Q4 2023 Richardson Electronics Ltd Earnings Call
Good day, and thank you for standing by and welcome to the Richardson Electronics earnings call for the fourth quarter and fiscal year 2023. 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 the session need to press star one on your telephone you well done.
You're an automated message is passing you hate this race to withdraw your question. Please press star one again. Please be advised today's conference is being recorded I would now like to hand, the comps over to your speaker today Ed Richardson. Please go ahead.
Good morning, and welcome to Richardson Electronics conference call for the fourth quarter of fiscal year 2023.
Joining me today are Robert Ben Chief Financial Officer, Wendy did Dell, Chief operating Officer, and General manager for Richardson healthcare.
Pellegrin General manager of our power and microwave technologies group and our newest business unit Green Energy solutions.
And yes, Rupert general manager of canvas.
As a reminder, this call is 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 involve risks and uncertainties.
Therefore, actual results could be materially different.
Please refer to our press release and the FCC filings for an explanation of our risk factors.
Fiscal year 2023 was one of the best years in our 76 year history.
Operating income increased year over year by nearly 57%.
On a 16, 9% increase in net sales, reflecting the power of our financial model.
This growth demonstrates the success of our long term growth strategy, especially considering our food global economic environment.
Apply chain challenges and significant product and wage inflation.
Over the past three years, we pursued organic growth strategies focused on expanding our product lines and leveraging the deep relationships, we have over 20000 customers all over the world.
We've also greatly enhanced our engineering and manufacturing resources and capabilities.
The success of these strategies has transformed our business by increasing our scale and it significantly improving our profitability.
Since fiscal 2020 annual service increased from $155 $9 million to 262 7 million, representing a compound annual growth of 19%.
We've also significantly enhanced the profitability of our business.
Our gross margin has remained stable we have control of expenses.
G&A as a percentage of annual revenue was 32, 9% for the year ended may 32020, compared to 22, 4%.
May 27, 2023, the year, we just finished.
Positive operating leverage has transformed the profit reality as we've grown from an operating loss of 1 million seven in fiscal 2022, and operating income of nearly $25 million in fiscal 2023.
Most importantly, the growth we've achieved over the last three fiscal years and more recently in fiscal 2023 has been driven by new products and applications development, new customer growth and expanded relationships with our global customer base.
<unk> Green Energy solutions business. This year is a notable example of our successful strategies.
Ges sales in fiscal 2023 grew by 110%.
Not only did this supported our performance in fiscal 'twenty to 'twenty three but our Ges segment is further diversified our business.
I guess, just insulated from the challenging semiconductor wafer fab market.
Well I would expect the semiconductor wafer fab market to remain challenging over the next several quarters. We're excited by the significant opportunities we're pursuing all over our business units, we continue to develop new products and expand our global customer base.
These products include power management systems for wind turbines electric locomotives hydrogen power synthetic diamonds.
We believe our continued growth of our Ges business will help offset the expected 2024 decrease in the semiconductor wafer fab equipment business.
Today, nearly 60% of our revenue comes from products that we manufacture or have manufactured exclusively for us.
Ultra capacitors in lithium iron phosphate battery modules Magna trends Cte tubes, and many other tubes and related products are manufactured by us and the facts, Illinois.
We engineer and manufacture custom display suite solutions for medical applications in Boston in Germany.
To accommodate this growth we continue to hire talented engineers with a focus on new product development. We're also adding manufacturing capacity through our facts facility renovation, which is expected to be completed this week.
Recently, we had key OEM customer who is joined by their end users visit our operations here in the facts.
Each walked away with a list of products and opportunities. They wanted us to explore an addition to the products they purchase from us today.
We're excited to show off our completely renovated building at our upcoming Investor Open House scheduled for.
For August 22nd.
Now, Greg Wendy <unk>, who will provide more details on the quarter and fiscal year end, including these key growth initiatives.
First by banner, our Chief Financial Officer will review, our fourth quarter and fiscal year 2023 financial performance in more detail.
Thank you Ed and good morning, I will review, our financial results for our fourth quarter and fiscal year 2023, followed by a review of our cash position.
In addition, please note that I'll be discussing non-GAAP financial measures I refer you to our fourth quarter fiscal year 2023 press release for a reconciliation of non-GAAP items to the comparable GAAP measures.
Net sales for the fourth quarter of fiscal 2023 were down four 5% to $58 8 million compared to net sales of $61 6 million in the prior year's fourth quarter due.
Due to lower net sales in our PMT canvas and healthcare business units, partially offset by higher sales in our Ges business unit.
Net sales for Ges increased $5 8 million or 61, 7% from last year's fourth quarter.
Ges combines our key technology partners and engineered solution capabilities to design and manufacture products for the fast growing green energy market and power management applications.
PMT sales decreased by $8 3 million or 28% from last year's fourth quarter, driven by primarily a decline from manufactured products for our semiconductor wafer fabrication equipment customers.
