Q2 2023 Richardson Electronics Ltd Earnings Call

January 5, 2023

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Good day, and thank you for standing by and welcome to the Richardson Electronics earnings call for the second quarter fiscal year 2023 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question during this session you'll need to press star one one on your telephone please be would that be.

Advised that today's conference is being recorded.

I would now like to turn the conference over to your Speaker today, Ed Richardson.

Oh. Please go ahead.

Good morning, and happy New year, welcome to Richardson Electronics conference call for the second quarter of fiscal year 2023.

Joining me today are Robert Ben Chief Financial Officer, when do you get del Chief operating Officer, and General manager for Richardson healthcare.

Greg powered group General manager of our power and microwave technologies group and our newest business unit Green Energy solutions.

And yes, Rupert general manager canvas.

As a reminder, this call being recorded and will be available for playback.

I would also like to remind you that we'll be making forward looking statements.

They are based on current expectations and involve risks and uncertainties.

Therefore, our actual results could be materially different.

Please refer to our press release and SEC filings for an explanation of our risk factors.

We're extremely pleased with our strong financial performance in the second quarter.

Despite global economic challenges rising interest rate supply chain delays Andrew.

And recession fears sales in the second quarter of fiscal 2023 exceeded our expectations and were up 22, 1% over Q2 of last year.

There were times, we have teams working six and some planning seven days a week to ensure we met customer demands.

Sales growth was particularly strong in green energy solutions.

Sales of our patented ultra 3000 passenger models increased as the microwave tubes for synthetic diamond manufacturing.

And power management solutions for electric cars and locomotives.

Sales were also strong for the semiconductor wafer fab market and canvas displays.

There are many programs in the works to adapt to changing market conditions and continue this growth.

Bob <unk>, Chief Financial Officer, who will first review, our second quarter financial performance in more detail then Greg Wendy and yes, we will provide more detail on the quarter and key growth initiatives.

Thank you Ed and good morning, I will review our financial results for our second quarter and first six months of fiscal year 2023, followed by a review of our cash position.

Net sales for the second quarter of fiscal 2023 increased 22, 1%.

$65 9 million compared to net sales of $54 1 million in the prior year second quarter due to higher net sales in our power and microwave technologies.

PMT Green energy solutions, our Ges.

And canvas business units, partially offset by slightly lower sales in our healthcare business unit.

PMT sales increased by $3 8 million or 10, 2% from last years second quarter, driven by growth from our manufactured products for semiconductor wafer fabrication equipment customers and distributed products for RF and microwave applications.

Net sales for Ges increased $7 4 million or 153%.

Last year's second quarter.

Ges combines our key technology partners and engineered solutions capabilities to design and manufacture products.

Our fast growing green energy market and power management applications.

Canvas sales increased by <unk> 9 million or 10, 2% due to strong customer demand in North America.

Richardson healthcare sales decreased <unk> 2 million or four 7%.

Due to a decrease in part sales, partially offset by increased equipment and Cte tube sales.

Total company backlog was $192 6 million in the second quarter of fiscal 2023 up from $146 9 million at the end of the second quarter of fiscal 2022.

Gross margin for the second quarter was 33, 2% of net sales compared to 32, 7% of net sales in last year's second quarter.

Pmt's margin increased to 34, 5% from 33, 7%.

And Ges margin increased to 33, 9% from.

From 32, 3%, primarily due to product mix.

Canvas as gross margin decreased to 29, 7%.

From 31, 8% because of product mix and foreign exchange effects.

Health care is gross margin.

Was 23, 2% in the second quarter of fiscal 2023 compared to 24, 5% in the prior year second quarter due to product mix.

Operating expenses were $14 7 million for the second quarter of fiscal 2023 compared to $13 1 million in the second quarter of fiscal 2022.

The increase in operating expenses resulted from higher employee compensation.

Including incentive expense from significantly higher operating income and higher travel costs.

Operating expenses as a percentage of net sales decreased to 22, 3% during the second quarter of fiscal 2023.

<unk> 24, 3% during the second quarter of fiscal 2022.

The company reported operating income of $7 2 million or 10, 9% of net sales for the second quarter of fiscal 2023.

Versus operating income of $4 5 million or eight 4% of net sales in the second quarter of last year.

Other expenses for the second quarter of fiscal 2023, including foreign exchange.

Partially offset by interest income were 0.1 million compared to other income of <unk> 2 million in.

In the second quarter of fiscal 2022.

Income tax expense was $1 5 million for the second quarter of fiscal 2023, or 21, 5% effective tax rate versus <unk> 6 million in the prior year second quarter.

Due to the use of federal Nols in fiscal 2022.

Net income was $5 5 million or eight 4% of net sales for the second quarter of fiscal 2023.

As compared to a net income of $4 1 million or seven 6% of net sales in the second quarter of fiscal 2022.

Earnings per common share on a diluted basis in the second quarter of fiscal 2023 were <unk> 39.

Compared to <unk> 30 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 2023.

Net sales for the first six months of fiscal year 2023 were $133 5 million an increase of 23, 9% from $107 7 million in the first six months of fiscal year 2022.

Net sales increased by $8 7 million or 11, 2% for PMT.

$14 3 million or 177, 9% for Ges.

$2 9 million or 16, 5% for canvas.

Zero point $9 million or 16, 5% for Richardson healthcare.

Gross margin increased to 33, 6% from 31, 5%.

Primarily reflecting a favorable product mix in PMT ges decreased components scrap expenses and improved manufacturing absorption and healthcare, partially offset by unfavorable product mix and foreign currency effects for canvas.

Operating expenses were $28 9 million for the first six months of the fiscal year.

Which represented an increase of $2 3 million from the first six months of the last fiscal year.

The increase was due to higher employee compensation and travel expenses.

Operating income for the first six months of fiscal year, 2023 was $16 1 million or 12, 8% of net sales as compared to an operating income of $7 3 million.

Or six 8% of net sales for the first six months of fiscal year 2022.

Other expense for the first six months of fiscal 2023, including interest income and foreign exchange was <unk> 5 million.

As compared to other income of 0.1 million for the first six months of fiscal 2022.

The income tax provision was $3 $6 million during the first six months of fiscal 2023.

423, 4% effective tax rate.

Versus <unk> 7 million in the prior year's first six months.

Due to the use of federal Nols in fiscal 2022.

Okay.

The company reported net income of $11 9 million or eight 9% of net sales for the first six months of fiscal year 2023.

Versus $6 8 million or six 3% for the first six months of fiscal year 2022.

Earnings per common share on diluted basis in the first six months of fiscal 2023 were <unk> 83 <unk>.

Compared to <unk> 50 per common share on diluted basis in the prior year's first six months.

Moving to a review of our cash position cash and investments at the end of the second quarter of fiscal 2023 were $31 1 million compared to $35 6 million at the end of the first quarter fiscal 2023 and $45 million at the end of fiscal 2022.

The company continued to invest in working capital to support its growth initiatives inventory grew to $97 4 million from $89 1 million at the end of the first quarter of fiscal 2023 to.

To support continued increases in sales.

Accounts receivable increased to $34 9 million from $32 6 million at the end of the first quarter of fiscal 2023 due to the high sales growth.

Our DSO was 38 days versus 39 days in the first quarter of fiscal 2023.

The company is working with its suppliers to better align payment terms with both our suppliers and customers.

Capital expenditures were $1 3 million in the second quarter of fiscal 2023 versus zero point $8 million in the second quarter of fiscal year 2022, approximately <unk> 5 million.

Related to investments in manufacturing.

<unk> 3 million for our facilities.

Zero point $3 million for our it system.

And 0.2 million was for our health care business.

We expect the higher level of capital expenditures in fiscal 2023.

As we make additional investments in our manufacturing capabilities and facilities.

We paid zero point $8 million in cash dividends in the second quarter and.

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 third quarter of fiscal 2023.

Now I will turn the call over to Greg who will discuss the results for our PMT and Ges business groups.

Thank you Bob and good morning, everyone.

Both of our strategic business units power and microwave technologies or PMT.

In Green energy solutions, or Ges drove strong growth in our second quarter.

Our Ges group had exceptional growth as demand for Green energy applications, such as wind energy electric vehicles and energy storage continues to grow.

We continue to apply and focus on resources to this extremely important strategic business unit and growth opportunity for Richardson electronics.

<unk> sales were up 153% in Q2 of FY 'twenty three at $12 3 million versus $4 9 million last fiscal year and our current backlog is $52 5 million.

Gross margin also increased to 33, 9% versus 32, 3% in the same period last fiscal year.

As mentioned previously this group houses numerous successful products such as the Ultra 3000 electric locomotive battery modules. The ultra Gen 3000 and products using synthetic diamond manufacturing.

In addition, we've had numerous products and design prototype and beta testing.

This strategy developing niche products and technologies is key to our long term success.

The growth of customers and products and Ges continues at several major Oems are weekly discussions with our engineering team and the development of energy storage products and other green energy applications.

We plan to announce several new products in the first half of calendar 2023.

Sales for the power and microwave technologies group in the second quarter of fiscal 2023 increased 10, 2% to $40 6 million versus $36 8 million in Q2 last fiscal year.

Gross margin also increased in the quarter to 34, 5% versus 33, 7% in Q2 last fiscal year, which was mainly due to continued success in our RF and wireless infrastructure business in a very strong quarter for semiconductor wafer fabrication equipment business.

Are your tiered solutions strategies led by our global Technology partners, such as <unk> may come Nokia wave Ellis materials, Emerald Green Tech and Fuji semiconductor key tube manufacturers and partners include CPI Telus the Shimbun micro devices previously known as MGIC and photonics.

Each of our global partners helps us meet and manage customer requirements are.

Our team has done an excellent job of identifying and cultivating these relationships will continue to review and add partners that fill technology gaps in our offering and support our growth.

Often through these partnerships, we are able to identify opportunities for new products that we design and manufacture in house, increasing the value, we provide to customers and allowing us to capture more revenue.

We continue to invest in our infrastructure to support our growth we are bringing in talented design engineers field engineers, and making investments to enhance our manufacturing capabilities through our organization.

Our growing in house design engineering and manufacturing teams are doing a great job supporting the increased demand for current products and new product designs.

The team also supported product designs for key growth markets, focusing on Ges, such as the Ultra 3000 Ultra Gen 3000, and our power management module for electric locomotives.

I am pleased with the progress we're making we will continue to identify develop and introduce new products and technologies for Green energy and other power management applications.

Our growth strategy has proven to be highly successful over the years and we will continue to develop new products.

<unk> increased our customer base revenue and profit by capitalizing on our existing demand creation infrastructure.

While we're excited about the future we remain challenged by longer lead times and constraints on the overall supply chain.

This affects both our component business engineered solutions products.

We are strategically investing in inventory that should position us to fill the pipeline and assure we can meet our customers' needs. While we collaborate closely with both our customers and suppliers.

We're also experiencing some headwinds in some markets are showing a slowdown from the highs we hit in 2022. However, we continue to grow both our top and bottom lines by gaining market share and introducing new products and technology partners and expanding the value we provide our customers.

I cannot stress enough the value of Richardson electronics' model to our customers and suppliers are unparalleled capability and global go to market strategy, our unique to the power and RF and microwave industries. We have developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions capability the.

So we're steadfast in creative focus on customers, we will continue to excel by taking advantage of opportunities.

When they arise.

The combined backlog of PMT and Ges is strong at $141 4 million and the execution of our strategy has never been better. There is no question that our customers and technology partners need richardson's products and capabilities and support more than ever with that I'll turn it over to Wendy to Dell to discuss Richardson healthcare.

Thanks, Greg Good morning, everyone second quarter sales for healthcare were $2 9 million a slight decrease of four 7% versus Q2 of FY 'twenty two.

The final week of the quarter to Alta tubes, or how that due to a cancelled flight and we were not able to recognize the revenue on the bright side. The sales are a nice start to Q3 had the shift as planned Q2 revenue would have been above the prior year period, and we will be discussing a record sales quarter for the number of <unk> itself.

<unk> sales were helped by strong demand in China for the Alt, a 750, DMG as well as Stratton Z tubes. So this data in the Americas.

Sales in the quarter were also higher for Cte systems, when compared to Q2 last year.

Gross margin in the second quarter declined to 23, 2% versus 24, 5% in Q2 last year, primarily reflecting a lower percentage of higher margin part sales.

<unk> remained in production throughout the quarter, we did experience a significant equipment issue, which prevented us from making RCT two production call. This resulted in a small negative manufacturing variance we've resolved the issue and are back in full production.

We are making steady progress on the Siemens repair tube program. This is a series of <unk> types, including the Z X and Xb and NXP 46.

The Siemens install base is considerably larger than canon and there are no third party replacement options for these tumor types.

<unk> is currently in beta site testing and we remain on track to fully release to repair two pending submission of FDA paperwork.

We anticipate the Siemens Nx series will follow in the first half of calendar year 2023.

As noted in prior calls the Siemens program is a critical element for healthcare business unit to reach its goal of providing positive operating contribution to the company by Q4 of FY 'twenty four.

In addition to our Siemens program, we are evaluating several new programs that will further improve cte tube sales and factory utilization.

These programs include reloading tubes in Brazil, a market, where we currently have noted sales and partnering with an international company to reload and sell several other tumor types in the Americas.

Programs may have a positive impact on our revenue in FY 'twenty four depending on how quickly we can validate and achieve regulatory approvals.

We remain cautiously optimistic about our ability to breakeven or provide positive operating contribution by the fourth quarter of FY 'twenty four we continue to monitor our progress and we will make the necessary adjustments to achieve this call.

I will now turn the call over to <unk> to discuss the results for canvas.

Thanks, Wendy and good morning, everyone.

Canvas engineers manufacturers want SaaS custom displays to original equipment manufacturers and industrial and medical markets throughout the world.

