Q1 2024 Richardson Electronics Ltd Earnings Call
Okay.
Good day, and thank you for standing by and welcome to Richardson Electronics earnings Conference call for the first quarter of fiscal year 'twenty 'twenty four 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 you will need to press star one wondering your telephone.
Here, an automated message advising your hand is race to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference temperature your speaker today, Mr. Edward Richardson, President and Chief Executive Officer. Please go ahead.
Ladies and gentlemen, please standby.
Sure.
Ladies and gentlemen, please standby.
Good morning, and welcome to Richardson Electronics Conference call.
Call for the first quarter of fiscal year 'twenty 'twenty four.
Joining me today are Robert Ben Chief Financial Officer.
Wendy to Dow Chief operating Officer, and General manager for Richardson Healthcare, Greg <unk> General manager of our power and microwave technologies group.
And our newest business unit Green energy solution and yen as Rupert General manager of canvas.
As a reminder, this call's 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 S E SEC filings for an explanation of our risk factors.
Financial results for the first quarter of fiscal year 'twenty 'twenty four were below our expectations due to concerns regarding economic conditions.
Rising interest rates are lagging China economy, and the possibility of a recession across our global customer base.
It was especially challenging period, given the downturn in the semiconductor wafer fab market and the timing of new orders in our Green energy solutions business.
While sales were lower than anticipated our gross margin improved from Q4 fiscal 2023.
And the team did an excellent job managing costs our.
Our core EDG and display businesses were in line with the prior year and the company remained profitable in the quarter.
Despite near term challenges, we've never been more optimistic about our future.
Spec the future downturn in the market demand to improve in the coming quarters, and we remain committed to our long term strategy.
Our strategy growth plan is focused on expanding our private lines leveraging the deep relationships, we have with over 20000 customers globally.
We do this by listening to our customers and helping them solve problems.
Curt could be building a name for ourselves as a technology leader in Green energy solutions and.
In addition, we continue to hear from key customers and technology partners in the semi fab equipment market that they are at the bottom of the semi cycle.
These companies anticipate growth in calendar year, 2024 that exceed sales levels during the 2022 cycle, we're taking steps in the interim to address the slowdown in without impacting growth in these critical areas.
We remain focused on increasing the percentage of our sales that come from our Green energy solutions business as well as other products we manufacture.
Much of this new visitors is project based and timing is not always easy to predict that.
The success of these strategies, however, supported by our sales growth improved deficiency.
And higher profitability over the past several years.
Our balance sheet remains strong with $25 million in cash and no debt throughout the.
Company, everyone is focused on turning our inventory into cash managing expenses and driving toward annual positive operating cash flow next fiscal year.
Bob <unk>, our Chief Financial Officer will review, our first quarter financial performance.
Greg Wendy in Yens or discuss numerous opportunities within our business units, including the significant number of new products programs and customers that drive our optimism for the future.
Thank you Ed and good morning, I will review our financial results for our first quarter of fiscal year 2024, followed by a review of our cash position.
Net sales for the first quarter of fiscal 2024 were down 22.2% to 52.6 million.
Compared to net sales of 67.6 million in the prior year's first quarter.
PMT sales decreased by $9 6 million or 21.2% from last year's first quarter, driven primarily by a decline in manufactured products for semiconductor wafer fabrication equipment customers.
Net sales for Ges were down by $4 1 million or <unk>, 48.4% from last years first quarter, primarily due to lower sales of ultra capacitor modules for wind turbines it.
It is important to note that the replacement of lead acid batteries and existing wind turbines is often project based and the timing of orders is difficult to predict.
Canvas sales decreased by 0.5 million or 5.1%, primarily due to lower customer demand in North America.
Richardson healthcare sales decreased by zero point $7 million or 22.1%, primarily due to lower demand in the quarter for parts and equipment.
Total company backlog was $148 1 million at the end of the first quarter of fiscal 2024 versus a 160.4 million at the end of the fourth quarter of fiscal 2023.
Gross margin for the first quarter was 32.8% of net sales compared to 34.1% in last year's first quarter.
Pmt's gross margin decreased to 32.2% from 34.3%, primarily due to product mix and manufacturing under absorption.