Canvas sales decreased slightly by 0.3 million or three 2% due to the timing of shipments in North America.
Richardson healthcare sales also decreased slightly by <unk> 1 million or two 7% due to decreases in parts and equipment sales, partially offset by higher <unk> tube sales.
Total company backlog was $160 4 million at the end of the fourth quarter of fiscal 2023 versus $175 1 million at the end of the third quarter of fiscal 2023.
Gross margin for the fourth quarter was 27, 9% of net sales compared to 32, 7%.
In last year's fourth quarter.
Pmt's margin decreased to 29.8% from 35, 2%, primarily due to product mix.
<unk> margin.
<unk> in the fourth quarter of fiscal 2023 to.
To 23, 4% from 31, 1% in the prior year's fourth quarter also due to product mix.
Canvas gross margin increased in the fourth quarter of fiscal 2023 to.
To 32, 9% from 37% in the prior year's fourth quarter.
Does the product mix and lower freight costs healthcare's gross margin increased to 23, 7% in the fourth quarter fiscal 2023 compared to 10, 8% in the prior year's fourth quarter due to improved manufacturing absorption, partially offset by increased scrap expense.
Operating expenses were 15.1 million for the fourth quarter of fiscal 2023 compared to $15 2 million in the fourth quarter of fiscal 2022.
The decrease in operating expenses resulted from tight expense control.
And lower incentive expenses from significantly lower operating income, partially offset by higher salaries expense, which included wage inflation.
The company reported operating income of $1 4 million or two 4% of net sales for the fourth quarter of fiscal 2023.
Versus operating income of 5.1 million or eight 1% of net sales in the fourth quarter of last year.
Other income for the fourth quarter of fiscal 2023, including interest income and foreign exchange was <unk> 1 million compared to other expense of <unk> 2 million in the fourth quarter of fiscal 2022.
Income tax benefit.
Was $2 6 million and.
And non-GAAP income tax benefit was <unk> 2 million for the fourth quarter of fiscal 2023.
Versus an income tax benefit of $3 5 million.
non-GAAP income tax expense of.
0.5 million in the prior year's fourth quarter.
The fourth quarter of fiscal 2023 included 0.4 million for an R&D tax credit for the current fiscal year.
And a one time total credit of <unk> 6 million for fiscal year 2020 through 2022.
In addition, the fourth quarter fiscal 2023.
Included a one time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance.
Net income for the fourth quarter of fiscal 2023.
Was $4 1 million and non-GAAP net income was $1 8 million.
Compared to net income of $8 3 million and non-GAAP net income of $4 3 million.
In the fourth quarter of fiscal 2022.
Earnings per common share diluted were <unk> 27, and non-GAAP earnings per common share diluted were <unk> 11 in the fourth quarter of fiscal 2023.
Compared to.
Earnings per common share diluted of 59.
And non-GAAP earnings per common share diluted of <unk> 31 in the fourth quarter of fiscal 2022.
Turning to a review of the results for fiscal year 2023.
Net sales for fiscal year, 2023, or $262 7 million, an increase of 16, 9% from $224 6 million in fiscal year 2022.
Net sales increased by $8 9 million or five 7% for PMT 'twenty.
$25 million or 110, 5% for Ges.
$4 1 million or 11, 8% for canvas and.
Zero point $1 million or 0.5% for Richardson healthcare.
Gross margin for fiscal 2023 was 31, 9% of net sales the same as during fiscal 2022.
Operating expenses were $58 7 million for the fiscal year.
Which represented an increase of $3 1 million from last fiscal year.
The increase in operating expenses resulted from higher employee compensation and travel expenses, including.
Including additional incentives expense.
Due to strong profitability.
Operating expenses as a percentage of sales decreased to 22, 4% during.
During fiscal 2023 as compared to 24, 8% during fiscal 2022.
Operating income for fiscal year 2023.
Was $25 million or nine 5% of net sales.
As compared to an operating income of $16 8 million or seven 1% of net sales for fiscal year 2022.
Other income for fiscal 2023, including interest income and foreign exchange with.
With less than <unk> 1 million as compared to other expense of 0.2 million for fiscal 2022.
Income tax expense was $2 7 million and non-GAAP income tax expense.
Was five <unk> million for fiscal 2023.
The fourth quarter of fiscal 2023 included.
<unk> 4 million for an R&D tax credit for the current fiscal year.
And a onetime total credit of <unk> 6 million for fiscal years 2020 through 2022.
In addition, the fourth quarter of fiscal 2023 included a one time $1 8 million.
Income tax benefit.
The reversal of a foreign tax credit valuation allowance.
The income tax benefit of $2 2 million for fiscal 2022 resulted from the 4.1 million partial reversal of the tax valuation allowance.
Due to evidence of profitability for realizing a portion of the deferred tax assets in the future.
The non-GAAP income tax expense for fiscal 2022 was $1 8 million.
The company reported net income for fiscal 2023 of $22 3 million and non-GAAP net income of $21 million.