Kenneth delivered an outstanding performance with sales of $10 1 million for the <unk>.

Second quarter of fiscal 2023.

Strong customer demand primarily in North America. So if the 10, 2% increase in sales over the same period last year.

Gross margin as a percentage of net sales was 29, 7% during the second quarter of fiscal 2023 compared to 31, 8%.

During the second quarter of fiscal 2022.

The decrease in gross margin was primarily.

Related to the product mix and foreign currency effects.

Our backlog remains very healthy, which we expect will support strong faith throughout fiscal 2023 and into fiscal 2024.

Given the number of projects currently in the engineering stage, we are well positioned for continued growth.

Our expectations assume no impacts from current supply chain obstacles and demand is negatively impacted by recessionary pressure, we continue to deal with extended lead times for selected components from our Asian suppliers.

To compensate for this inventory on hand increased during the quarter.

It is important to note that all our monitors that customer and our inventory is allocated for specific customer orders.

So we believe there is minimal risk to carrying slightly higher inventory levels.

During the quarter, we received several new orders from both existing and first time medical OEM customers.

Some of these applications include <unk>.

Analyzer.

Cardiac post field ablation.

So that puts laser systems Houston.

RFC.

Robotic assisted surgery method.

Medical device control.

Monarch tourists puts enter treatment chairs.

Prostate biopsy systems surgical navigation.

Vacation to trek instruments throughout a procedure.

Laser systems that treat Cornell appears ltc's antimony plus used in radiation therapy.

In the nonmedical space our products are used in a variety of commercial and industrial applications.

These include a control room on it for the public transportation space Human machine interfaces HMA for packaging machines in the food industry four.

For radiation measurement systems and process automation.

I am very proud of our teams around the world and I am extremely pleased with exceptional operating performance.

Our strong and growing customer relationships, along with the backdrop position us for future growth.

From the variety 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 localized service.

While our sales organization is focused on new opportunities I stay focused on improving the operating performance of the division maximizing cash flow and improving 10 basis profitability is an ongoing priority.

We continue to work closely with our partners to meet the demands 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.

Congratulations again on another great quarter.

As you've heard from our business unit managers, there are many programs fueling our growth.

This product market and geographic diversity provides a natural hedge against economic challenges and global political tension.

Many of you are aware of the recent shifts act and its impact on the semiconductor industry.

This act for advanced semiconductor wafer fab equipment manufacturers from shipping certain advanced technology equipment to China.

While we know this will have an impact on our business in calendar 2023, we're confident in our financial performance will be remained strong for the balance of our fiscal year.

All of our manufacturing employees or cross training and can be moved to different areas to meet significant growth and demand for our green energy solutions.

By Reallocating resources, we can meet.

While maintaining our core competencies for my market and cost controls.

We remain firmly committed to our employees, who have helped shape our path to success and to our partners and our shareholders.

With our focus on customer driven solutions that help improve the environment, we expect strong year over year revenue and earnings growth throughout the remainder of fiscal 2023.

At this time, we'll be happy to answer your question.

Thank you as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Yes.

And our first question comes from Karthik Rosa J from Bloomberg Your line is open.

Hello.

Yes go ahead your line is open.

Okay.

Our next question comes from Andrew <unk> with Sidoti Your line is open.

Hi, and thank you for taking over.

Linden and Richmond.

Congratulations on the great quarter again.

I'm just curious.

Just on the semiconductors.

Well, what kind of visibility do you have there for the rest of the year end.

Sort of when do you think you will have visibility into the.

Next year in terms of the demand for semiconductor.

So we have good visibility for the rest of our fiscal year.

Q3 and Q4.

We feel very strong about.

Including opportunities within semi market, but thats about as far as we're able to see right now.

Okay and then.

So no.

Sure.

You have very strong the amendment did yes that might make up for any softness.

In the semiconductor can you just talk about maybe some opportunities ended yes that is a little bit further out that you might not have talked as much about.

Yes, hi.

So the <unk> program as I mentioned has introduced a number of products that are getting huge traction. We also have a number of products in the pipeline.

And if we look at the introduction the Sam for those products.

And when these beta site testing will be completed and go into production orders, we're very confident that any gross margin dollar.

Reduction that we'll get from Lam.

The semiconductor wafer fab market will more than make up with the current products that are getting traction with other customers, but also some new products, we're introducing in Q3.

Okay. Thank you and I think in your remarks, you talked about.

A slowdown from highs where that.

Was that.

Related semiconductor what's that related to.

And that yes.

Yes, mainly.

In reference to the semiconductor wafer fab market.

As you know we had record quarters for the past four quarters with our semiconductor wafer fab market.

<unk>.

We're looking at based on information from them that there could be a slowdown in the FY 'twenty four.

Okay. Thank you and in terms of canvas I don't think you mentioned.

What's the backlog stands for canvas right now.

End of the quarter.

Yes, do you want to answer that it's about what yeah sure absolutely so the.

Backlog is actually up.

Since our second highest backlog level behalf since ever it's 49.

$4 million so.

Really happy with that.

And thats upcoming robust pardon me add last quarter right.

Yep.

Nice increase.

<unk> thousand 701 last quarter sorry.

Okay. Okay.

And a good increase.

And then in terms of that the healthcare it seems like you had some I mean.

Slide <unk> Cat West also have those being shipped in this quarter instead.

But also some issues with their production.

How much did that fall yes.

Yes.

Yes, that's a good question Ashwin.

In the quarter the the production the equipment that that caused us some problems within the last month of the quarter and overall cost of maybe 1% of margin. So it wasn't a significant we were really doing well through the first part of the quarter in terms of producing too. So it was a small blip.

<unk>.

But again, maybe a percentage point in the gross margin.

Okay. Thank you.

And last question if I may so no. One asked that you work with single Hudson with you are now also working with other partners.

What's the question.

Regarding what business.

And the Oems in general.

Mid single person with you are they.

Also working with other partners.

Yes.

On the Ges side on the progress we have today that for example, the Altra 3000.

We're exclusive with the four top owner operators of GE wind turbines in North America. So I'm.

Most all of our products since they are unique it's a unique technology.

We do have competitors, but it's a business we have today, we are sole source.

Okay. Thank you that's all for me.

Thank you.

Our next question comes from Denis Amato, He's a shareholder your line is open.

Good morning, Dennis.

Dennis can hear US we can't hear you you might shy back.

Eric can you hear me now.

Alright perfect.

Yes, no I was just wanted to congratulate you on the quarter as well.

Thank you I'm sure I'm sure you're disappointed as all of US are by the less than enthusiastic response. The market is giving you but my question is for Bob Ben.

I noticed of the $30 million in cash.

5 million shows up is being invested in short term.

Given the <unk>.

A recent uptick in short term rates around the world is there any additional opportunities too.

Invest some of the cash to provide return.

Hi, Dennis that's a good question, we yes, we do.

Do have an investment committee that looks at that each quarter and we were able to get as you were noting the increase in interest rates, we were able to get an increase in rates, but still the markets have not moved up that substantially in rates. So, but we are consistently looking at it and as you noted we have $5 million of that invested.

It might add to that.

As you know, we're very global company and we have many locations around the world and so our cashes is located in many different countries and so.

Most of it is here in the U S of course, where we have the $5 million invested but other than that I believe we have some invested in China, but the rest is used to.

The business.

So I mean, what prevents you from.

Any real short term bill.

Bills or whatever I mean, you could still.

Keep it basically.

Okay.

Accessible and still earn.

Something on it.

Even even the European money money market rates are up to a couple of percent.

Sure.

As I as I noted, we're consistently looking at that but.

But again, we do have.

We have many locations around the world approximately <unk> 25 in many different countries. So we need the cash on hand to operate and run the business, but when we can we do invest it.

But we can only do that for so long.

Okay.

Understood a while ago when the rates are so low but is there come up quite a bit.

We need to sharpen the pencil.

Okay. Thanks, Okay. Thank you. Thank you.

One woman.

Our next question comes from David Schneider Your line is open.

Hello, I have a few questions.

Good morning, Steven Hey, David.

Hi, there how are you guys.

What youre doing with electric trains.

If I would take a train to Manhattan Theres electric lines above the train and people are not shoveling coal into.

In engine or burning wood for power so.

Can you maybe explain to everyone.

Basically.

I prefer caisson effort and what your role would be and then I have a couple of other questions.

Well right now our current program and products that we're working on as our partners progress rail during.

During the process of designing and.

<unk>.

Manufacturing electric vehicles both.

For North America owner operators in Brazil.

Brazil location for international.

We do everything from build the battery modules that will go into the train itself to the battery modules and the racks.

To the third part we're doing in that part we are doing here in La Fox is building the entire superstructure, which includes controlling circuitry fire suppression the whole thing.

They have or that market. If you will has an edict by 2030 to decarbonize.

I don't have the percent right with me today of their diesel locomotives. So we're also working on products ever.

Anything from starter modules.

That will be put into the diesel locomotives to get the percent.

Of that product Green.

By 2000 2030.

So for the electric locomotive market.

We are designing and manufacturing if you will the battery modules that will replace the diesel engine.

Right now we have been awarded.

Three different trains I'm, sorry, four different trains through.

<unk> progress rail.

We continue to work with them on a weekly basis for the design and implementation for them, but they are prototypes.

Going forward. If you look at this this is probably today on the books over $25 million of prototype orders. So you can kind of see the opportunity here. Once this becomes have you mentioned commonplace to convert all the diesel locomotives to electric.

On the electric vehicle also we have products that we have designed into benchmark, which is in Vietnam, which is electric car manufacturer and we also have a number of programs and strong business going on with <unk>.

Triton, who is the largest north America manufacturer of charging stations.

So thats kind of what we're playing now obviously, that's a multibillion dollar market and one thing that Richardson has done a good job I think is finding niche products and niche applications through our components suppliers, but also our internal engineering capabilities to offer true value.

As this market has launched and we are right at the cusp of it we are in the middle of it.

And so we're very excited not only about FY 'twenty three but the future.

These type of products that will also expand into other applications as we learn the technology.

Yeah, it's interesting when people think of.

Moving aside from trends when people think of automotive electric electrification.

Your name doesn't.

Come up so.

I think my guess is over the next few quarters sequentially. Hopefully you can discuss more of what youre doing in that area.

Yes, it's interesting.

We're really not in the Ultracapacitor battery business, where in power management.

So yes. This is probably a huge.

Obviously, a huge opportunity, but there is other.

<unk> management products that we're looking at for forklifts and other products like that because as things turned degree and the entire power management section as you can see what the locomotive needs to change and we have a unique ability so much experience with battery technology and we've been dealing with ultracapacitors for almost 20 years.

We have some key people on staff that are very knowledgeable and so really we're not looking for standard products. So much but just niche products that are unique to the customer to help them win market share in this case.

Progress rail is on that run rate.

Mhm.

Okay.

It was a month or so ago with the company had a news release regarding.

And become a global.

Distributor for I don't have the press release in front of me, but for a company involved in gallium based.

Circuitry can you maybe flesh out what that could mean for the company.

Yes, <unk> seen over the past probably six years, a number of press releases.

Technology partners, we're signing.

Two as Bob had mentioned, we are a true global company and the smaller companies that have a unique technology based.

Based on I would also add that to our unique capability for niche products.

Somebody to take those products to market, it's an engineering sales very little distribution, if you will where we design the components into customers and I'll use. The ultra 3000 is a Prime example, we are working with the customer that ultra capacitor component.

Out of that came their need for a ultracapacitor module.

And so.

We have a very strong lineup.

Acknowledging partners gallium.

As a startup company. However, it's a group of engineers I've been in this power RF business for <unk>.

135 plus years.

They've got some real key people gallium nitride, which is their key technology is the technology of choice both for <unk> and power management applications.

One of the things we're seeing all the products have been talking about here for.

Specific to last three years.

All are going to work remote monitoring.

And Thats. The next step of our product we have the key RF and wireless component suppliers in the world that we work with <unk>.

On developing key products that will add to our portfolio, where all these products that we have today that are going 300 feet up in a wind turbine or 20 miles out without a solar farm or some locomotive going across Wyoming.

They will be able to remotely monitor the battery the power of this system itself.

So it's just an iteration of our model that's the model that we lead with technology partners and with a very unique.

Capability internally.

For RF power and power management, we're able to come up with these niche products.

To support these applications.

Okay well.

I think it was.

Well at least three quarters ago. During one of your conference calls the stock was 11 and a fraction and I said someone was.

Not happy where the stock was and I said that.

We will like the stock more 2017 and 11, so I guess I'll do it again I think people like the stock more stock is roughly <unk>.

The $19 97.

I think it's more 2000 1997.

97%.

And I'm willing to wait for that no problem.

Thank you Doug.

Thanks very much. Thank you. Thanks, David Thank you David.

Yes.

Thank you. Our next question comes from Brett Davidson with <unk>. Your line is open.

Good morning, this is <unk>.

Okay.

I'm enjoying the ride here.

Okay. That's helpful.

Okay.

The change in the backlog.

Wondering if you can just give me an idea.

What that represents or are you guys.

Better able to keep up with the order flow.

Were there customers holding back until the end of the calendar year.

What what does that small drop in the backlog represents.

I'll add to it from a P.

PMT and Ges point of view most of our business specifically on the Green energy side is project based.

So we will get large bookings one quarter and then three quarters and then when we get the components in will have huge.

Shipments and.

And that's just kind of the right and if you just look at FY.

FY 'twenty two of the four quarters, we went from an $84 million backlog to $152 million backlog well to get to a 150% growth. We finally got the components and we need it because I think I mentioned already that the lead times and supply chain issues at least the stuff. We're looking at if not improved much.

And so it's really.

<unk> based cyclical type thing, where you're going to have huge bookings.

For example, in the fourth quarter of <unk>.

But just in May of last year, we had 168.