Health Care's gross margin decreased to 31, 6% in the first quarter of fiscal 2024 compared to 36.7% in the prior year's first quarter as a result of increased scrap expense and manufacturing under absorption.
G S gross margin increased in the first quarter of fiscal 2024 to 36 point out percent from 35.5% in the prior year's first quarter due to product mix.
Canvas gross margin increased in the first quarter of fiscal 2024% to 34.8% from 31, 4% in the prior year's first quarter because of product mix and lower freight costs.
Operating expenses were $15 8 million for the first quarter of fiscal 2024.
<unk> to $14.2 million in the first quarter of fiscal 2023.
The increase in operating expenses resulted from higher employee compensation expenses, primarily salaries.
The company reported operating income.
Of $1.5 million or 2.8% of net sales for the first quarter fiscal 2024 versus operating income of $8 8 million or 13.8% of net sales in the first quarter of last year.
Other income for the first quarter of fiscal 2024, including interest income and foreign exchange was 0.1 million compared to other expense.
Zero point $3 million in the first quarter of fiscal 2023.
Income tax provision was 0.4 million or 23.7% effective tax rate versus an income tax provision of $2.1 million or 25.1% effective tax rate for the first quarter of fiscal 2023.
Net income for the first quarter fiscal 2024 was 1.2 million <unk>.
<unk> to net income of $6 3 million in the first quarter fiscal 2023.
Earnings per common share diluted were nine cents.
Compared to earnings per common share diluted a 45 cents in the first quarter of fiscal 2023.
Moving to a review of our cash position.
Cash and investments at the end of the first quarter fiscal 2024 were $24 1 million compared to 25 point home million at the end of the fourth quarter of fiscal 2023.
U S cash and investments were $8 4 million at the end of the first quarter of fiscal 2024 versus $7.6 million at the end of the fourth quarter of fiscal 2023.
Capital expenditures were 1.1 million in the first quarter fiscal 2024.
Versus $1.4 million in the first quarter of fiscal year 2023.
Approximately 0.9 million related to investments in manufacturing including facility expansion.
And the renovation of our office space.
We paid zero point $8 million in cash dividends in the first quarter of fiscal year 2024.
In addition.
Based on our current financial position our board of directors declared a regular quarterly cash dividend of six cents per common share, which will be paid in the second quarter of fiscal 2024.
As of the end of the first quarter fiscal 2024. The company had not made any draws on its $30 million dollar 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.
In Q1, FY 'twenty for power and microwave technologies are PMT in Green energy solutions, our Ges continued to gain market share by developing new products and new customer relationships, while maintaining our market share with our existing customers.
However, we did see a slowdown in revenue coming out of a record year in FY2023.
Which was mainly due to the semiconductor wafer fab industry slowdown and timing of a number of very large project base G S opportunities.
PMT sales were down year over year by 21%, primarily based on the semiconductor industry slowdown, which started late in calendar year 2022.
It is very important to note that we have not lost any market share in this business segment.
And through excellent customer relationships and communication, we are hearing that sales will reaccelerate in the back half of calendar year 2024.
And that 2025 is anticipated to show record demand in sales.
We are well positioned to manage this business as a customer demand increases.
G S cells were $4 4 million in the quarter down $4 1 million from the prior year due to timing on several major project based opportunities.
During the quarter, we added several new customers and increased our market share with customers needing our niche patented green energy products.
We have many highlights in Q1 for our G. S group, beginning with the wind energy market during.
During the quarter, we added over $1 million in bookings with several new customers for our flagship ultra 3000 product increasing our backlog in this product line to over 12000 units.
All of our existing wind customers are significantly expanding their budgets for lead acid battery placement within the GE turbines over the next couple of years.
The market potential for the Altra 3000 remains at more than $150 million.
The product is reliable area joined great success and continued relationships with our tier one.
Owner operators, GE marketplace, which targets more than 800 wind farm management companies has also started to Bruce orders as we worked directly with GE farm owner operators site managers and technicians.
With over 41000 units in the field three patents and exclusive relationships with the largest owner operators in North America. We continue to be very excited about this product technology and opportunities.