Versus net income of $17 9 million and non-GAAP net income of $13 9 million during fiscal 2022.
Earnings per common share diluted were $1 55.
And non-GAAP earnings per common share diluted were $1 39 for fiscal 2023.
Compared to earnings per common share diluted of $1 31.
And non-GAAP earnings per common share diluted of $1 <unk>.
For fiscal 2022.
Moving to a review of our cash position cash and investments at the end of fiscal 2023.
We're $25.1 million compared to $24 6 million at the end of the third quarter of fiscal 2023% and $45 million at the end of fiscal 2022.
Cash generated of zero point $4 million in the fourth quarter of fiscal 2023.
It was primarily due to a decrease in accounts receivable.
Partially offset by an increase in inventory.
The use of cash during the fiscal year.
Related to higher working capital to support significant sales growth.
U S cash and investments were $7 6 million at the end of fiscal 2023 versus $8 9 million at the end of the third quarter of fiscal 2023, and $25 5 million at the end of fiscal 2022.
Capital expenditures were $2 4 million.
In the fourth quarter of fiscal 2023 versus one point or $1 million in the fourth quarter fiscal 2022.
Approximately $2 2 million related to investments in manufacturing, including facility expansion and included the renovation of our office space.
Total capital expenditures were $7 4 million in fiscal 2023, as compared to $3 1 million in fiscal 2022.
We paid zero point $8 million in cash dividends and.
In the fourth quarter and a total of $3 3 million in fiscal year 2023.
In addition, based on our current financial position our board of directors declared a regular quarterly cash dividend of <unk> <unk> per common share, which will be paid in the first quarter fiscal 2024.
As of the end of fiscal 2023, the company had not made any draws on its $30 million revolving line of credit.
With PNC bank.
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.
In fiscal year, 2023 power and microwave technologies, our PMT and Green energy solutions, our Ges performed well with excellent growth in all aspects of the business.
PMT revenue grew five 7%, while its EES revenue increased 110, 5%.
The major highlight in the fourth quarter was our Ges group.
As it continues to drive strong growth with the addition of new products, new programs and new customers.
Our <unk> group had exceptional growth throughout the quarter as the demand for Green energy applications, such as wind energy electric locomotives energy storage and power management greatly increased.
We continue to apply focus and resources to this extremely important strategic business unit.
And the growth opportunity it represents for Richardson electronics.
<unk> sales were up 61, 7% in Q4, FY2023 at $15 3 million versus $9 5 million last fiscal year.
Our backlog is strong at $42 9 million.
Revenues in Ges include numerous successful products such as the Ultra 3000, EV locomotive battery modules Ultra Gen 3000, and products using synthetic diamond manufacturing and other green advancements such as hydrogen production and electric vehicles.
In addition, we have numerous products and design prototype and beta testing.
In the quarter, we continued to sign a global technology partners and announced new patents and programs.
We continually evaluate technologies to ensure we offer our customers the best most up to date solutions for their applications.
In Q4, we announced the Altra Perm multi brand module for several non GE wind turbine platforms.
We received a third patent ultra 3000, and we announced that GE for Nova.
Selected the Altra 3000, as the exclusive pitch energy module for the GE marketplace, increasing our served available market.
We also announced the Alta <unk> used the wind turbines and other power management applications.
This strategy of developing niche products and technologies is key to our long term success.
The growth of customers and products and Ges continues as our design teams are in discussions with several major Oems weekly regarding the development of energy storage products and other clean energy applications.
PMT sales in the fourth quarter of fiscal year, 2023 decreased 28%, reaching $31 5 million versus $39 8 million in Q4 of last fiscal year.
This decline was mainly due to the major slowdown in our semiconductor wafer fabrication equipment business.
The team has been supporting the semiconductor wafer fabrication business and its customers for well over 25 years.
This business has always been cyclical and we expected to see a slowdown in 2023.
I've been talking to our customers. They expect the business to start recovering in the first half of calendar year 2024.
Our engineered solutions strategy is led by our global technology partners, such as Carnival may come Nokia wave, Alex materials Ammo Green Tech.
I have just semiconductor and Fuji semiconductor.
Two manufacturers and partners include CPI, Talus Shimbun micro devices and photonics.
Each of our global partners help us meet and manage customers' requirements.
Our team has done an excellent job of identifying and cultivating these relationships we.
We will continue to add partners, who fill technology gaps in our offering and support our growth.
In Q4, we added conduct RF a leader in RF cable assemblies.
These key technology partners, not only fill technology gaps in our component and engineered solutions offering, but they also give us continued sourcing supply of new technologies to support all of these new opportunities.
Often through these partnerships, we identify opportunities for new products that we design and manufacture in house, increasing the value, we provide customers and allowing us to capture more market share and revenue.
We also continue to divest in our infrastructure to support that growth, we are bringing on talented design and field engineers and making investments to enhance our manufacturing capabilities.
In House design engineering and manufacturing teams are doing a great job supporting increased demand for current products and new product designs.