And this time around we're a little over one so it's just kind of cyclical in terms of what we're able to get out of the factory to.

To the customer in the quarter and based on their timing of bookings or the next.

Session for example.

We were awarded.

About $15 million of new business for electric locomotives in Q2, However that does not show up in our bookings because we do not booked at until we have scheduled delivery.

Of the product. So if that was in there our book to Bill would be way over in that backlog would actually be up quite a bit in the quarter. So.

Just the nature of the business.

So let me let me rephrase then things are just going to be kind of lumpy and you really can't read anything into it.

I wouldn't read a lot into it a fluctuation of.

5% to 10% in our backlog I wouldn't read anything into that based on the forecast that we're seeing and the traction we're getting.

The way, it's ordered our backlog will fluctuate yes.

Got it.

The Green energy.

The sales were up about 50% from the prior quarter.

Is that something we can expect.

Yes.

Continued throughout most of this year.

Is that the type of growth, we're looking at here or.

That's kind of an anomaly and things are going to slow up a bit.

Yes, one thing I know about forecast, they're going to be wrong, and they're going to be higher low, but I can tell you in Q3 based on the backlog and scheduled shipments in the <unk>.

Forecast builds we will see something very similar to that in Q3.

That's about as much visibility as I can give you right now okay.

Alright, and then I got one more.

And.

And it goes back to the press release.

My favorite line here.

We believe sales of sales and profits will continue to significantly increase in fiscal 2023.

I'm, just looking for a little clarity on that as it significantly increased quarter over quarter.

From the comparable quarter last year and what is significant.

Yes, so I'll take that one first.

Over prior year, Yes, we believe we will see increases.

For Us I think we usually say in the 10% to 15% range increases Q3, and Q4 are solid and that's about as far as we're taking are forward looking forecast right now.

That looks good.

Alright, well. Thank you very much I appreciate your time.

Anytime you. Thank you. Thank you.

Our next question comes from Eric Crown with Ritchie Capital. Your line is open.

Yes.

Hey, good morning, guys.

Hey, good morning, Congratulations again on another great quarter.

My first question.

<unk>.

I guess can you kind of see here kind of any updates with more.

Near term innovations and opportunities within the ultra capacitors.

Thinking more specifically the work Youre doing with Siemens.

As well as some of the application.

Hello.

Davidson.

Yes.

Sure.

So let me start from the top.

Both ultra capacitors, but also as you know.

The major progress.

Great.

But it's the same same program.

We're getting a.

Calendar year 2023.

Cash from our customers and it looks like that business is going to be up in the 20% to 25% range.

Just to add to that to date life of the program.

<unk> and <unk> in the field over 30000.

Altra three thousands.

So the second part.

I'd like to talk about real quick if you could be like the ultra 10 three.

3000.

Houston Rediff arent application.

One is T mobile continues to test that product.

It sounds like T mobile is going to be a little bit longer testing need to look at data.

Before we implement that.

Yes, given the proposal.

Very large critical facility environment here in Illinois.

Alastair Gen 3000, but the big one.

Using the <unk> technology.

And generated but as a starter module.

We are working with two of the larger.

Electric vehicle manufacturers in the world.

Together Gardner modules for them and both sites in December had received the prototype product for that.

In addition to that.

Okay.

Just a couple of new products in Q3.

We do have beta site testing started with Siemens.

Womens Alterra three modules for.

Suppliers also such as Siemens Suzanne Fedex from European suppliers.

That program is up and running.

And then also.

We'll be using the ultra GPS III.

And the wind turbines or the.

Power supply that.

<unk> also currently used lead acid batteries.

<unk> to replace.

And finally, an update on this program that keeps getting traction.

Most of our businesses with owner operators that do not have contracts for.

For services.

We had been contracted in a pool.

GE is going.

Our products in their portfolio of products for all.

Wind turbine.

Starting at the end of January .

We're very excited about that on paper.

<unk>.

But right now we don't know and we developed this program. So we look at Walter 3000, still going strong as people phase one phase III phase III of the rollout with there.

The answer to Gen 3000 technology that we've developed.

As a patent pending.

<unk>.

That's getting good traction in terms of beta sites and other products.

And the multi brand will be introduced in Q3, and then finally the program we have with GE directly.

Also very exciting.

We look forward.

End of an overall summary.

The current products that where we're looking for short term which means.

Both revenue.

Sure.

Okay.

A lot of exciting things in motion.

I guess the other question.

You guys mentioned.

So.

Full throttle in terms of.

Production and getting orders out employees working seven days a week in prior quarters, you've mentioned you've made a lot of progress.

And more people are using more labor.

It's something.

Continuing to be a focus in how youre thinking about that going into the year.

So on the on the HR side, Yes, we have continued to hire but what we're doing now is.

Sure.

There could be some slowdown in the semiconductor market. So we've made sure everybody we've hired across crane and they can now be moved from for example, the semi production into <unk>.

Energy production and even into health care production.

We will continue to hire strategically, which is primarily engineering position with all of the programs graduate Tien Tsin, we're constantly looking for different types of engineers to supplement the gene.

But from a production standpoint.

We work within the confines of who we have right now.

Okay.

I've stated a number on the number of engineers.

So we need or that we have.

Yes.

That we have.

We have probably close to a 100 all in now when you consider our field engineers and our application engineers.

In engineering that we've added.

Total is 500 people with engineering okay.

Okay.

I guess the last question, but you guys and congrats that's a lot, but just maybe a little bit different angle or just a little bit.

Different.

Aspect to it is within the <unk>.

How many wafer business.

Are you seeing from your customers I mean, I know you said it.

Clearly for Q3 Q4 for your fiscal year, but what are you kind of hearing from your customers from their business or they can that information or insights.

Yes so.

Look at the overall market and again the week does that provide a.

Niche product to that market.

Hard for them to calculate what that.

That affect our business with them right now the visibility we have.

That.

We're going to be spine down the balance of the fiscal year, but going forward theyre seeing their end customers and also the China issue Ed mentioned.

It could be a slowdown, but they haven't been able to offset that.

Exactly how that effect.

I don't believe in that but when he was talking about.

Visibility in our forecast for FY 'twenty.

Okay, great. Thank you guys. That's all I have.

Thank you.

Our next question comes from Pete Taylor with <unk> investment partners. Your line is open.

Thank you very much a couple of questions.

How are you guys doing.

Great Great number.

The market doesn't want to give you a respect you guys at the Rodman J&J, although successful investments.

Okay.

Couple of things real quick one when power last year was a tough year wind power in Europe winds changed direction and they didn't deliver a lot of projects actually ended up not getting done are getting pushed out are you seeing an improvement in the market. This year in Europe with everything that's been going on including the winter and into their normal courses.

<unk>.

Yes so.

Right now 95% of our business is North America.

Products I mentioned for <unk> and Cvs.

Two of the three largest.

Manufacturers of wind turbines in Europe , and they are pushing us very very hard for this product.

So this product is in essence, a replacement product that they need to.

Get done to get those led asset batteries out so our.

Our market share is small enough that we feel that the market growth will be very strong for us, but the market itself is all base to me what I've seen and heard is on subsidies and.

There's a lot of push to get certain things done. So they can collect your sub in the subsidies for 2022.

At the end of the year, which.

Was part of our large shipments in working three shifts because we need to get those products to them in this fiscal year.

So.

Rollouts of new wind turbines.

I don't think its accelerating much but the upgrading our refurbishing they call it using our products whether it be the altra 3000 of the PFS or our shunt, which is a product we've developed for <unk>, specifically that seems to be continuing based on their forecast.

'twenty three is going to be another strong year for us.

Okay.

There seems to be a lot of misunderstanding in fact, when you started to talk about the semi cap equipment space.

The idea that there was im certainly beyond the next two quarters the market and immediately sold your stock pretty aggressively.

Can you give people a better understanding of kind of the role that plays and as you said, maybe one is cross training do you actually think the issues in semi cap equipment. If they do show up in the next fiscal year will do anything to really slow your overall growth or will they simply allow you to take those people.

Aren't being utilized in semi cap equipment or might not be utilized and pushed them over to these other faster growing areas.

Yes, I don't think its going to slow our goals of 10% to 15% growth.

Going forward.

Internal numbers.

The semiconductor wafer fab market, historically and I'm talking about the last 20 years.

That I've been involved in and also this company is.

It's always been cyclical it runs for about a year to 18 months of the upside and then it slows down.

A bit.

For like nine months to a year. It's just this last run.

It has been close to two five years, but I think the slowdown is going to go back to not two and a half years it'll be nine months to a year, but if we look at.

Just internal projections about what it could be and then what we have on the books with a strong backlog of new products et cetera.

In terms of profit dollars gross margin dollars.

And topline I don't think its going to have much effect at all in fact, we will more than overcome it based on.

The number that we've been talking about so far in this call.

Yes, I mean, the call sounds exceptionally bullish stock market reaction seems to be one.

I would say that it would help a lot of investors if they have someone who can tell them what they're supposed to think so if you guys could get some sell side coverage that would actually.

Be nice because most people in my business on the turn to someone else to actually enter.

Corporate results refer to act.

But thats the only 40 years of experience looking at the Microcap.

Yeah.

I wanted to talk to you guys about the.

The battery.

Ill take vehicle market, both from a car perspective, which is very interesting.

How big do you think that opportunity can become how unique is your offering and do you see that as an offering.

Will become will have a broader appeal beyond the people Youre currently working with.

Yes.

Numerous electric transformations, whether it be locomotives or forklifts I think our niche is going to be these larger.

Type of niche products the electric vehicle power market is so saturated everybody.

Going after it.

Obviously, it's a multibillion dollar market and Thats why everybody's going after it.

Our current capabilities are again similar to win.

Wind turbines are electric locomotives as we have a niche product.

Charger.

<unk> that we sell the Vince smart along with some other controlling circuitry, but.

Today, it's probably a $3 million to $4 million.

Opportunity for us and we have about $2 $5 million in backlog.

The charging stations are little bit higher.

Opportunity for us because.

We can develop unique products for charging station specifically.

But the electric car market, that's just like the handset market, which is the other part of my career.

Sachin rated.

Lower margins in and everybody will have to add it we don't have a ton of value today on the electric car market other than our component design and capabilities.

Working with these customers to help them build systems, but our size is going to be on solar wind power management applications that are little more high power a little more niche.

And with the charging stations when do you think the economic value. You can you would could have pro charging station I mean, thats going to be a huge growth market going forward.

Right and as we all know the.

Card market completely outweighs the infrastructure.

To get you charged up to be able to drive across North America or Europe .

So.

What it is going to be I think is similar to what we saw with the growth of these other products I've just talked about where the customer's going to say Hey, you helped us design and all of these components can you build the module can you build.

Some cases, we did it at one time when there was an infancy actually build charging stations.

For the customer like we do separately and we've used up for caterpillar progress rail so our value will be anywhere from component design in to building and designing modules to potentially building a larger portion of the actual charging station itself.

As more and more niche customers come out to try to support support that market.

Okay, So that's sort of evolving.

Each market that could be potentially another leg to the stool.

Yes can we talk about with progress rail one of the things that strikes me. Obviously you commented on how the industry rail in the studio is looking at basically go into your carbon neutral.

Going forward.

Youre working with progress switches.

And when it's Darren stalled.

You can use that phrase here and the diesel.

Jason will electric locomotive business do you know.

I believe it's 25000 in North America 25000 diesel locomotives.

What portion of that is progress rail.

Between them and web Tech I think it's probably going to be divided up.

60 40, but.

Right now the number that we heard from progress rate of about 25000 diesel locomotives in North America.

Net.

Could convert over the next number of years between now and 2030.

Okay.

Obviously, you add to that.

To add to that their forecast to us was about 50.

Electric locomotives over the next three to five years.

And they were talking about.

And so what they would be seeing therefore, given the idea that theyre talking about.

10 years, seven to 10 year ramp.

Towards getting the 25 K, what you would expect to see is that 50 or so over the next few years and then almost parabolic after that.

Absolutely, yes, yes in fact like I mentioned before.

For example, the program, we have with with progress rail.

Our Brazil when that locomotive is done which will be.

In.

Therefore cast were shipping now.

The guesstimate, if you will but they'll build the final train and introduce it to their customer in November of next year or this year.

It'll be the largest electric vehicle in the world.

So to be.

Involved with that capability and program.

The weekly basis and.

I think that that even that just that hits, we're going to see a big uptick and then youre going to see like you said three to five years just booming.

Yes.

As the acceptance of the product.

Subsidies and everything take place.

And so we're looking at depending on the size and power.

Locomotives and Youre rolling one to three plus million toppy.

Exactly like I mentioned before.

Yeah.

We build either the module itself with the ultra capacitors are lithium ion.

We then build the structure, which is like putting them in racks.

And then some controlling circuitry and then the third thing is the super structure, which is literally the guts the engine taken the diesel engine out and putting in.

Lithium ion phosphate based.

Structure, and so depending on that it's anywhere from $1 million to $3 million per train.

And so when we're looking at the math I mean this is one of the issues I think it would be great to get some people telling my curious how to think.

Youre looking at a market literally as we go into the next four five years youre going to get meaningfully more revenue out of the electric load.

Motive business, then you get as a company today and Youre not going to lose anything else seeing occupancies the wind tower.

Any other aspects of the business.

Yes that is the opportunity that we were looking at in.

Part of this business in terms of NPI, which again this is new product. This is new disruptive technology.

Going forward.

Is.

You need to get whether you call. It a beta site a sponsor or a partner and if you just look at this and I was talking to somebody yesterday about it I had three phone calls.

On Monday, and one was the Siemens when it was with Caterpillar in London with Nextera and.

I mean to have them and not only is just.

Beta site partners I mean, our beta site companies to test this product I mean, we have caused every week, we're partners and out of that.

So you got the upside of what we know but out of that just think about all the other applications that are caterpillar is going to look at our debt of Siemens is going to look at.