Yeah.
Our beta testing of our patent pending ultra U P. S <unk> thousand with Siemens and other owner operators of GE and Siemens wind turbines is underway and going well.
The altra Ups's free thousand replaces lead acid batteries in the uninterrupted power supply or U P. S.
Hits are the base of every wind turbine, we're moving forward to testing on other wind turbine platforms, such as N V N Suzanne and Nordics.
Once we begin production, we anticipate expanding to other markets and applications as this product works anywhere a U P. S is used.
Our ultra Pam or multi brand pitch energy module is in beta testing with <unk> on an OEM basis. This opportunities for more than 7000 turbines in India alone and several thousand more in North America.
This product is awful and final testing with a number of owner operators in Latin America, and North America, which have an S S be pitch system.
In the EV and diesel locomotive segment of Green energy solutions due to supply chain issues are superstructure builds for long Island Railroad and Burlington Northern electric locomotives will be completed in late Q3, and Q4 of this fiscal year.
We have received beta orders for our patented ultra Gen 3000 starter module with two large diesel and heavy locomotive manufacturers will be doing the beta testing and twenty-five trains in Q3 FY 'twenty four is.
Is important to note that we are exclusive with both of these customers.
We continue to identify other niche applications and this patented technology. We are in beta testing with several refrigeration truck manufacturers, where the altra agenda is replacing lead acid batteries.
There are currently 500000 refrigeration trucks in North America, and we estimate this market opportunity to be have a tam.
Of 200 million.
There are numerous other markets that this product will be applicable to such as construction equipment, including excavators loaders and backhoes.
After a record Q4 and record FY2023 shipments slowed in Q1, and we expect this trend to continue in Q2.
With bookings and new products, along with our forecast and backlog from our project based customers. We feel that Q3, and Q4 will be extremely strong for green energy solutions, we have not lost any market share and we continue to increase our market share with new products applications and customers.
Now turning to PMT, which includes EDG are legacy tube business and PMG, our power and microwave components group sales decreased 21%.
Sales were $35 7 million versus $45 3 million in Q1 last fiscal year.
This decline was due to the major slowdown in the semiconductor wafer fabrication equipment business the.
The decline was somewhat offset by growth in our laser and broadcast tube business, which remains steady.
We also saw strong bookings in our RF business.
The team has been supporting the semiconductor wafer fabrication business and as customers for well over 25 years. This business has always been cyclical we anticipated the slowdown in 2023.
But again expect the business recover in the second half of calendar 2024.
Our integrated solution strategy is driven by our global technology partners, such as <unk> may come a Nokia wave Ellis materials, ammo Greentech Novelis and Fuji electric key to manufacturers and partners include CPI, Talis Nishimo micro devices and photonics.
Each of our global partners helps us meet and manage customer requirements.
Our team has done an excellent job of identifying and cultivating these relationships will continue to add technology partners, who fill technology gaps in our offering and support our growth.
Often though.
Through these partners, we identify opportunities for new products, and we design and manufacture in house, increasing the value, we provide customers and allowing us to capture more revenue and increase our customer base.
These long term relationships are extremely strong and we work with them on strategic long term purchases to keep our customer sources apply continually motion, we negotiate special payment terms and shipping schedules to help improve cash flow. In addition, having inventory on hand allows us to capture and maintain market share.
We also continued to invest in infrastructure to support our growth we are bringing in talented design and field engineers and making investments to enhance our manufacturing capabilities.
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.
I am pleased with the progress.
With this team we will continue to identify develop and introduce new products and technologies for Green energy and other power management and microwave applications.
Our growth strategy has been proven to be highly successful over the years and will continue to develop new products as well as increase our customer base revenue and profits by capitalizing on existing demand creation infrastructure.
Our belief in the future based on our customer forecasts requires us to strategically invested inventory that positioned us to fill the pipeline and ensure we can meet our customers' needs through close collaboration with both our customers and the suppliers themselves.
Cannot stress enough the value of Richard 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 markets.
We have developed a strong business model, including legacy products, and new technology partners that fit well with our engineered solutions capabilities.
Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities as they arise.
The execution of our strategy has never been better Theres No question, our customers and technology partners need Richardson's products and support more than ever.
We remain excited about the future as we find opportunities and build our market share for PMT and Ges with new products and customers. Our team will continue to work closely with our customers throughout the beta testing phase for the exciting patented products.
And with that I'll turn it over to Wendy to Dell to discuss Richardson healthcare.
Thanks, Greg Good morning, everyone.
First quarter sales for the health care Division were $2 6 million down 22, 1% versus the first quarter of last year.
Sales were down in all product categories, reflecting lower demand for parts and services throughout the most recent summer months.
In the quarter, we sold all of our repaired Siemens Stratton Z kids, helping improve our gross margin to 31, 6%.
While this was lower than the prior year's first quarter. This is a significant improvement from the fourth quarter margin of 23, 7%.
On a year over year basis gross margin was negatively impacted by higher scrap costs in the quarter.
We continue to make good progress on the Siemens repair tube program.
Theories of four tube types, including the Stratton Z Amex, NXP and NXP 46.
The Siemens install base is considerably larger than the installed base for Alta tubes, and there are no third party replacement options for these tube types.
The repaired Stratton Z is in full production and performing well in the field we.
<unk> sales to rise gradually in the coming quarters as we expand our production team in the repair process and add more tubes to inventory on a consistent basis.
We also continue to make good progress on the repair Siemens Nx series, we know demand is strong based on discussions with our customers.
While we anticipate launching the first repaired Nx series tube around the end of the calendar year supply will be limited due to recent challenges we are experiencing replacing a critical component.
It is important that we get it right and we believe we are on track to do so.
This will delay having sufficient inventory to meet customer demand until FY 'twenty five.
While our engineers work on the Siemens repair tube program, we continue to work our way through the local registration process for reloading tubes in Brazil, We still anticipate this program. They have a small positive impact on our revenue in FY 'twenty four.
We remain cautiously optimistic that the ongoing development efforts within the health care business will enable the division to achieve its goal of breaking even in the fourth quarter of this fiscal year.
I will now turn the call over to Jens Rupert to discuss the results for canvas.
Thanks, Wendy and good morning, everyone.
Tenders engineers manufacture and sale of custom displays to original equipment manufacturers.
In industrial and medical markets throughout the World canvases performance remained strong with sales of $9 9 million for the first quarter of fiscal 2024 down slightly from $10 4 million during the first quarter last year and up from $9 2 million in the fourth quarter.
First quarter sales reflected stable cost of demand globally, and we finished the quarter with a backlog of $42 6 million, which remained strong.
Gross margin as a percentage of net sales was 34.0% during the first quarter of fiscal 2024.
Compared to 31, 4% during the first quarter of fiscal 2023.
Increase in gross margin was primarily related to a more favorable product mix.
During the quarter, we received seven new orders from both existing and first time medical OEM customers.
Some of these applications include.
Technology.
Laboratory equipment media documentation systems.
<unk> assisted surgery and surgical navigation.
In the nonmedical space our products are used in a variety of commercial and industrial applications.
This includes large sized industrial printers.
Displays used in the public transportation space.
Colin machine interfaces for packaging machines and industrial automation.
Container, prompting.
Talent monitors and clocks used in the broadcast market.
Over the near term, we expect increasing interest rates and continued high inventory levels will have a short term impact on our business.
Customers are forecasting more conservatively and only placing orders when the inventory is at a minimum level.
We haven't lost a program, but we expect sales to vary quarter to quarter, depending on our customers' inventory 11th.
Given the number of projects currently in the engineering stage, we believe sales will.
We accelerate towards the end of this fiscal year.
We are proud of the airports in innovations of our talented engineering team and the ability to design products that help create productivity and value for our customers.
During the quarter, we further advance our high end Falkirk display offering by adding a special send them to the LCD is to ensure a super low resection.
The monitors have been evaluated by large medical companies with very positive feedback.
From the variety of customers and applications.
Well as the value of orders from existing and new customers. It is clear.
Our global customers outstanding products that are localized service.
While our sales organization is focused on new opportunities as they focus on improving the operating performance of the division.