I'm pleased with the progress we're making with this team we will continue to identify develop and introduce new products and technologies for junior energy and other power management applications.
Our growth strategy has been proven successful over the years and we will continue to develop new products as well as increase our customer base revenue and profits by capitalizing on our existing demand creation infrastructure.
Our belief in our future based on customer forecast and inputs requires us to strategically invest in inventory that positions us in order to fill the pipeline and ensure we can meet our customers' needs through close collaboration with both our customers and suppliers.
There are always headwinds, but we carefully manage these were prudently aligning of the business for a slowdown in the semiconductor wafer fab market over the near term, while maintaining our core competencies to support our wafer fab customers. When the market is expected to recover in calendar year 2024.
Much of the Green energy business is project based and Rollouts are dependent on our customers as well as their customers' capex requirements.
For example, we shipped over $18 million in products in FY2023 to our electric locomotive customers, which they are using to build their prototypes. These trains will be finished and ship to their customers in Q2, FY 'twenty four.
New production orders and expected until Q4 FY 'twenty four.
So finding enough design and field engineering talent to support this growth continues to be a challenge however, with Richardson's unique global model continued growth and with our technology partners and our focused strategy.
We also continue.
To grow by gaining market share and introducing new products and technology partners and expanding the value we provide to our customers worldwide.
I cannot stress enough the value of its electronics model to our customers and suppliers are unparalleled capability and global go to market strategy, our unique to the power and energy RF and microwave and Green energy markets. We.
We have developed a strong business model, including legacy products, and new technology partners that fit with our engineered solutions capabilities.
So our steadfast and greater focus on customers, we will continue to excel by taking advantage of opportunities when they arise.
Execution of this strategy has never been better.
There is no question, our customers and technology partners need Richardson's products and support more than ever.
Continue to be very excited about the future opportunities and our market share for PMT and Ges continue to grow.
With that I'll turn it over to Wendy <unk> to discuss Richardson healthcare.
Thanks, Greg Good morning, everyone.
Fourth quarter sales for healthcare were $2 8 million slightly lower than fourth quarter sales last year of $2 9 million.
Tube sales were higher in the quarter versus the same quarter last year parts consistent sales were both down on.
On a full year basis healthcare sales were $11 4 million just slightly above the prior year.
System sales exceeded the prior year with parts sales were down <unk> tube sales were down less than 5% compared to last year.
Gross margin in the fourth quarter improved significantly to 23, 7% versus 10, 8% in Q4 of last year, primarily reflecting better factory utilization.
Last year, we were forced to stop production for a period data supplier quality issues.
On a full year basis gross margin was 37% and meaningful improvement over 21, 2% last year.
Much of the growth in gross margin was again due to positive production variances in FY2023 stemming from enhanced operations.
Scrap while still high for the year also decreased over prior year.
We are pleased with the improvement in gross margin is an indicator that we've ironed out many of the production challenges we've had in the past.
We also want to point out that healthcare is SG&A for the year with significantly below prior year. These savings combined with the improved margin resulted in reduced operating loss for healthcare compared to both our planned loss and our performance last year.
We continued to make excellent progress on the Siemens repaired two program.
It is a series of four tube types, including Mr. Xie annex NXP and <unk> 46.
The Siemens install base is considerably larger than canons and there are no third party replacement options for these tube types.
The repaired Stratton Z is now in full production and performing well in the field.
We expect sales to rise gradually in the coming quarters based on early discussions with key customers.
We are making excellent progress as well on the repaired Siemens Nx series with a high degree of confidence that these will launch in the 2023 calendar year.
Demand is strong based on discussions we've had with our customers.
As noted in prior calls the Siemens program is a critical element for our health care business unit to reach its goal of providing a positive operating contribution to the company by Q4 of FY 'twenty four.
Several new programs that will further improve cte tube sales and factory utilization are still underway.
These programs include reloading tubes in Brazil, we continue to work our way through the local registration process.
We are also partnering with an international company to reload and several other types in the Americas.
We anticipate these programs may have a small positive impact on our revenue and 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 and SaaS custom displays to original equipment manufacturers in industrial and medical markets throughout the world.
Canvas performance remains excellent with sales of $9 2 million for the fourth quarter of fiscal 2023. This reflects continued strong customer demand globally.
Sales grew by 11, 8% to $39 4 million in fiscal year 2023.
The highest revenue since fiscal year 2012.
Due to increased demand globally, and the continued addition of new customers and programs.
This was a remarkable accomplishment considering ongoing supply chain and global economic challenges.
Gross margin as a percentage of net sales was 32, 9% during the fourth quarter of fiscal 2023.
Compared to a 37% during the fourth quarter of fiscal 2022.
The increase in gross margin was primarily related to the more favorable.
Mix of higher margin products.
Our fiscal year 2023 gross margin as a percentage of sales decreased slightly to 31, 5% from 32.0% in fiscal year 2020 to the.