We're learning so much from them of what they need.

And again, we're very unique company that has.

We're public.

Sure.

$100 million, but these these programs that we're dealing with just could jump. This company two huge numbers and at one time, we were at what $600 million 700 or so.

And I'd like you mentioned already it's going to go from zero to 100 here in the next 18 months.

We think the electric locomotive business will be much larger than the land very short period of time.

Well its actually its not just larger than lam from going larger than Lam, if I do my math right.

I assume that's roughly 50 50 60 40 split so you are talking about something in the 10 to 15000 progress rail diesel out there and they are the incumbent you would think they are likely to have a chance to what we saw with union Pacific and <unk> and some of their work. They went through their lab. So we went back to <unk>.

Cheers.

So if you're looking at that and you're saying, 1% to $3 million on something Thats 10 15.

$15 million, we're talking about.

No.

If you guys still being 456 years, you're talking about thousands of engines a year potentially.

Okay.

And I was back at my head some days I'll be talking about private capital and guys about showing up in your ton than talking about taking this company private.

This to me you have got a great business makes you a ton of money.

It'd be nice to get your cash flow positive in the U S. So you can.

Do some things, whether it's investing capacity or quite honestly.

So that goes away in surprise, but.

I do hope that we're able to get some people out to help you postulate is historically this is the best story out here.

Okay, great. Thank you very much.

We think it is as well and we're really excited about the future thats for sure.

Yes, I mean this is this rail business alone is.

The potential to be taken guys on revenues to north of $1 billion I would think.

I Hope Youre right, we think we will get the $500 million in the next four or five years.

Yes, and then it goes from there, yes, well. Thank you guys keep up the good work keep executing on the all of these things.

So anything that you guys constantly find new areas, new niches to expand and while you have so much on the table already but thank you.

Thank you for your support thank you.

Thank you.

Our next question comes from Daniel Burner with Burner family Fund your line is open.

Hi, good morning folks thanks for taking my call.

Thanks.

Very interesting hearing from.

Everyone in the Q&A, thus far can you maybe help those of us that are new to the story.

Understand.

Was it.

From a business standpoint that occurred in 2021 timeframe that enabled your inflection to profitability.

I think maybe part of the frustration.

Of people watching the stock prices.

Folks are concerned whether this is a permanent inflection or temporarily inflection.

Strictly a function of the cyclicality of the.

Semi cap equipment market. So maybe if we could roll back four quarters, or so and talk about what happened there and maybe if you could big picture talk about.

Whether thats in your view as sustainable inflection and how that's sustainable.

Happy to do that first of all as Greg mentioned at one time, we were.

$700 million in it.

Thousand employees, and losing money hand over fist.

So we ended up selling.

The security system business, the Honeywell at $75 million, and we sold the RFID business to arrow for $238 million in.

Roll it back to $140 million company, and then started to invest in trying to figure out what we wanted to be when we grow up.

And it's really listening to our customers, what we call engineered solutions and every time a customer comes to us that we need this module we need this piece of equipment. We tried to design for them, we have as Wendy mentioned nearly 100 engineers.

With a tremendous amount of experience in power management.

Isn't rocket science, it's our customers, telling us what they need and that's where the ultra capacitor business has come from wind turbine operators going as they wanted to replace lead acid batteries.

Now with cell towers in the same area.

Actually progress rail saw the patents that we have in the ultra capacitors that go into wind turbines.

And they were building these electric over to go locomotives with lead acid batteries and wanted to know if we can provide something to replace to lead acid batteries are engineers looked at it and said well its a lower current but you can use lithium iron phosphate batteries to replace it and we designed a unit for them.

Jim.

And we've been selling them those products for.

Battery Department for about three years, and ultimately now they're bringing the production of those electric locomotives in the United States and they ask us if we can build the entire battery compartment.

And those battery compartments or over $1 million, a piece and it's one to 10 in each electric locomotive.

Every one of these opportunities came out of customer driven demand and as we get into selling somebody like caterpillar they keep coming at us with more and more products that they want us to design and build for them and that just one hundreds of customers. We have 20000 customers all over the world.

Customers are coming to us all the time about design this for us design that for us and that's what's made the success.

So we went.

From 2011 at a $140 million.

Adding these various products up to $160 million, where we broke even at a $176 million we made a profit.

And then the next year we were.

We're up at 200, and what Bob $224 million.

And you can see this year will be over $260 million and the profits that the.

Customers have taught us these products in the crowds that are going from it.

So thats a long drawn out speech, but that said, it's not rocket science as customers, telling us what they want us to bill and we have the engineering team and the experience to do it.

If you could be a little bit more specific though in 2021, specifically I understand the evolution, but what was what was the catalyst in 'twenty, one that drove that inflection in net margin.

The ultra capacitor business, we have been selling after capacitors for a company called Maxwell.

We're about 15 years and Maxwell was sold.

The Tesla and Tesla it took them out of the commercial industry and use their entire production for their automotive industry.

So we werent looking at about a $3 million business been ultra capacitors.

And we went looking for another source and found a division of LG in Korea Korea called LLS materials.

And we wrote an exclusive with them for ultra capacitors and at the same time next era, which is the largest wind turbine operator in the United States.

<unk> also had been working with Maxwell to replace lead acid batteries, and they went to LLS materials, and we referred to US and we spent two years working with them designing the ultracapacitor modules to replace the 18 modules and GE wind turbines.

And over a period of time, we've gotten two patents on that product and as Greg said, we've shipped over 30000 of those modules.

To date and now all the wind turbine operators are buying from us it's a little bit like a bridge club you've got next era is the biggest one that has 10 or 11000.

Wind turbines and service, but right behind it you have <unk> you have E mail.

In the energy on and on.

And so that business has just built out from there.

Then the people in the cellular towers, who also have the UBS uninterrupted power supply.

They came to us and said well can you replace the lead acid batteries for us.

Just been from.

One customer telling another that has built this business.

And we are just the tip of the iceberg the opportunity is incredible.

I think you can add to that is that when I look at the sales canvas also grew during that period.

Strong margin.

The growing almost $5 million, which adds to the topline growth and more profitability and growth.

Through the roof.

That was a big part of it.

Well I think all the business units in general are contributing to improved and canvas. The same concept. These are.

Medical Oems coming to us and saying can you build this custom display for us.

It goes into equipment like linear accelerator for cancer treatment that we sell to Varian now owned by Siemens or.

Laser guided surgery equipment that we sell the medtronic and so forth and so on.

So we have a reputation for being able to use our engineering capability.

We supply all of these requirements for the customers.

Do you guys have publicly traded competitors in the ultra capacitor space.

Not that the ones we are dealing with now Maxwell was but.

Okay.

Currently the other ones are that make ultra capacitors there.

But.

They don't make the actual modules themselves and that's another interesting topic is.

Who used to be competitors of Max will have now contacted us.

For other projects using their ultra capacitors as.

As an integrator.

And I think somebody mentioned on the call. We don't have a reputation right now being in the electric vehicle market, which is fine.

I think the opportunity for power management applications is higher but what we are getting is the reputation both from electric.

Modules.

To be an integrator of ultra capacitors in all kinds of products, that's like <unk> seen the UBS. The altra 3000, the altra Jen.

The locomotives, we're kind of unique design it and then integrator of ultra capacitors in niche products like Ed mentioned that the customer customer needs for their system.

Okay and last one for me guys in terms of the Lamb exposure in semi cap exposure does that.

Is that confined to power microwave or is that across our microwave ges healthcare in campus.

Only TMT TMT.

Okay. Thanks, Thanks for the color folks are very helpful.

Thank you Youre welcome.

Our next question comes from Mike Schellinger with Microcap Club your line is open.

Yes in a previous call you had mentioned in order or you are expecting for Ultracapacitors.

From for windmills.

There are an update you can provide on that.

Yes, we received the first order from a company called next era that we were just discussing and they're the largest wind turbine operator in the United States. They have.

About 10000, GE wind turbines and service and they are adding about 1000 a year.

And so we work with them for two years and have two patents on the device that actually is a unilateral interchangeable with the GE module, So theres 18, Michaels and each wind turbine and <unk>.

Our device will actually replace one of those modules and work with the other 17 lead acid.

If necessary.

So after a couple of years working with them they had them in beta sites for about a year.

Give us an order for 10 $10 million. So it's basically $10000 a wind turbine if you will and now.

As I mentioned, the other wind turbine operators have come to us and they're buying from us as well.

And.

That business just continues we probably did about $15 million in that business last year we.

We shipped almost 16000 units so far this fiscal year.

But one thing to add to that the order that I mentioned, probably in the last call. We did receive that it was a multimillion dollar order, which was phase two for Nextera.

That was booked and shipped in the quarter as I mentioned earlier.

I needed to get that in their wind turbine. So they did about a 30 day beta site testing on a kind of a version of the Altra 3000 that was for a different.

Turbine model, our engineers were able to redesign it within weeks.

Get them the product they test it for 30 days and then we will.

See the orders and going back to when he said.

The double and third shifts to make sure they got those products.

By the end of November so I believe that was the order imes.

Mentioned that we were expecting in the quarter Q2 that we did get and we did ship it which is part of the reason for the 150% growth.

Thank you.

Youre welcome.

We have a follow up from David Schneider Your line is open.

Hi.

Hi, there again I think it was last night when I realized.

Yeah.

This is just my own opinion.

The easy way to understand the Richardson electronics story is that.

Maybe four or five quarters from now plus or minus there's going to be a crossover.

The Ges segment the Korean electric.

Is going to be more than 50% of the operating income for the company.

At that point I think there would be a dramatic re rating.

Your stock.

As far as P/e multiple.

Other metrics.

Obviously right now everybody at least the way the stock is acting as paranoid about the semiconductor but.

It could be maybe four or five quarters from now.

Wondering if you can be in people's hands through discrete thinking about.

Does your company deserve a 20 or 30 p/e multiple.

And based on the numbers.

Yeah.

Sorry, yes.

Right yes.

Green energy is certainly our future.

Mhm.

Okay well.

Looking at the the.

The only published research is looking at the last Sidoti piece, and I kind of ballpark for calendar 'twenty for you may be you may be close to.

$2 in earnings.

Even if I reduce that to a buck 80.

People are going to be thinking your green energy company.

20 times <unk> is a little bit higher than what your stock is now.

So.

Anyway, that's really my only thought other than I would like to purchase one of those machines that makes the diamonds.

Few people that would like come diamonds.

Is there a little can I ask on the diamond at the machinery.

Hey, Thanks, good generator as well do you want to buy one well thank you.

How much does the currently.

Okay.

The generator, it's about $20000 the six kilowatt generator.

That's not a full system David.

That's just the generator.

The generator.

Our thanks go out to.

Two.

Alright, and is there a waiting list for the full system.

Well, let me get in contact with.

Actually it is on the <unk>.

Alright this year.

Alright.

Okay, alright, well work on that Okay alright.

Okay David.

Alright.

Sure.

We have another follow up from Pete Taylor with <unk> investment partners. Your line is open.

Yes, Thank you gentlemen.

A couple of I'll call or two ago, you talked about the replacement tube business, our medical imaging and the indication was it was losing about five or $6 million, a year, which was 12 million shares.

Labor at a $40 50, a share you've talked about the ability to bring that to.

To breakeven or profitability.

Over say the.

Next.

Four to eight quarters, where do we stand in shrinking that loss and pushing it towards profitability.

Yeah, Hi, good question. So while everybody was talking I was looking at that exact same question.

And.

In the in the current fiscal year last year, we lost.

Little over five almost $5 5 million this year, we're trending better.

We'll still have a loss in FY 'twenty three it should be in the three to $3 5 million.

$2 million improvement to the bottom line and then we still are trending and believe we should be able to hit that breakeven point by the fourth quarter of FY 'twenty four.

Siemens programs coming along when that gets launched and then I mentioned a couple of other things that we're looking at to kind of give us a little breathing room.

We feel that we'll be at that point by again, the fourth quarter of FY 'twenty four we're not changing our anticipation there.

So so this fiscal year, reducing pre tax about <unk> 25, a share and by the end of next fiscal year youll be breakeven and have the ability to make profit. This has been kind of a bugaboo for you guys. So getting this Toyota.

<unk> actually making generating good revenue and profit in the segment profit center would be a huge shift.

Youre absolutely right.

And it puts the puts.

Right now this year pre tax put us into the next year.

Got you.

$15 25, a share and pre tax earnings power.

In your pocket, which is I'm asking behalf okay.

Okay.

You guys very much.

Keep up the good work.

Thank you.

We also have a follow up from Daniel burner with burner family funds. Your line is open.

Hi, again guys on.

The GE turbine business you mentioned.

You spoke a little bit briefly about the Rollouts are you going to be in every one of these.

GE turbines.

Can you give us a little bit more color.

On what could potentially go wrong, there or is it delays coming from GE that might prevent some of these rollouts in the next few quarters or is it substitution of a.

Competitor module.

I guess, what's preventing you from being a little bit firmer on.

The guidance.

Coming energy specifically.

Well two things one the only hiccup that we've seen.

<unk>, we have over 30000 units in the field with.

Little to no.

Rma's so the product technically is amazingly sound.

Again, we have still have issues with piece parts and.

So anything that could slow that down would be a hiccup in our ability to get piece parts to build the product, but the backlog and the dates that we currently have along with the forecast they have given us.

There is no indication that I can see that would slow the program down other than our ability to make them fast enough to fill.

Their needs and as I mentioned before it's very project based.

As I've just mentioned literally that we got the orders in November and they wanted them shipped at the end of the month.

A multimillion dollar order so that's how it goes.

So.

The other part of it is we really don't know the upside of the GE agreement.

<unk>.

Today about half of the GE fleet.

Has service contracts, that's part of the fleet that we Couldnt address so we virtually with this program with GE doubled our Sam.

