of the input.
But other than that we have actually I think pretty quick freightways in general because we have our containers are going from.
Asia to Europe into North America, all the time right. So we collected from different suppliers that therefore.
We should have very.
Very fair freight rates, even so they are up like everyone frankly.
Yes, we will.
See opportunities.
Where we can pass it onto our customers absolutely.
Clearly, yes, the dog does that like the freight.
Got it for me.
The dog is because someone's working on my deck.
Sure.
Sorry about that.
But.
Last comment it's not a question I know Ed and Wendy every time, we meet I suggest that the board consider at some point to buyback.
If the stock stays around these levels, which is a little over <unk>.
11 times may be annualizing, the fourth quarter.
Again, I know the past you've wanted to wait till you got to cash flow neutral to positive, but during the course of this year you should get there and I would again as a shareholder.
Suggests one use of cash is buying back at least some stock going forward.
I keep saying it and you keep.
Smiling at me.
It's a topic of discussion at every board meeting that's high Tech.
Okay. Thanks, a lot Ed and Wendy Thanks, awfully well.
Our next question comes from Google Kannan with emphasis your line is now open.
Hello.
Goku please check your mute button.
Okay.
Yeah.
Okay.
Our next question comes from marrow, Chris Cocoa with Factset. Your line is now open.
Mark Harris, please check your mute button.
Thanks.
And I will currently showing no further questions at this time I would like to turn the call back over to Ed Richardson for closing remarks.
Thanks Shannon.
We appreciate your patience and support.
Long road, but we're really excited about the future.
Reaching this level of performance has taken longer than we anticipated for sure, but we're very excited about what's going on in the tremendous backlog going out.
I understand the story is complex so anytime give us a call and we're happy to answer your questions or better yet come and see us it's easier to show you what we do than to tell you about it we look forward to discussing our fiscal 2023 first quarter performance with you in October .
Very much.
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