Maximizing cash flow and improving Kansas. This probability is an ongoing priority as 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.
Thanks. She ends we understand the near term challenges you face, but we remain confident that canvas, who will continue to grow given the stronger relationships and recognition as a leading custom display solutions provider.
To conclude we're excited about the direction, we're headed we remain committed to our employees our customers our suppliers and our shareholders for investing in our growth initiatives with an emphasis on engineered solutions that improve sustainability.
We're at Ges business, just getting started the products. We manufacture are used in aftermarket applications and we have solutions that improve operating efficiencies and help companies achieve their green energy goals.
Much of our legacy business, including EDG is reoccurring revenue for consumable products with them.
The launch of the Siemens repaired to program, we anticipate improvement in our health care business, helping strengthen our bottom line.
We will protect our cash and focus on improving inventory turns.
Finally, we're confident that we will emerge from the challenging period stronger and better positioned to grow in sales and profitability later in the year. We continue to believe it's not a matter of if but when.
At this time, we'll be happy to answer your questions.
Thank you.
As a reminder to ask a question you'll need to press star one on your telephone.
Draw. Your question. Please press Star one again, please wait for your name to be announced 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 up until all have had a chance to ask a question after which we will answer any additional questions.
From you as time permits please standby, while we compile the Q&A roster.
One moment for your first question. Please.
And our first question comes from Andrew <unk> from Sidoti. Your line is now open.
Hi, and thank you for taking my questions.
So first.
I'm curious with the GSE came in.
Softer than that.
Anticipated.
Can you just talk about the timing analysis, something that was just shifted into the second quarter or is it just these larger projects that are seeing a longer sales cycle as al Gore.
How should we think about the second quarter for Ges.
Yeah. It was a combination of two things.
First of all the phase one orders that people in terms of setting their capital budgets, how many farms and how many turbines they were going to start to implement taking up led asset batteries with our ultra 3000.
That phase was expedited Ah the team did an absolute fantastic job getting the product to the customer in our fiscal year and then the dates they needed it.
That was completed.
They're installing them.
Over the next couple of quarters and according to each one of them and we are tied in with every major owner operator, GE wind turbines in North America.
Phase II will start.
Early 2024, so in essence, the first quarter of calendar 2024, we'll start seeing the bookings for phase two.
And right now it looks like.
For example, our backlog today is about the size of our sales last year. So we're looking to grow in this fiscal year. The exact timing of how much will ship in Q3 and Q4.
Project based business is very hard to do that but.
Inputs from the customers is that will kind of be the progress going forward.
So in the second quarter is its throughput is expected to be at the same level as the first quarter somehow.
It'll it'll be very close to the first quarter shipments.
Okay, and then on the flipside the PMT.
Was stronger with sub growth sequentially, what's driving that and how how is.
Is that continuing into the second quarter.
Yes, both the tube business and then the RF and wireless component business did good.
The RF and wireless component business.
Seemed a lot of strong bookings in Q3, and Q4 of last fiscal year and so we had very strong shipments in there their backlog grew and they grew year over year in Q1 on the tube side, we had a real.
Strong growth in our laser.
Two market and also we had a large business with some replacement business.
Parker YJ.
$3 54.
So that's just very consistent business.
Up and down five or 6%.
But with the recession coming on and.
This being replacement business, its not 100% recession proof, but its because its repair business, we seem to have consistent numbers throughout the year. So we'll probably see the same type of growth that we saw in Q1 and now in Q2 throughout the year.
Okay. Thank you and then inventories seem to be managing that well for the quarter.
What's it including that inventory and hi, how are you going to need to start building Nokia in anticipation of this large orders that you're expecting in the second half.
Yes, there is two main main increases and in the.
Inventory very strategic purchases one.
It was some long term lifetime buy orders to support our customers on product that's being discontinued over the next couple of years to make sure. Our customers. We've had for 2030 years of our source of supply.
Part of it was.
Four months ago, we had zero inventory on the ultra 3000 in many of the Ges products.
So we're trying to build up inventory, where we have our quarters are minimal the quarters worth of inventory.