We can service.

So from what I see right now there is only upside in terms of demand.

And exclusivity as Ed mentioned, we have two patents on the product.

This is one of the reasons GE has decided not to build their own or even look at building their own.

So yes.

On a day like we have been experiencing for the last couple of years its piece parts and the ability to get the supply chain to the point, where we can meet the customers' demands.

As they requested.

Thanks, very much and congratulations again.

Thank you very much.

Thank you there is no other questions in the queue I would like to turn the call back to Mr. Ed Richardson for closing remarks.

Thank you Catherine.

As we closed out our 70 <unk> anniversary celebration and this has been our 75 year.

We're more excited than ever about the future as you can tell by our conversation.

Please give us a call and plan to visit if you have any questions that the heck provide easier to show you what we do than to tell you about it.

Wed love to show you, our manufacturing engineering facility and you're welcome to visit Us anytime.

Look forward to our ongoing discussions and to sharing our fiscal 2023 third quarter performance with you in April .

Very much you have further questions give us a call.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise Johan during Q&A, you can dial star one one.

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Good day, and thank you for standby and welcome to the Richardson Electronics earnings call for the second quarter fiscal year 2023 conference call at this time.

Pits are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one one on your telephone please be.

Today's conference is being recorded.

I'd now like to turn the conference over to your speaker.

Today, Ed Richardson CEO . Please go ahead.

Good morning, and happy New year, welcome to Richardson Electronics conference call for the second quarter of fiscal year 2023.

Joining me today are Robert Ben Chief Financial Officer, Wendy <unk>, Chief operating Officer, and General manager for Richardson Healthcare Greg.

Powered grown general manager of our power and microwave technologies group and our newest business unit.

Energy solutions, and yes, Rupert general manager of canvas.

As a reminder, this call will be recorded and will be available for playback.

I would also like to remind you that we'll be making forward looking statements.

They are based on current expectations and involve risks and uncertainties.

Therefore, our actual results could be materially different.

Please refer to our press release and SEC filings for an explanation of our risk factors.

We're extremely pleased with our strong financial performance in the second quarter.

Despite global economic challenges rising interest rate supply chain delays.

And recession fears sales in the second quarter of fiscal 2023 exceeded our expectations and were up 22, 1% over Q2 of last year.

There are times, we have teams working six sometimes seven days a week to ensure we met customer demands.

Sales growth was particularly strong in green energy solutions.

Sales of our patented ultra capacitor.

Passenger modules increase their microwave tubes for a synthetic diamond manufacturing.

And power management solutions for electric cars and locomotives.

Sales were also strong for the semiconductor wafer fab market and canvas.

There are many programs in the works to adapt to changing market conditions and continue this growth.

Bob.

Key financial Officer will first review, our second quarter financial performance in more detail.

Then Greg Wendy and yes, we will provide more detail on the quarter and key growth initiatives.

Thank you Ed and good morning, I will review our financial results for our second quarter and first six months of fiscal year 2023, followed by a review of our cash position.

Net sales for the second quarter of fiscal 2023 increased 22, 1% to $65 9 million compared to net sales of $54 1 million in the prior year second quarter.

Due to higher net sales at our power and microwave technologies or PMT Green energy solutions, our Ges and.

And canvas business units, partially offset by slightly lower sales in our healthcare business unit.

Net sales for Ges increased to seven 4 million or 153%.

Last year's second quarter.

Ges combines our key technology partners and engineered solutions capabilities to design and manufacture products.

Our fast growing green energy market and power management applications.

Canvas sales increased by 0.9 million or 10, 2% due to strong customer demand in North America.

Richardson healthcare sales decreased <unk> 2 million or four 7%.

Due to a decrease in part sales, partially offset by increased equipment and Cte tube sales.

Total company backlog was $192 6 million in the second quarter of fiscal 2023 up from $146 9 million at the end of the second quarter of fiscal 2022.

Gross margin for the second quarter was 33, 2% of net sales compared to 32, 7% of net sales in last year's second quarter.

Pmt's margin increased to 34, 5% from 33, 7%.

And Ges margin increased to 33, 9% from 32, 3% primarily due to product mix.

Canvas as gross margin decreased to 29, 7%.

From 31, 8% because of product mix and foreign exchange effects.

Health care is gross margin.

Was 23, 2% in the second quarter of fiscal 2023 compared to 24, 5% in the prior year second quarter due to product mix.

Operating expenses were $14 7 million for the second quarter of fiscal 2023 compared to $13 1 million in the second quarter of fiscal 2022.

The increase in operating expenses resulted from higher employee compensation.

Including incentive expense from significantly higher operating income and higher travel costs.

Operating expenses as a percentage of net sales decreased to 22, 3% during the second quarter fiscal 2023 compared to 24, 3% during the second quarter of fiscal 2022.

The company reported operating income of $7 2 million or 10, 9% of net sales for the second quarter of fiscal 2023 versus operating income of $4 5 million or eight 4% of net sales in the second quarter of last year.

Other expenses for the second quarter fiscal 2023, including foreign exchange.

Partially offset by interest income were zero point $1 million.

Compared to other income of <unk> 2 million.

In the second quarter of fiscal 2022.

Income tax expense was $1 5 million for the second quarter fiscal 2023, or 21, 5% effective tax rate versus <unk> 6 million in the prior year second quarter.

Due to the use of federal Nols in fiscal 2022.

Net income was $5 5 million or eight 4% of net sales for the second quarter of fiscal 2023.

As compared to a net income of $4 1 million.

Seven 6% of net sales in the second quarter fiscal 2022.

Earnings per common share on a diluted basis in the second quarter of fiscal 2023 were <unk> 39.

Compared to <unk> 30 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 2023.

Net sales for the first six months of fiscal year 2023 were $133 5 million an increase of 23, 9% from $107 7 million in the first six months of fiscal year 2022.

Net sales increased by $8 7 million or 11, 2% for PMT.

$14 3 million or 177, 9% for Ges.

$2 9 million or 16, 5% for canvas.

Zero point $9 million or 16, 5% for Richardson healthcare.

Gross margin increased to 33, 6% from 31, 5%.

Primarily reflecting a favorable product mix in PMT Ges decreased component scrap expenses and improved manufacturing absorption and healthcare, partially offset by unfavorable product mix and foreign currency effects for canvas.

Operating expenses were $28 9 million for the first six months of the fiscal year.

Which represented an increase of $2 3 million from the first six months of the last fiscal year.

The increase was due to higher employee compensation and travel expenses.

Income for the first six months of fiscal year, 2023 was $16 1 million or 12% of net sales as compared to an operating income of $7 3 million.

Or six 8% of net sales for the first six months of fiscal year 2022.

Other expense for the first six months of fiscal 2023, including interest income and foreign exchange was zero point $5 million.

As compared to other income of <unk> 1 million for the first six months of fiscal 2022.

The income tax provision was $3 6 million during the first six months of fiscal 2023.

Or 23, 4% effective tax rate.

Versus 0.7 million in the prior year's first six months.

Due to the use of federal Nols in fiscal 2022.

The company reported net income of $11 9 million or eight 9% of net sales for the first six months of fiscal year 2023.

Versus $6 8 million or six 3% for the first six months of fiscal year 2022.

Earnings per common share on diluted basis.

Six months of fiscal 2023 were 83.

Compared to <unk> 50 per common share on diluted basis in the prior year's first six months.

The company continued to invest in working capital to support its growth initiatives inventory grew to $97 4 million from $89 1 million at the end of the first quarter of fiscal 2023.

To support continued increases in sales.

Accounts receivable increased to $34 9 million from $32 6 million at the end of the first quarter of fiscal 2023 due to the high sales growth.

Our DSO was 38 days versus 39 days in the first quarter of fiscal 2023.

The company is working with its suppliers to better align payment terms with both our suppliers and customers.

Capital expenditures were $1 3 million in the second quarter of fiscal 2023 versus zero point $8 million in the second quarter of fiscal year 2022, approximately zero point $5 million related to investments in manufacturing.

Zero point $3 million for our facilities.

Zero point $3 million for our it system.

<unk> 2 million was for our health care business.

We expect a higher level of capital expenditures in fiscal 2023.

As we make additional investments in our manufacturing capabilities and facilities.

We paid zero point $8 million in cash dividends in the second quarter.

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 third quarter of fiscal 2023.

Now I will turn the call over to Greg who will discuss the results for our PMT and Ges business groups.

Thank you Bob and good morning, everyone.

Both of our strategic business units power and microwave technologies or PMT in Green energy solutions or Ges drove strong growth in our second quarter.

Our Ges group had exceptional growth as the demand for Green energy applications, such as wind energy electric vehicles and energy storage continues to grow.

We continue to apply and focus on resources to this extremely important strategic business unit and growth opportunity for Richardson electronics.

Sales were up 153% in Q2 of FY 'twenty three at $12 3 million versus $4 9 million last fiscal year and our current backlog is $52 5 million.

Gross margin also increased to 33, 9% versus 32, 3% in the same period last fiscal year.

As mentioned previously this group houses numerous successful products such as the Ultra 3000 electric locomotive battery modules. The altra Gen 3000 products using synthetic diamond manufacturing.

In addition, we've had numerous products and design prototype and beta testing.

This strategy developing niche products and technology is key to our long term success.

The growth of customers and products and Ges continues as several major Oems are weekly discussions with our engineering team and the development of energy storage products and other green energy applications with.

Plan to announce several new products in the first half of calendar 2023.

Sales for the power and microwave technologies group in the second quarter of fiscal 2023 increased 10, 2% to $40 6 million versus $36 8 million in Q2 last fiscal year.

Gross margin also increased in the quarter to 34, 5% versus 33, 7%.

In Q2 last fiscal year, which was mainly due to continued success in our RF and wireless infrastructure business in a very strong quarter for semiconductor wafer fabrication equipment business.

Our engineering solutions strategy led by our global Technology partners, such as <unk> may come Nokia wave Ellis materials, ammo Greentech and Fuji semiconductor key tube manufacturers and partners include CPI Telus the Shimbun micro devices previously known as N JRC and photonics.

Each of our global partners helps us meet in managed customer requirements.

Our team has done an excellent job identifying and cultivating these relationships will continue to review and add partners that fill technology gaps in our offering and support our growth.

Our growing in house design engineering and manufacturing teams are doing a great job supporting the increased demand for current products and new product designs.

The team also supported product designs for key growth markets, focusing on Ges, such as the Ultra 3000 Ultra Gen 3000, and our power management module for electric locomotives I am pleased with the progress we're making we will continue to identify develop and introduce new products and technologies for Green energy and other power management.

Patients.

Our growth strategy has proven to be highly successful over the years and we will continue to develop new products.

<unk> increased our customer base revenue and profit by capitalizing on our existing demand creation infrastructure.

While we're excited about the future we remain challenged by longer lead times and constraints on the overall supply chain. This affects both our component business engineered solutions products.

We're also experiencing some headwinds in some markets are showing a slowdown from the highs we hit in 2022. However, we continue to grow both our top and bottom lines by gaining market share introducing new products and technology partners and expanding the value we provide our customers.

We are steadfast in creative focus on customers, we will continue to excel by taking advantage of opportunities.

When they arise.

Thanks, Greg Good morning, everyone second quarter sales for healthcare were $2 9 million a slight decrease of four 7% versus Q2 of FY 'twenty two.

The final week of the quarter to Alta tubes were held up due to a cancelled flight and we were not able to recognize the revenue on the bright side. The sales are a nice start to Q3 had the shift as planned Q2 revenue would have been above the prior year period, and we will be discussing a record sales quarter for the number of <unk> units.

Tube sales were helped by strong demand in China for the Alta 750, DMG as well as Stratton Z tubes sold as betas in the Americas.

Sales in the quarter were also higher for Cte systems, when compared to Q2 last year.

Gross margin in the second quarter declined to 23, 2% versus 24, 5% in Q2 last year, primarily reflecting a lower percentage of higher margin part sales.

<unk> remained in production throughout the quarter, we did experience a significant equipment issue, which prevented us from making RCT two production law.

This resulted in a small negative manufacturing variance we've resolved the issue and are back in full production.

We are making steady progress on the Siemens prepared to program. This is a series of four tube types, including this Jay Z Amex, NXP and NXP 46.

The Siemens install base is considerably larger than canon and there are no third party replacement options for these tumor types.

<unk> is currently in beta site testing and we remain on track to fully release to repair two pending submission of FDA paperwork.

We anticipate the Siemens Nx series will follow in the first half of calendar year 2023.

As noted in prior calls the Siemens program is a critical element for healthcare business unit to reach its goal of providing positive operating contribution to the company by Q4 of FY 'twenty four.

In addition to our Siemens program, we are evaluating several new programs that will further improve cte tube sales and factory utilization.

These programs include reloading tubes in Brazil, a market, where we currently have no tube sales and partnering with an international company to reload and sell several other tumor types in the Americas.

Programs may have a positive impact on our revenue in FY 'twenty four depending on how quickly we can validate and achieve regulatory approvals.

I will now turn the call over to Andrew to discuss the results for canvas.

Thanks, Wendy and good morning, everyone.

Canvas engineers manufacturers in SaaS custom displays to original equipment manufacturers, and then industrial and medical markets throughout the world.

Ken must deliver outstanding performance with sales of $10 1 million.

Second quarter of fiscal 2023.

Strong customer demand, primarily in North America, South of 10, 2% increase in sales over the same period last year.

Gross margin as a percentage of net sales was 29, 7% during the second quarter of fiscal 2023 compared to 31, 8%.

During the second quarter of fiscal 2022.

The decrease in gross margin was primarily.

Related to the product mix and foreign currency effects.

Our backlog remains very healthy, which we expect will support strong faith throughout fiscal 2023 and into fiscal 2024.

Given the number of projects currently in the engineering stage, we are well positioned for continued growth.