The decrease in gross margin was related to product mix and higher component costs, which impacted many companies around the globe, including canvas.
Our backlog remains extremely healthy, which we expect to support strong sales throughout 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 obstacles and demand negatively impacted any potential recessionary pressures.
During the quarter, we received seven new orders from both existing and first time medical OEM customers.
Some of these applications include ocular biomaterial.
Corneal cross linking.
Refractive surgery.
HMA to control medical devices within the operating theater.
Prostate biopsy.
Is occupancy.
Enter treatment chairs searches.
Surgical navigation and laparoscopy.
In the nonmedical space our products are used in a variety of commercial and industrial applications.
These include flight simulators.
<unk> used in control rooms, human machine interfaces for ticketing machines and to tailor, prompting talent monitors and clocks.
I'm immensely proud of our teams around the world.
And I am extremely pleased with the exceptional operating performance, our strong and growing customer relationships, along with the backlog position us for future growth in fiscal 2024 and beyond.
From the variety of customers and applications as well as the value of orders from existing and new customers. It is clear our global customers outstanding products and localized service.
While our sales organization stay focused on new opportunities I stay focused on improving the operating performance of the division.
<unk> cash flow and improving canvases profitability is an ongoing priority and we continue to work closely with our partners to meet the demands of our customers.
I will now turn the call back over to Ed.
Congratulations.
You and your team on setting another new sales record for canvas in our custom display solutions.
You and your team have aggressively attack the medical OEM market and provided them with solutions. They cant find anywhere else as you've heard from Bob Ben and the business unit leaders FY2023 was phenomenal.
While the semiconductor wafer fab cycle is expected to impact near term PMT sales. We believe we are well positioned to navigate the challenging market cycle.
We continued to pursue organic growth strategies that leverage our global customer and supplier relationships provide our customers with more engineered solutions and expand our manufacturing resources and capabilities.
As a result, we're excited about the opportunities we have in front of us.
To significantly grow sales over the next three years and beyond.
In addition, with our talented team and compelling products.
More confident about the direction, we're headed in at any time as CEO of Richardson electronics, which by the way has been 61 years.
We continue to manage expenses and carefully evaluate every dollar we spend to ensure we are protecting our cash and maximizing our return.
Our intent in FY 'twenty four is to use our cash to fund our key growth initiatives, while taking advantage.
Vantage of the money we deployed so far.
Firmly believe that developing solutions in a responsible manner alongside our suppliers and our customers is the key to our future success.
Scrutinizing inventory purchases, we review every capital expenditure and approve every add to staff, we will continue to explore and benefit from our favorable tax programs that support our green energy solutions.
At this time, we will be happy to answer some questions.
Thank you, ladies and gentlemen, due to time constraints, we ask that you. Please limit yourself to one question and one follow up again, we ask that you. Please limit yourself to one question and one follow ups and so all have had a chance to ask the questions after which we will answer additional questions from you as time permits again, if you have a question. Please press star one on your telling.
Phone. If your question has been answered you wished them with yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
Our first question comes from Michael Hughes with <unk> Capital Management. Your line is open.
Good morning, Thanks for taking my questions.
Ed can you talk about the revenue generated from the semi cap equipment business in the just completed fiscal year and what your expectation is for the coming year.
Yes.
It was approximately $40 million.
Which included Lam research applied materials, Tokyo electron MKS.
A number of firms.
If you had heard their press release from land because of the chips Act that Congress passed they said their business would be down.
30%.
In the coming year, primarily because they couldnt ship high tech equipment to China.
Since that time, they've come out with a much more optimistic forecast, saying that by the end of 2024.
Their business will even be stronger than where it's been in the past and maybe even go so far to tell their vendors.
We will help support you financially to make sure you have the resources to supply our products when they need them.
Okay, so $40 million in the just completed year.
Do you have a ballpark number that we can think about for the coming year.
Yes, we're forecasting about $20 million.
Okay and that May go that route but right now that's what it looks like.
Okay. So that's about a 20 million dollar headwind.
And just my follow up at a recent conference I think you talked about a $290 million number potentially for the coming year that that's a pretty stout headwind.
That $20 million, coupled with it doesn't sound like theyre going to be in rail orders additional rail orders until the fourth quarter is that what Greg said, so just kind of maybe talked about the topline number.
For the coming year.
We think that there is enough.
<unk> and the various <unk> that we're working on in Green energy that will more than compensate for the loss of business in the simonette area.
We have projects going not only for wind turbines.
It was originally GE wind turbines now Siemens wind turbines, we've been on an approved source for GE for all of their customers. They told us they have 800 on there.
Electronic systems.
In addition, we're making energy storage systems, and we're working in the cellular field.
As you know we're working on the electric locomotives both for.
Progress rail and web Tech, which is the old general electric facility.
Each one of the diesel locomotives, hence what's called the batteries are and those are lead acid batteries.
Lead times are what you would have in a car and we've developed a.
Either Nokia capacitor module or lithium iron phosphate battery pack to replace those.