Our expectations assume no impact from current supply chain uptake and demand has not negatively impacted bank recessionary pressure, we continue to deal with extended lead times for selected components from our Asian suppliers.

To compensate for this our inventory on hand increased during the quarter.

It is important to note that all our monitor course that customer and our inventory is allocated for specific customer orders.

So we believe there is minimal risk to carrying slightly higher inventory levels.

During the quarter, we received several new orders from both existing and first time medical OEM customers.

All of these applications include cell analyzer.

Cardiac ablation.

Plus laser systems Houston.

Got tipsy.

Robotic assisted surgery.

Medical device control one.

Monarch tourists for dental treatment chairs.

Prostate biopsy systems surgical navigation.

Vacation to trek instruments throughout a procedure.

Laser systems that treat Cornell appeared Ltc's Antimonic trust used in radiation therapy.

In the nonmedical space our products are used in a variety of commercial and industrial applications.

This includes control room on it for the public transportation space Human machine interfaces HMA for packaging machines in the food industry for.

For radiation measurement systems and process automation.

I am very proud of our teams around the world and I'm extremely pleased with exceptional operating performance.

Our strong and growing customer relationships, along with our backlog position us for future growth.

From the variety 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 low class service.

We continue to work closely with our partners to meet the demands of our customers, particularly with the challenges proton by industry wide supply chain delays.

I will now turn the call back over to Ed.

Congratulations again on another great quarter.

As you've heard from our business unit managers, there are many programs fueling our growth.

This product market and geographic diversity provides a natural hedge against economic challenges and global political tension.

Many of you are aware of the recent shifts.

And its impact on semiconductor industry.

This act for advanced semiconductor wafer fab equipment manufacturers from shipping certain advanced technology equipment to China.

While we know this will have an impact on our business in calendar 2023, we're confident in our financial performance will be remained strong for the balance of our fiscal year.

All of our manufacturing employees are cross trained and can be moved to different areas to meet significant growth and demand for our green energy solutions.

By Reallocating resources, we can meet.

Demand, while maintaining our core competencies and formulary market and cost controls.

We remain firmly committed to our employees, who have helped shape our path to success and to our partners and our shareholders.

With our focus on customer driven solutions that help improve the environment.

We expect strong year over year revenue and earnings growth throughout the remainder of fiscal 2023.

At this time, we'll be happy to answer your questions.

Thank you as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Okay.

Yes.

And our first question comes from Karthik Rosa J from Bloomberg Your line is open.

Okay.

Hello.

Yes go ahead your line is open.

Okay.

Our next question comes from Andrew <unk> with Sidoti Your line is open.

Hi, and thank you for taking my <unk>.

Linden and Richmond, everyone else.

Congratulations on the great quarter again.

I'm just curious I mean, you touched on the semiconductors.

Well, what kind of visibility do you have there for the rest of the year end and sort of when do you think you will have visibility into the.

Next year in terms of the demand for semiconductor.

So we have good visibility for the rest of our fiscal year.

Q3 and Q4.

We feel very strong about.

Including opportunities within semi market, but thats about as far as we're able to see right now.

Okay, and then just on.

Sort of.

Sure.

You have very strong demand in the yes that might make up for any softness.

And the semiconductor can you just talk about maybe some opportunities ended yes that is a little bit further out that you might not have talked as much about.

Yes, hi.

So the <unk> program as I mentioned has introduced a number of products that are getting huge traction. We also have a number of products in the pipeline.

And if we look at the introduction the Sam for those products.

And when these beta site testing will be completed and go into production orders, we're very confident that any gross margin dollar.

Reduction that we'll get from Lam.

The semiconductor wafer fab market will more than make up with the <unk>.

Current products that are getting traction with other customers, but also some new products, we're introducing in Q3.

Okay. Thank you and I think in your remarks, you talked about some.

A slowdown from highs where that was.

Is that.

Related semiconductor was that related to something else looking at that.

Elaborate on that yes.

Yes, mainly in.

In reference to the semiconductor wafer fab market.

As you know we had record quarters for the past four quarters with our semiconductor wafer fab market.

<unk>.

We're looking at based on information from them that there could be a slowdown in the FY 'twenty four.

Okay. Thank you and in terms of Congress I don't think you mentioned less.

What's the backlog status that for canvas right now.

End of the quarter.

Yes, you want to answer that it's about what yes, yes sure absolutely so the.

Backlog is actually up.

Is the second highest backlog level behalf since ever its 49 point.

$4 million so.

Really happy with that.

And that's up from about pardon me you had last quarter right.

Yep.

And the nice increase.

Yes.

<unk> thousand 701 last quarter sorry.

Okay.

And a good increase.

And London.

The health care it seems like you had some.

Nice work Cat West also have those being shipped in this quarter instead.

But also some issues with their production.

How much did that stall yes.

Yes, that's a good question Ashwin.

In the quarter.

The production the equipment that that caused us some problems within the last month of the quarter and overall.

This may be 1% of margin. So it wasn't a significant we were really doing well through the first part of the quarter in terms of producing too.

So it was a small blip.

But again, maybe a percentage point in the gross margin.

Okay. Thank you and then one last question if I may.

Those that do work with our single Hudson would you are now also working with other partners.

It was a question regarding what business.

And the Oems in General are you are they single person with you are they.

Also working with other partners.

Yes.

On the Ges side on the progress we have today that for example, the Altra 3000, we're exclusive with the four top owner operators of GE wind turbines in North America.

No.

Almost all of our products since they are unique it's a unique technology.

We do have competitors, but it's a business we have today, we are sole source.

Okay. Thank you that's all for me.

Thank you thanks Tanya.

Our next question comes from Denis Amato, He's a shareholder your line is open.

Good morning, Dennis.

And then if I can hear US we can't hear you you might drive that.

Eric can you hear me now.

Okay perfect.

Yes, no I was just wanted to congratulate you on the quarter as well.

Thank you I'm sure.

I'm sure you're disappointed as all of us are by the less than enthusiastic response.

Market is giving you, but my question is for Bob Ben.

I noticed of the $30 million in cash.

$5 million shows up is being invested in short term.

Given the.

The recent uptick in short term rates around the world is there any additional opportunities too.

Invest some of the cash to provide return.

Hi, Dennis that's a good question, we yes, we do.

Do have an investment committee that looks at that each quarter and we were able to get as you were noting the increase in interest rates, we were able to get an increase in rates, but still the markets have not moved up that substantially in rates. So, but we're consistently looking at it and as you noted we have $5 million of that invested.

I might add to that.

As you know, we're very global company and we have many locations around the world and so our cashes is located in many different countries and so.

Most of it is here in the U S of course, where we have the $5 million invested but other than that I believe we have some invested in China, but the rest is used to operate the business.

So I mean, what prevents you from buying real short term bill.

Bills or whatever I mean, you could still.

Keep it basically.

Okay.

Accessible and still earn.

And something on it.

Even even the European money money market rates are up a couple percent.

Sure.

As I as I noted, we're consistently looking at that but.

But again, we do have.

We have many locations around the world approximately 25 in many different countries. So we need the cash on hand to operate and run the business, but when we can we do invest it.

But we can only do that for so long.

Okay.

Understood a while ago when the rates are so low but.

Come up quite a bit.

You would need to sharpen the pencil a little made.

Okay. Thanks, Okay. Thank you. Thank you.

One woman.

Sure.

Our next question comes from David Schneider Your line is open.

Hello, I have a few questions.

Good morning, David Hey, David Hi.

Hi, there how are you guys.

What youre doing with electric trains.

If I would take a train to Manhattan Theres electric lines about the train and people are not shoveling coal into.

In engine or burning wood for power so can.

Can you maybe explain to everyone.

Basically.

Electrification effort and what your role.

It would be in it and then I have a couple of other questions.

Well right now our current program and products that we're working on as our partners progress rail.

During the process of designing and.

Manufacturing electric vehicles both.

For North America owner operators in Brazil.

Brazil location for international.

We do everything from build the battery modules that will go into the train itself to the battery modules and the racks.

To the third part we're doing in that part we are doing here in La Fox is building the entire superstructure, which includes controlling circuitry fire suppression the whole thing.

They have or that market. If you will has an edict by 2030 to decarbonize.

I don't have the percent right with me today of their diesel locomotives. So we're also working on products.

Anything from starter modules.

That will be put into the diesel locomotives to get the percent.

Of that product dream.

By 2000 2030.

So for the electric locomotive market.

We are designing and manufacturing if you will the battery modules that will replace the diesel engine.

Right now we have been awarded.

Three different trains so I'm sorry for different trains through progress rail.

We continue to work with them on a weekly basis for the design and implementation for them, but they are prototypes.

Going forward. If you look at this this is probably today on the books over $25 million of prototype orders. So you can kind of see the opportunity here. Once this becomes as you mentioned commonplace too.

Bert all the diesel locomotives too.

Trick.

Triton, who is the largest north America manufacturer of charging stations.

So thats kind of what we're playing now obviously, that's a multibillion dollar market and one thing that Richardson has done a good job I think is finding niche products and niche applications through our component suppliers, but also our internal engineering capabilities to offer true value.

As this market has launched and we are right at the cusp of it we are in the middle of it.

And so we're very excited not only about FY 'twenty three but the future.

These type of products that will also expand into other applications as we learn the technology.

Yeah, it's interesting when people think of.

Moving aside from trends when people think of automotive electric electrification.

Your name doesn't.

Come up so.

I think my guess is over the next few quarters sequentially. Hopefully you can discuss more what youre doing in that area.

Yes, it's interesting.

We're really not in the Ultracapacitor battery business, we are in power management and so yes. This is probably a huge.

Obviously, a huge opportunity, but there's other power management products that we're looking at for forklifts and other products like that because as things turned degree and the entire power management section as you can see what the locomotive needs to change and we have a unique ability so much experience with battery technology.

We've been dealing with Ultracapacitors for almost 20 years and we have some key people on staff that are very knowledgeable and so really we're not looking for standard products. So much but just niche products that are unique to the customer to help them win market share in this case.

<unk> rail is on that run rate.

Right.

Okay.

It was a month or so ago the company had a news release regarding.

Become a global.

Distributor for I don't have the press release in front of me, but for a company involved in gallon base.

Circuitry can you maybe flesh out what that could mean for the company.

Yes, <unk> seen over the past probably six years, a number of press releases of technology partners, we're signing.

Two as Bob had mentioned, we are a true global company and the smaller companies that have a unique technology.

Based on I would also add that to our unique capability for niche products need somebody to take those products to market, It's an engineering sales.

Very little distribution, if you will where we design the components into customers and I'll use the ultra three thousands of Prime example, we are working with the customer of ultra capacitor component.

Out of that came their need for a ultracapacitor module.

And so.

We have a very strong lineup of technology partners gallium.

As a startup company. However, it's a group of engineers that have been in the power RF business for.

135 plus years.

They've got some real key people gallium nitride, which is their key technology is the technology of choice both for <unk> and power management applications.

The things, we're seeing all the products have been talking about here.

Specific the last three years.

All are going to what remote monitoring.

And that's the next step of our product we have the key RF and wireless component suppliers in the world that we work with.

On developing key products that will add to our portfolio, where all of these products that we have today that are going 300 feet up in a wind turbine or 20 miles out without a solar farm or some locomotive going across Wyoming.

They will be able to remotely monitor the battery the power of the system itself.

So it's just an iteration of our model that's the model that we lead with technology partners and with a very unique.

Ability internally.

For RF power and power management, we were able to come up with these niche products.

To support these applications.

Okay well.

I think it was.

Well at least three quarters ago. During one of your conference calls with stock was 11, and a fraction and I said someone was.

Not happy where the stock was and I said that.

Well like the stock more 2017, and 11, so I guess I'll do it again I think people like the stock more stock is roughly <unk>.

$19 97.

I think all I think more 2000 1997.

97%.

And I'm willing to wait for that no problem.

Thank you Doug.

Thanks very much. Thank you. Thanks, David Thank you David.

Thank you. Our next question comes from Brett Davidson with <unk>. Your line is open.

Good morning, this is <unk>.

Okay.

I'm enjoying the ride here.

Okay. That's helpful.

Okay.

The change in the backlog.

Wondering if you can just give me an idea.

What that represents or are you guys.

Better able to keep up with the order flow.

Were there customers holding back until the end of the calendar year.

What what does that small drop in the backlog represents.

I'll add to it from a PMT and Ges point of view most of our business specifically on the Green energy side is project based.

<unk> will get large bookings one quarter and then three quarters and then when we get the components and we will have huge share.

Shipments and that's just kind of the right and if you just look at.

FY 'twenty two of the four quarters, we went from an $84 million backlog to $152 million backlog.

To get to a 150% growth. We finally got the components and we needed because I think I mentioned already that the lead times and supply chain issues Liza stuff, we're looking at if not improve much.

And so it's really <unk>.

<unk> based cyclical type thing, where you're going to have huge bookings.

For example in the fourth quarter of just in May of last year, we had $1 68.

And this time around we're a little over one so it's just kind of cyclical in terms of what we're able to get out of the factory to.

The customer in the quarter and based on their timing of bookings over the next.

Session for example.

We were awarded.

About $15 million of new business for electric locomotives in Q2, However that does not show up in our bookings because we do not booked at until we have scheduled delivery.

Of the product. So if that was in there a book to bill would be way over on that backlog would actually be up quite a bit in the quarter. So.

Just the nature of the business.

So let me let me rephrase then things are just going to be kind of lumpy and you really can't read anything into it.

I wouldn't read a lot into it a fluctuation of.

5% to 10% in our backlog I wouldn't read anything into that based on the forecast that we're seeing and the traction we're getting.

The way, it's ordered our backlog will fluctuate yes.

Got it.

The Green energy.

The sales were up about 50% from the prior quarter.