Gives them from seven to 10 years right.
And we're in a prototype.
Data system on those and projected that could be very substantial in the future. There is something like $30 million to $40 million diesel engines and used in the United States.
So the replacement for those units is 3% to $5000. A piece you can just imagine what the potential is we can just clarify that.
We wish there were.
Sure.
Awesome.
Okay I'll jump back into the queue. Thank you.
Thank you one moment for our next question.
Yes.
Our next question comes from Andrew <unk> with Sidoti Your line is open.
I know you said thank you for thank you for taking my questions.
Can you just talk about the gross margin opportunity and how we should think about that in the coming year.
Well I think overall, our gross margin will run about 32% somewhere in that area.
That's a mix.
All of our businesses.
Certainly the semi fab business, which is very profitable.
It reduces our margin, but we pick it up on the Green energy solutions, where the business, particularly for wind turbines and energy storage systems.
And also the <unk>.
The battery starts is quite profitable.
To add onto that on your I think in the FY 'twenty four.
As Ed mentioned semiconductor market has always been very profitable for us. So we've been looking at a gross margin more in the 30% range.
For the FY 'twenty.
To recover back into the range that Edward linear.
Okay.
Since that the GSE sell little bit lumpy right.
Question on margin in the near term as well, but that revenue comes in that should help the margins Mike.
And the issue is not a matter of if it's ibs. These programs. They are all in progress, it's a matter of when and how quickly that will be rolled out.
And that will also help the gross margin.
That's right and that should be improving sequentially. Okay, and then in that in terms of the inventory is there any way you is there any risk to that inventory can you just help from from your customers in terms of financing diner.
Well, we've worked out programs with our suppliers.
Greg you might have mentioned in the one program you have where we have a 180 day terms.
Yes, with all of our technology partners, we have zero liability, we have complete stock rotation.
Of the product.
For the components on the engineered solutions side.
We've developed great payment terms, because as we're all dealing with it's project based and.
Due to lead times, where we're collecting inventory, but there might be one or two parts of that to this day 30 week lead times and so they've been very good in working with us because we are designing.
The technology for them and so we've gotten good payment terms, so even though the inventory might be up in a certain situation.
It is we usually have signed either.
Special terms or some sort of stock rotation capability.
Product does not move at a certain certainty.
Okay. Thank you and I'll get back in line.
Thanks Danielle.
One moment for our next question.
Our next question comes from Ross Taylor with Ari's investment partners. Your line is open.
It's where I hear my full name.
Couple of quick questions one.
You talked about the idea of seeing semi cap equipment revenues dropped from 40 to 20.
We own and our larger cap products and number of the semi cap equipment companies and pretty universally they see the quarter. We're currently in as the trough revenue quarter. So would you explain to me why we should see revenues dropping meaningfully.
Over coming quarters, when they actually see revenues, where they are expecting revenues to ramp over the next three four quarters pretty sequentially.
Well, we base that on the first two quarters and you are right.
On that day.
Sure.
In the next quarter or two and if that happens then it will turn out much faster, but we'd rather under promise and over perform and I'd tell you its going to be 30 or $40 million and it comes in at 20.
Yeah, Yeah, I think the street is a little nervous about that number I think.
It does.
Ill highlight is that you have a pretty tight correlation between how aimed at.
Lam and the like do.
Historically, they've had a pretty close to tracking and so that one would expect that they care enough that this is the nature of their performance this quarter.
Currently shouldnt be the nadir.
Away from that can you talk to us about Green energy you saw six that got 60 plus percent 62%.
Rise and avenues that only about 22% increase in operating profit from that business. It appears.
That's a pretty wide margin spread can you give us an idea of which mark Jennie O is this.
<unk> 30, plus percent margin business or is this a low mid <unk> margin business.
Yes, the products all together in our Green Energy Group is 30 plus percent margin overall, what you saw in the fourth quarter was large shipments of the battery.
Management systems that we shipped to our largest electric locomotive customer.
And again this is prototype build prototype quantities prototype products and that we shipped at a lower margin until we get through economies of scale when we get into the production.
And so what we do is we in support of these large customers, making us exclusive will give them the production pricing.
For the <unk> prototype shipments with a letter of intent.
So what we saw was a huge shipments to our electric locomotive customers in the fourth quarter, which was a little more margin than our overall margin.
So we should expect that margin then kick.
Kick back up into the low thirties, as we push forward and youre seeing substantial growth overall in the Ges space.
The company as well.
Yes.
Yes, correct that the balance of the business is in the mid <unk>.
Okay and the product.
Okay and Thats in that.
So basically this is kind of at an aberrational quarter. So the hit we saw this quarter its really kind of a comparable until.
That.
Should self correct it going forward.
We believe so absolutely.
Okay and can you talk about backlog has the drop in backlog been tied in heavily to semi cap equipment.
Yes, yes.
We were running with a backlog in semi equipment business over $40 million.