Is that something we can expect.

Yes.

Continued throughout most of this year.

I mean is that the type of growth, we're looking at here or.

That's kind of an anomaly and things are going to slow up a bit.

Yes, one thing I know about forecast, they're going to be wrong, and they're going to be higher low, but I can tell you in Q3 based on the backlog and scheduled shipments in the <unk>.

Forecast builds we will see something very similar to that in Q3.

That's about as much visibility as I can give you right now.

Alright, and then I got one more.

And.

It goes back to the press release.

My favorite line here.

We believe sales of sales and profits will continue to significantly increase in fiscal 2023.

I'm just looking for a little clarity on that is.

Is that significantly increased quarter over quarter.

From the comparable quarter last year and what is significant.

Yes, so I'll take that one first.

Over prior year, Yes, we believe we will see increases.

For Us I think we usually say in the 10% to 15% range increases Q3, and Q4 are solid and that's about as far as we are taking are forward looking forecast right now.

It looks good.

Alright, well. Thank you very much I appreciate your time.

Anytime you. Thank you. Thank you.

Our next question comes from Eric Crown with Ritchie Capital. Your line is open.

Yes.

Hey, good morning, guys.

Hey, good morning, Congratulations again on another great quarter.

My first question I had is I guess can you kind of speak to kind of a neat.

Updates within the more.

Near term, the kind of innovations and opportunities.

Passengers.

Thinking more specifically the work Youre doing with Siemens.

On the application.

<unk> can update.

Yes.

Sure.

So, let's just start from the top in terms of.

Both ultra capacitors, but also as you know.

The major progress lithium ion battery.

But it's the same same program so we're getting a.

Calendar year 2023.

Forecasts from our customers and it looks like that business is going to be up in the 20% to 25% range.

Three.

Just to add to that today the life of the program, we've shipped and have in the field over 30000.

Altra three thousands.

So the second part.

<unk> talk about real quick if you like.

<unk> 3000.

Thats used in <unk> applications.

One is T mobile continued to test that product.

Kind of like T mobile is going to be a little bit longer testing need a little bit better.

Before we implement that.

Yes, given the proposal.

Large critical facility environment here in Illinois.

On the Asa Gen 3000, but the big one.

Using the ultra technology.

And generated but as a starter module.

We are working with two of the larger.

Electric vehicle manufacturers in the world.

Together charter modules for them and both sites in December had received the prototype product for that.

In addition to that.

We're introducing a couple of new products in Q3.

We do have beta site testing with Siemens.

Siemens all through 3000 modules for.

Suppliers also such as Siemens Susanne.

<unk> from European suppliers.

That program is up and running.

And then also.

We'll be using the ultra UBS 3000 beds in the wind turbines.

Yes.

Power supply that.

They can also currently used lead acid batteries.

Asking to replace.

And finally, an update on this program that keeps getting traction.

<unk>.

Most of our businesses with owner operators that do not have contracts.

For services.

We had been contracted in a pool.

<unk> is going to put our product in their portfolio of products to all.

Wind turbines.

Starting at the end of January .

We're very excited about that on paper.

But right now we don't know as we developed this program. So we look at we also 3000 still going strong as people in phase one phase III phase III of the rollout.

The answer to Gen 3000 technology, which we've developed.

<unk>.

Patent pending.

That's getting good traction in terms of beta sites and other products.

UBS in the multi brand will be introduced in Q3, and then finally the program we have with GE directly.

Also very exciting.

Going forward.

Of an overall summary of the current products that where we are.

Looking for short term, which means.

Both revenue.

Sure.

And Thats one of the exciting things in motion.

I guess the other question.

You guys mentioned you know.

Really kind of still fall.

We'll throttle in terms of.

Production getting orders out employees working six to seven days a week in prior quarters, you can see you've made a lot of progress in bringing in more people are using more labor.

Is that something you're just continuing to be a focus in how youre thinking about that going into the year.

So on the on the HR side, Yes, we have continued to hire but what we're doing now is making sure.

And that there could be some slowdown in the semiconductor market.

Made sure everybody, we've hired cross screen and they can now be moved from for example, the semi production into.

Energy production and even into health care production.

We will continue to hire strategically, which is primarily engineering position with all of the program as Greg mentioned, we're constantly looking for different types of engineers to supplement the team.

But from a production standpoint.

Work within the confines of who we have right now.

Okay.

Given updated number on the number of engineers.

So we need or that we had.

Thank you.

That we have.

Well, we have probably close to 100 all in now when you consider our field engineers and our application engineered equipment engineering and that we've added in total is 500.

Pablo with engineers okay.

Okay.

The last question that you guys think you'd asked this a lot, but just maybe a little bit different angle or just a little bit.

Different.

Aspect to it is within the <unk>.

How many wafer business.

Are you seeing from your customers.

Clearly for Q3 Q4 for your fiscal year, but what are you kind of hearing from your customers from their business or the new information or insights that you're getting from that.

Yes so.

Look at the overall market and they've done the week of that provide a.

Niche product to that market and so it's hard for them to deregulate what.

How would that affect our business with them, but right now the visibility we have.

That.

We're going to be spine down the balance of the fiscal year, but going forward theyre seeing their end customers and also for.

The China issue Ed mentioned.

It could be a slowdown, but they haven't been able to offset that exactly how that asset.

And that's when he was talking about.

The ability and the forecast for FY 'twenty.

Okay, great. Thank you guys. That's all I have.

Thank you.

Our next question comes from Pete Taylor with <unk> investment partners. Your line is open.

Thank you very much.

Questions.

How are you guys doing.

Great Great number.

Market doesn't want to give you a respect you guys are the rosin J&J successful investments.

Okay.

Yes, so right now 95% of our business is North America.

The products I mentioned for <unk> and Cvs.

Two of the three largest.

Manufacturers of wind turbines in Europe , and they're pushing us very very hard for this product.

So this product is in essence, a replacement product.

They need to.

Get done to get those lead acid batteries out so our.

Our market share is small enough that we feel that the market growth will be very strong for us, but the market itself is all base to me what I've seen and heard is on subsidies and.

There's a lot of push to get certain things done. So they can collect your sub as subsidies for 2022.

The end of the year, which.

It was part of our large shipments in working three shifts because we need to get those products to them in this fiscal year.

So.

Rollouts of new wind turbines.

I don't think its accelerating much but the upgrading our refurbishing they call it using our products whether it be the altra 3000, other UBS or our shunt, which is a a product we've developed for <unk>, specifically that seems to be continuing based on their forecast.

'twenty three is going to be another strong year for us.

Okay.

There seems to be a lot of misunderstanding in fact, when you started to talk about the semi cap equipment space.

The idea that there was im certainly beyond the next two quarters the market immediately sold your stock pretty aggressively.

Can you give people a better understanding of the role that plays and as you said everyone is cross trained do you actually think the issues in semi cap equipment. If they do show up in the next fiscal year will do anything to really slow your overall growth or will they simply allow you to take those people who aren't being utilized.

In semi cap equipment or might not be utilized can push them over to these other faster growing areas.

Yes, I don't think its going to slow our goals of 10% to 15% growth.

Going forward.

Internal numbers.

The semiconductor wafer fab market, historically and I'm talking about the last 20 years that.

I have been involved in and also this company is.

It's always been cyclical it runs for about a year to 18 months of the upside and then it slows down quite a bit for.

For like nine months to a year. It's just this last run.

It has been close to two five years, but I think the slowdown is going to go back to not two and a half years it'll be nine months to a year, but if we look at.

Just internal projections about what it could be and then what were have on the books with a strong backlog and new products et cetera.

In terms of profit dollars gross margin dollars.

And top line I don't think it's going to have much effect at all in fact, we will more than overcome it based on.

The number that we've been talking about so far in this call.

Yes, I mean, the call sounds exceptionally bullish stock market reaction seems to be one of them.

I would say that it would help a lot of investors if they have someone who can tell them what they're supposed to think so if you guys could get some sell side coverage that would actually.

Be nice because most people in my business on the turn to someone else to actually interpret results prefer to act.

But that's only 40 years of experience looking at the Microcap.

Yeah.

I wanted to talk to you guys about the.

The battery.

The electric vehicle market, both from a car perspective, which is very interesting.

How big do you think that opportunity can become how unique is your offering and do you see that as an offering.

Will become half of <unk>.

Broader appeal beyond the people you are currently working with.

Yes.

Numerous electric transformations, whether it be locomotives, our forklifts I think our niche is going to be these larger.

Type of niche products the electric vehicle tire market is so saturated everybody.

Going after it.

Obviously, it's a multibillion dollar market and Thats why everybody's going after it.

Our current capabilities are again similar to win.

Wind turbines are electric locomotives as we have a niche product.

That's a charger.

<unk> that we sell the Vin smart along with some other controlling circuitry, but.

Today, it's probably a $3 million to $4 million.

Opportunity for us and we have about $2 5 million in backlog.

The charging stations are little bit higher.

Opportunity for us because.

We can develop unique products for charging station specifically.

But the electric car market, that's just like the handset market, which is the other part of my career at just saturated in.

Lower margins and everybody will have to add it. We we don't have a ton of value today on the electric car market other than our component design and capabilities.

With these customers to help them build systems, but our side is going to be on solar wind power management applications that are little more high power a little more niche.

And with the charging stations when do you think the economic value. You can you would could have pro charging station I mean, thats going to be a huge growth market going forward.

Right and as we all know the.

Card market completely outweighs the infrastructure.

To get you charged up to be able to drive across North America or Europe .

So.

What it's going to be I think is similar to what we saw with the growth of these other products I've just talked about where the customer's going to say Hey, you helped us design and all these components can you build the module can you build.

Some cases, we did it at one time when it was an infancy actually build charging stations.

For the customer like we do stuff for Lam, we've used up our caterpillar progress rail so our value will be anywhere from component design in to building and designing modules to potentially building a larger portion of the actual charging station itself.

As more and more niche customers come out to try to support support that market.

Okay, So that's sort of evolving.

Each market that could be potentially another leg to the stool.

Can we talk about with progress rail wanted to thank the strike. Obviously you commented on how the industry rail in the studio is looking at basically going to have probably been neutral.

Going forward.

Youre working with progress switches.

And when it's Darren stalled.

You can use that phrase here.

Diesel.

Jason will electric locomotive business do you know.

I believe it's 25000 in North America 25000 diesel locomotives.

What portion of that is progress rail.

Between them and web Tech I think it's probably going to be divided up.

60 40, but.

Right now the number that we heard from progress rate of about 25000 diesel locomotives in North America.

Net.

Could convert over the next number of years between now and 2030.

Okay.

Obviously, you add to that.

To add to that their forecast to us was about 50.

Electric locomotives over the next three to five years was the conversion they were talking about.

And so what they would be seeing therefore, given the idea that we're talking about like.

Ken you seven to 10 year ramp.

Towards getting the 25 K, what you would expect to see is that 50.

<unk> 50, or so over the next few years and then almost parabolic after that yes.

Yeah, Yeah in fact, like I mentioned before.

For example, the program, we have with with progress rail.

Brazil, when that locomotive is done which will be.

And therefore.

Therefore cast were shipping now the.

The guesstimate, if you will but they'll build the final train and introduce it to the customer in November of next year or this year.

It'll be the largest electric vehicle in the world.

So to be.

Involved with that capability and program.

The weekly basis and.

I think when that that even that just that hits, we're going to see a big uptick and then youre going to see like you said three to five years just booming.

Yes.

As the acceptance of the product in subsidies and everything take place.

And so we're looking at depending on the size and power.

Locomotive, then youre rolling one to three plus million toppy.

Exactly like I mentioned before.

Yes.

We build either the module itself with the ultra capacitors are lithium ion.

We then build the structure, which is like putting them in racks.

And then some controlling circuitry and then the third thing is the superstructure, which is literally the guts the engine taken the diesel engine out and putting in.

Lithium ion phosphate based.

Structure.

So depending on that it's anywhere from $1 million to $3 million per train.

And so when we're looking at the math I mean this is one of the issues what I think it would be great to get some people telling Mike curious how to think you're looking at a market literally as you go in the next four or five years youre going to get meaningfully more revenue out of the electric.

Locomotive business, then you get as a company today and Youre not going to lose anything else seeing occupancy is the wind tower.

Not to lose any other aspects of the business.

Yes that is the opportunity that we were looking at.

Part of this business in terms of NPI, which again. This is new product. This is new disruptive technology that is going forward.

Is <unk>.

You need to get whether you call. It a beta site a sponsor or a partner and if you just look at this and I was talking to somebody yesterday about it I had three phone calls.

On Monday, and one was a Siemens when it was a caterpillar in London with Nextera.

And.

I mean to have them and not only is just.

Beta site partners I mean, our beta site companies to test this product I mean, we have calls every week, we're partners and out of that.

So you've got the offset of what we know but out of that just think about all the other applications that are caterpillar is going to look at or that of Siemens is going to look at.

And we're learning so much from them of what they need.

And again, we're very unique company that has.

We're public.

Couple hundred million.

But these these programs that we're dealing with just could jump. This company two huge numbers and at one time, we were at what $600 million 707.

I'd like you mentioned already it's going to go from zero to 100 here in the next 18 months.

We think the electric locomotive business will be much larger than the land or in a very short period of time.

Well its actually its not just larger than lam from growing larger than Lam, if I do my math right.

I assume thats roughly 50 50 60 40 split so you are talking about something in the 10 to 15000 progress rail diesel out there and they are the incumbent you would think they are likely to have a chance to what we saw with union Pacific and <unk> and some of their work they went to they overlap. So when we went back to <unk>.

It appears so if youre looking at that and you're saying, 1% to $3 million on something Thats 10 15.

$15 million, we're talking about.

No.

If you can fill it in.

456 years, you're talking about thousands of engines a year potentially.

Okay.

And I was back at my hedge fund days I'll be talking about private capital and guys about showing up in your ton than talking about taking this company private because I mean this to me you have got a great business makes you a ton of money.

It'd be nice to get your cash flow positive in the U S. So you can.

Do some things, whether it's investing capacity or quite honestly.

So that goes away it's price but.

I do hope that we're able to get some people to help you postulate is historically this is the best story out here.

Okay, great. Thank you very much.

We think it is as well and we're really excited about the future thats for sure.

Yes, I mean this is this rail business alone is.

Has the potential to be taken guys on revenues to north of $1 billion I would think.

We hope you are right, we think we'll get $500 million in the next four or five years.

Yes, and then it goes from there, yes, well. Thank you guys keep up the good work keep executing on the all of these things.

Just noting that you guys constantly find new areas, new niches to expand and while you have so much on the table already thank you.

Yes.

Thank you for your support thank you.

Thank you.

Our next question comes from Daniel Burner with Burner family Fund your line is open.

Hi, good morning folks thanks for taking my call.

Yes.

Very interesting hearing from.

Everyone in the Q&A, thus far can you maybe help those of us that are new to the story.

Understand.

Was it.

From a business standpoint that occurred in 2021 timeframe that enabled your inflections of profitability.

I think maybe part of the frustration.

Most people watching the stock prices.

Folks are concerned whether this is a permanent inflection or temporarily inflection.

Strictly a function of the cyclicality of the.

Semi cap equipment market. So maybe if we could roll back four quarters, or so and talk about what happened there and maybe if you could big picture talk about whether thats in your view, a sustainable inflection and how is that sustainable.

Happy to do that first of all as Greg mentioned at one time, we were.

$700 million, and 1000 employees and losing money hand over fist.

And so we ended up selling.

The security system business to Honeywell at $75 million, and we sold the RFID business to Arrow for 238 million.

<unk> back to a $140 million company and then started to invest in trying to figure out what we wanted to be when we grow up.

And it's really listening to our customers, what we call engineered solutions and every time a customer comes to us that we need this module we need this piece of equipment, we try to design for them, we have as Wendy mentioned nearly a 100 engineers.

With a tremendous amount of experience in power management.

Isn't rocket science, it's our customers, telling us what they need and that's where the ultra capacitor business has come from wind turbine operators going as they want to replace lead acid batteries.

Now with cell towers in the same area.

Actually progress rail saw the patents that we have in the ultra capacitors that go into wind turbines.

And they were building these electric over to go locomotives with lead acid batteries and wanted to know if we could provide something to replace to lead acid batteries are engineers looked at it and said well its a lower current but you can use.

Alithia iron phosphate batteries to replace it and we designed a unit for them.

And we've been selling them those products for.

Battery Department for about three years, and ultimately now they're bringing the production of those electric locomotives, the United States and they ask us if we could build the entire battery compartment.

And those battery compartments or over $1 million, a piece and it's one to 10 in each electric locomotive.

But every one of these opportunities came out of customer driven demand.

And as we get into selling somebody like caterpillar, they keep coming at us with more and more products that they want us to design and build for them and that.

Hundreds of customers, we have 20000 customers all over the world.

Customers are coming to us all the time about design this for us design that for us and that's what's made this success.

So we went from 2011 at $140 million, adding these various product up to $160 million, where we broke even at $176 million, we made a profit.

And then the next year we were.

Up at 202 hundred $24 million.

And you can see this year will be over $260 million and their profit.

The customers have taught us these products in the crowds that are going from it.

So thats a long drawn out speech, but that said, it's not rocket science. It is customers telling us what they want us to bill and we have the engineering team and the experience to do it.

If you could be a little bit more specific though in 2021, specifically I understand the evolution, but.

What was what was the catalyst in 'twenty, one that drove that inflection in net margin.

The ultra capacitor business, we have been selling off your capacitors for a company called Maxwell for about 15 years and Maxwell was sold.

The Tesla and Tesla took them out of the commercial industry and use their entire production for their automotive industry.

So we weren't looking at about a 3 million dollar business in ultra capacitors and we went looking for another source and found the division of LG in Korea Korea called Ellesse materials, and we wrote an exclusive with them for ultra.

Altra capacitors and at the same time next era, which is the largest wind turbine operator in the United States.

<unk> also had been working with Maxwell to replace lead acid batteries, and they went to LLS materials, and we referred to US and we spent two years working with them designing the ultra capacitor models to replace the 18 Michaels and GE wind turbines.

And over a period of time, we've gotten two patents on that.

And as Greg said, we've shipped over 30000 of those modules.

To date and now all the wind turbine operators are buying from us, it's a little bit like a bridge club <unk>.

Next era is the biggest one that has 10 or 11000.

Wind turbines and service, but right behind it you have <unk> you have E mail.

In the energy on and on.

And so that business has just built up from there and then the people in the cellular towers, who also have the UBS uninterrupted power supply.

They came to us and said well can you replace the lead acid batteries for us.

Just been from.

One customer telling another that has built this business.

And we are just the tip of the iceberg the opportunity is incredible.

I think you can add to that Ed.

When I look at the sales canvas also grew during that period.

Our strong margin they grew.

The growing almost $5 million, which adds to the topline growth and more profitability was land growth.

Through the roof.

That was a big part of it.

Well I think all the business units in general are contributing to improved and can business. The same concept. These are.

Medical Oems coming to us and saying can you build this custom display for us that goes into equipment like linear accelerator for cancer treatment that we sell to Varian now owned by Siemens or.

Laser guided surgery equipment that we sell the medtronic and so forth and so on.

So we have a reputation for being able to use our engineering capability.

<unk> supply all of these requirements for the customers.

Do you guys have publicly traded competitors in the ultra capacitor space.

Not that the ones, we're dealing with now Maxwell was but.

Okay.

Currently the other ones are that make ultra capacitors there.

But.

They don't make the actual module themselves and that's another interesting topic is.

Who used to be competitors of Max will have now contacted us.

For other projects using their ultra capacitors as.

As an integrator.

And I think somebody mentioned on the call. We don't have a reputation right now being in the electric vehicle market, which is fine.

I think the opportunity for power management applications is higher but what we are getting is the reputation both from electric.

Modules.

Is to be an integrator of ultra capacitors in all kinds of products.

Like you've seen the UBS the altra 3000, the Altra Jen.

The locomotives, we're kind of unique design it and then integrator of ultra capacitors in niche products like Ed mentioned that the customer customer needs for their system.

Okay and last one for me guys in terms of the Lamb exposure in semi cap exposure does that.

Is that confined to power and microwave or is that across our microwave ges healthcare in campus.

Only TMT TMT.

Okay. Thanks, Thanks for the color folks are very helpful.

Thank you Youre welcome.

Our next question comes from Mike Schellinger with Microcap Club your line is open.

Yes in a previous call you had mentioned in order or you were expecting for Ultracapacitors.

From her windmills.

For an update you can provide on that.

Yes, we received the first order from a company called next era that we were just discussing.

Harvest wind turbine operator in the United States.

About 10000, GE wind turbines and service and they are adding about 1000 a year.

So we worked with them for two years and have two patents on the device that actually has a unilateral interchangeable with the GE module, So theres 18, Michaels and each wind turbine and our.

Our device will actually replace one of those models and work with the other 17 lead asset <unk>.

If necessary.

So after a couple of years working with them they had them in beta sites for about a year.

Gave us an order for 10 $10 million. So it's basically $10000 a wind turbine if you will and now.

As I mentioned, the other wind turbine operators have come to us and they are buying from us as well.

And.

That business just continues we probably did about $15 million in that business last year.

We shipped almost 16000 units so far this fiscal year.

But one thing to add to that the order that I mentioned and probably on the last call. We did receive that it was a multimillion dollar order, which was phase two for nextera that.

That was booked and shipped in the quarter as I mentioned earlier, they needed to get that in there.

Wind turbine so they did about a 30 day beta site testing on a kind of a version of the Altra 3000 that was for a different.

Turbine model, our engineers were able to redesign it within weeks.

Get them the product they test it for 30 days and then when you.

Received the orders and going back to when he said, we were double and third shifts to make sure. They got those products.

By the end of November so I believe that was the order.

Mentioned that we were expecting in the quarter Q2 that we did get and we did ship it which is part of the reason for the 150% growth.

Thank you.

Youre welcome.

We have a follow up from David Schneider Your line is open.

Hi.

Thank you hi, there again I think it was last night when I realized.

Sure.

This is just my own opinion.

The easy way to understand the Richardson electronics story is that.

Maybe four or five quarters from now plus or minus there is going to be crossover when the.

<unk> segment Korean electric.

He is going to be more than 50% of the operating income for the company and at that point I think there would be a dramatic re rating.

Your stock.

As far as P/e multiple.

Other metrics.

Obviously right now everybody at least the way the stock is acting as paranoid about the semiconductor but.

It could be maybe four or five quarters from now.

That won't even be in People's hands, there just can be.

Thinking about this.

Your company deserve a 20 or 30 p/e multiple.

And based on the numbers if I was looking right.

Sorry.

Right yes.

Green energy is certainly our future.

Mhm.

Okay well.

Looking at the the.

The only published research I was looking at the last Sidoti piece, and I kind of ballpark for calendar 'twenty four you.

You may be you may be close to doing $2 in earnings and.

Even if I reduce that to a buck 80.

People are really thinking your green energy company.

20 times, a buck 80 is a little bit higher than what your stock is now.

No.

Anyway, that's really my only thought other than I would like to purchase one of those machines that makes diamonds, because I have a few people that would like some diamonds.

Is there a level, we can get can I ask on the diamond at the machinery, we made.

The generator as well do you want to buy one will thank you Adam.

How much does it cost.

Okay.

The generators about $20000 the six kilowatt generator.

That's not a full system David.

That's just the general here.

The generator.

Our thanks go out to.

Alright, and is there a waiting list for the full system.

Well, let me say in contact with.

Actually it is on the logistics.

Year.

Alright.

Okay, Alright, well work on that Okay, alright. Thank you.

Okay David.

Alright.

Sure.

We have another follow up from Pete Taylor with <unk> investment partners. Your line is open.

Yes, Thank you gentlemen.

A couple of I'll call or two ago, you talked about the replacement tube business, our medical imaging and the indication wise it was losing about five or $6 million, a year, which was 12 million shares.

In the neighborhood of $40 50, a share you talked about the ability to bring that to breakeven or profitability.

Okay.

The next.

Four to eight quarters, where do we stand in shrinking that loss and pushing it towards profitability.

Yeah, Hi, good question. So while everybody was talking I was looking at that exact same question.

And.

In the current fiscal year last year, we lost.

Little over five almost $5 5 million. This year, we're trending better and then all while we'll still have a loss in FY 'twenty three it should be in the three to $3 5 million $2 million improvement to the bottom line and then we still are trending and believe we should be able to hit that breakeven point.

Fourth quarter of FY 'twenty four.

Siemens programs coming along when that gets launched and then I mentioned a couple of other things that we're looking at to kind of give us a little breathing room.

And we feel that we'll be at that point by again, the fourth quarter of FY 'twenty four we're not changing our anticipation there.

So so this fiscal year, you're losing pre tax about <unk> 25, a share and by the end of next fiscal year youll be breakeven and have the ability to make profit. This has been kind of a bugaboo for you guys. So getting this yet.

Sure, it's actually making generating good revenue and profit in the segment profit center would be huge.

Yes.

Youre absolutely right.

And that puts us puts.

I think right now from this year pre tax put us into the next year.

<unk>.

$15 25, a share.

Pre tax earnings power.

In your pocket, which isn't asking behalf.

Okay. Thank you guys very much.

Keep up the good work.

Thank you.

We also have a follow up from Daniel burner with burner family funds. Your line is open.

Hi, again guys.

On the GE turbine business you mentioned.

You spoke a little bit briefly about the Rollouts how are you going to be in every one of these.

<unk> turbines.

Can you give us a little bit more color.

On what could potentially go wrong, there or is it delays coming from GE that might prevent some of these rollouts in the next few quarters or is it substitution of a.

Competitor module.

I guess, what's preventing you from being a little bit firmer on.

The guidance.

Coming energy specifically.

Well two things one the only hiccup that we've seen.

And we have over 30000 units in the field with.

Little to no.

Rma's so the product technically is amazingly sound.

Again, we have still have issues with piece parts and.

There is no indication that I can see that would slow the program down other than our ability to make them fast enough to fill.

Their needs and as I mentioned before it's very project based.

As I just mentioned literally that we got the orders in November and they wanted them shipped at the end of the month.

A multimillion dollar order so that's how it goes.

So.

The other part of it is we really don't know the upside of the GE agreement.

Sure.

Today about half of the GE fleet.

Has service contracts, that's a part of the fleet that we couldn't address so we virtually with this program, which <unk> doubled our Sam.

We can service.

So from what I see right now, there's only upside in terms of demand.

And exclusivity as Ed mentioned, we have two patents on the product, which is one of the reasons that GE has decided not to build their own or even look at building your own.

So yes, and then the day like we've been experiencing for the last couple of years its piece parts and the ability to get the supply chain to the point, where we can meet the customers' demands.

As they requested.

Thanks, very much and congratulations again.

Thank you very much.

Thank you there is no other questions in the queue I would like to turn the call back to Mr. Ed Richardson for closing remarks.

Thank you Catherine.

As we close out our 70 <unk> anniversary celebration and this has been our 75th year.

We're more excited than ever about the future as you can tell by our conversation.

Please give us a call and plan to visit if you have any questions that the heck provide easier to show you what we do than to tell you about it.

We'd love to show you, our manufacturing engineering facility and you're welcome to visit Us anytime.

Look forward to our ongoing discussions and to sharing our fiscal 2023 third quarter performance with you in April .

Thanks, very much you have further questions give us a call.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2023 Richardson Electronics Ltd Earnings Call

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