And as the downturn two things have happened Lam for instance, they took everything they had on order everything we were manufacturing for them. So.
So we filled their supply chain and so now you get.
And that as.
But at the same time, they're indicating to you to be prepared to ship everything you can check.
And the second six months right.
Yes.
So we're doing a lot of they see a substantial ramp as we push over the next 12 to 18 months.
That's good business bigger business than you saw last year, you think from them out 18.
What they're telling us thats correct Lam in particular has a vendor conference call once a month.
In the last conference call back over 300 vendors and they were very optimistic about the.
The second half of calendar 2024, being very strong even stronger than what they had seen in the past.
<unk> also seen indications from the automotive industry that they are they still have a shortage on chips.
That tells you that the semi fab business has to pick up.
Yes.
Yes, I know it seems.
This has been a tough.
Tough year, particularly to talk to you shareholders.
And Rob, but it seems like this is pretty much.
We're at the Nadir on that is impacting what you see happening happens you get the profitability.
The upside here should be explosive and quite honestly, probably justifies better than the 12 P. M.
Absolutely.
So.
I know you won't do it but I'm going to ask you.
Can you guys buy back stock I mean can you borrow you got cash I understand that you have cash needs outside the U S. But.
I myself might argue that it makes sense to have a net zero cash position or something of that nature.
Or is that has a chance to do a Dutch auction in this market and buyback.
Yes, I don't think <unk> got it.
Don't see.
Once you highlight and people start to actually think about what are you going to be in 12 or 18 months on an earnings power basis.
It seems that you should get back on track with you.
We thought you were going to be at the beginning of this year, which.
It should be enough to even at 12 times earnings to make to stock 50, 60% higher than it was at a higher than 12 months ago. It seems that this is a great place to buy stock.
Well every board meeting we consider it as a matter of fact, when we saw the RFP in 2011, we bought $65 million worth of stock back at about $8.
Yes.
Mhm.
And it strikes me as another opportunity of that nature.
Got it totaled.
Market is punishing your equity markets punishing you for fun for things that are self correcting and.
The next two years should be.
Well.
A real home run for you guys.
Yes, that's correct.
Price of the stack well see.
Well today, it's down.
Yes.
Okay.
Thank you. Thank you very much.
Alright.
One moment for our next question.
Our next question comes from Barry Mendel with Mendel money management. Your line is open.
Alright very good.
Alright. Thank you guys. Good luck.
Well it would be better.
Zach was higher.
Yep.
There was no mention of magnetron <unk>.
You guys are increasing capacity substantially at Magna trial can you talk a little bit about.
The capacity expansion and what you're seeing there.
Yes, yes.
The demand.
Or the <unk> hundred <unk> synthetic diamonds is far in excess of many weekend manufacturer.
We have an improved our manufacturing process substantially and our yields are back up to the <unk>.
Normal.
And we think as we go along we can ship I think there are still back out or done like 5000 of those in.
And of course, that's all dependent upon the quality of the product, which we think we use.
Improved in.
But the demand is certainly there.
How much what's your backlog.
Looking at backlog for that.
I don't know when you do the total backlog for magnetron I don't know.
That Andy used to run about $15 million to $20 million.
Sure where it is today.
The <unk> hundred sales or average price is about $3000.
This is roughly 5000 of those in backlog.
Okay, Okay, and what kind of gross margins on that product.
It runs about 35%.
Thanks, Paul.
So.
I would expect to see a substantial increase in shipments this fiscal year and the mega trend versus last year, that's correct yes.
But as long as we don't lose the formula the wider black magic and tubes.
Okay.
And I assume and Randy in healthcare that you still expect breakeven by the fourth quarter.
We see the path to that we're really excited about the progress we're seeing.
Repaired Siemens program, not only from our own internal development perspective, which is going very well, but from the customer respond yes, we've talked to.
A large number of <unk>.
Some of the larger companies that arent, even necessarily buying mccannon tubes from us because they don't service canon equipment and those can be game changers for us so.
Lots of interest.
Good progress on the development of the repaired program. So yes, we still feel good about Q4 at a breakeven level.
Okay.
Thanks.
One moment for our next question.
Our next question comes from David Schneider, who is a private investor Your line is open.
Hi, Good morning, David commented high there.
Just a comment or two then a question.
Regarding semiconductor.
Demand there was a news release from still onto us.
Automotive OEM, a day or two ago. They are scrambling to ensure supply of semiconductors globally for the next several years.
So just to put a little thought in People's heads that as.
Vehicles go from internal combustion engine to electric the semiconductor content content increases dramatically. So.
That's a tailwind for you maybe not today, but it's there.
And then on a potential buyback because you have a small dividend when your buyback of share.
Obviously, you don't have to pay from after tax cash flow dividend on the buyback shares so I'm.
Trying to give a little push for that.
And.
Wondering.
The move towards Silicon carbide for automotive for high voltage applications. If your what you do with semi cap equipment has anything special with that and then on the Siemens wind turbines.
It's.
Common knowledge that they've been having some problems with a decent percentage of their installed base because they have some real crappy parts in there.
So does that actually make them more interested in putting you in let's say in <unk>.
OEM supplier as opposed to.
Pulling out the lead acid batteries.
That's about it for me.
Alright, David I'll touch on the Siemens question.
It has no effect on our discussions with them so far.
With their network of wind turbines. They also service.
So the environment that have different platforms.
But we're full speed ahead with them both the ultra UBS.
The new product, we announced in the fourth quarter and also the Altra 3000 or variation of that are there for their turbines to replace what they currently have in there. So.
Their issues are the same issues as all the.
Owner operators in wind turbine manufacturers that have had in terms of.
Replacement costs.
Batteries that fail every 18 months to two years, both in the <unk> system and the EPS and that's what we're focused on it.
Just today, we shipped over 40000 ultra three thousands and.
Those numbers will be similar.
As we rollout the EPS to those same customer.
Okay.
And then the other question was on Silicon carbide at any any special.
Impact of that.
Ration.
Your semiconductor equipment business.
No.
In terms of <unk>.
Delivery and <unk>.
Parts being available.
Technology partners as you know.
We have numerous silicon carbide.
Technology partners, we've been fine.
We have a major win in the electric vehicle market with been fast.
Vietnam.
For their electric car.
So we haven't seen David anything that would.
Slowdown or.
Subdue are our opportunities our growth.
Okay Alright.
Alright, that's all I've got for right now. Thank you. Thank you.
One moment for our next question.
Our next question comes from Michael Hughes with <unk> Capital Management. Your line is open.
Thanks for taking my follow ups good morning, Ed.
Just you don't get a lot of questions on the legacy tube business, but I think it's roughly 40% of revenue. So how did it perform in the just completed fiscal year and whats the outlook for the coming fiscal year.
Well, including the semiconductor wafer fab, which has <unk> wave guides and microwave devices. It went from a 100 million to about $120 million last year. So it was up substantially in the core to business is very strong and they told me 25 years ago, We went sour crudes in five years.
Over 20% this year and we own about half the commercial market.
So we wish there were more businesses like the tube business.
But it just.
We sell 20000 customers over the world, probably 80% of those products are in aftermarket. So it's a very predictable business.
So the core business continues to perform well and I think what's happened over time is maybe volume is in decline, but you take enough price each year to offset that is that how it works.
That's correct.
Great.
Okay and then on the.
Clean energy solutions business did Greg did you say that the backlog was $43 million is that correct.
Yes, the backlog is 43 point something yes correct.
Okay I understand that.
All right.
I understand that this is rich with opportunities, but that number was down from I think $54 million in the prior quarter.
Is that just burning through some of the locomotive revenue and should we expect a little bit of a pullback in the revenue for that division over the next couple of quarters.
A ramp in the back half.
That's exactly what it was again that business, including most of the engineered solutions products in the Green Energy Group is project based so.
Our bookings were through the rough as you remember in the first half of the year and then we designed and built it and shipped it and so we had huge shipments in Q4.
To meet our customers' requirements. So they could build their full electric locomotive.
So I don't think we will see production orders as I mentioned until Q3 Q4 of next year large production orders, but we have some other products I think as Ed touched on.
With other electric locomotive manufacturers that.
You should keep that topline growth going.
But that's exactly its project base youre going to have that you're going to have huge bookings one quarter and then huge shipments a few quarters. After that and then wait for the production. It's all part of the new product introduction process and these are all as you know new products.
That didn't exist.
Two years ago.
Do you think the backlog that this was.
Our low point and it can grow from here, meaning the book to Bill would be north of one <unk>.
Over the next few quarters for that division.
Yes, I think our bookings will be.
Strong in Q1 and Q2.
Of this fiscal year and then our top line I think it will be stronger than any quarter we've seen.
In the last couple of years in Q3 and Q4.
Okay, and then last a housekeeping question for you do you have the backlog for our PMT and then and then canvas.
The canvas is about $40 million $47 million for kind of a simple 47 40.
47% of our Kansas PMT in total.
That includes Green energy.
$111 nine.
So we don't have I don't have it broken out there.
Health care was $1 seven.
Okay. Thank you very much appreciate it.
Yes, actually I do have the backlog for pm.
PMT.
$69 million.
And then $42 8 million for a total of both groups of $111 million.
Okay, great. Thank you.
Ladies and gentlemen, this does conclude the Q&A portion of today's conference I'd like to turn the call back over to Ed for any closing remarks.
Yeah.
Thanks, Kevin we appreciate your investment and interest in Richardson electronics.
And I'm really pleased with the performance of our teams throughout the entire last year and remain confident we are on the right track for long term growth.
We look forward to our ongoing discussions and sharing our fiscal 2024, our first quarter with you in October .
Please.
Don't hesitate to call us anytime we're always available to talk to you. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The $13 nine.
Just so you know.
Yeah.
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Okay.
Okay.
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