Just like it's hard to predict.
These project based orders when they come in.
Typical customer they want in the next the next month or the next week so.
We went through two years of daily calls on the supply chain issues, and we can't let our customers down and we did an amazing job as you saw with the numbers from FY2023 supporting their phase one builds both in the locomotive and the wind turbine business.
Okay. Thank you I'll get back in line.
Thank you.
One moment for our next question please.
Our next question comes from the line of P. Ross Taylor with <unk> investment partners. Your line is now open.
Thank you very rarely get the full name.
A couple of things first revenues were down about $10 million in the semi cap equipment space that carries probably about your best margins and your firm so would it be safe to assume that an operating profit basis that probably hit you guys buy something in the neighborhood neighborhood of around $5 million.
Yes.
Okay.
On the operating profit.
That's probably a fair assumption might be a little less than that but that's about correct.
Okay do you have any ability to reduce the other costs associated or below the operating profit line when you see a drop like that.
Oh, Hi, Ross it's Wendy.
We had a few layoffs. So we were able to take some cost out there we had some people voluntarily take furlough as we were able to take some cost out there.
Our plan is considerably higher than where the sales actually came in we had savings in the incentive area.
And we certainly hold off on adding any non critical adds to staff.
And in general we look at things like travel and we cut back on that marketing can we cut back on that but.
But we're not you're not going to see a $5 million reduction in SG&A.
Okay.
So it's safe to say that probably cost on an operating basis 35, 40 cents a share you are being told to look for.
<unk> 25 that would be at record levels better than you saw last.
Last year is that right.
So what what we what we're anticipating is that the business will start improving again in the back half of calendar year 2024, and the calendar year 2025.
They're anticipating that will be a record year.
Yeah, Okay calendar 2025, that's even better.
Now this calendar.
Right. Okay. So looking at that setup is there any reason to believe that you should not be able to sustain.
Or even improved profitability as you move back to record levels of revenue in that space.
We absolutely can achieve that.
Okay integration of that.
Theres a number of.
Large programs out there.
On the Ges side that would.
Compensate for any.
Continued.
Come back with that market. So there's a lot of things in the pipeline that.
We really think will be added to that that will get us back to these record profits we saw the last year or so.
Okay, and let's move on to the Ges spaces sues along.
They have what 7000 towers.
<unk> currently.
Currently has about 9000 total turbines we ever.
Biweekly call with the group in India.
The first phase one will be 7000 turbines and those are all in India actually.
Okay, and we're all set up to do that beta testing.
The third week in October so end of next week or week after I guess.
And we've tested the product in a Susan <unk> turbine here in the states with one of our owner operator partners and that has worked very very well so.
We're really excited about that program you know getting an OEM.
And working with them.
In addition to that they also own a number of GE sites, which obviously the altra 3000 was designed for so we looked at that program to get very strong going forward absolutely.
Okay. So when we look at the demand for your ultra capacitors on GE side. Its one for one right. So that if there are 18 batteries. That's 18 ultra capacitors on the fuselage for my understanding of the technology itself.
One for three so if there is 9000 towers that would mean you need something.
Each tower, having 18 R&D quite a lot of I'll say 18, you'd end up needing something then in the neighborhood.
50000 modules or something is that total 7000 in India alone would be like 42, K modules that you'd be looking at putting that Amazon about right.
Seven times, yes, that's close.
This is a lot of module is based on the altar 3000 technology, but it is a redesign specific pursues alon and there's six modules and every Susan lot of turbine versus.
18 modules and every G E turbine however.
This product is a little more expensive than the.
Altra 3000.
It would be six times 7000, which is what you came up with about 42000 of these 42004 and so we're looking at that that project that opportunity alone is probably something in the neighborhood.
34, 40, something million dollars of revenues and operating profits something like $14 million to $18 million out of that project alone.
Yes.
Okay, how long would it take you to fulfill an order for 42000 ultra capacitors.
Well.
With the new.
Our manufacturing area. It's just about resources, we get the people right now we can produce probably five to 6000 a month.
So it went well.
I wouldn't take that long.
You could easily fulfill that inside a year and if you ramp up you can fulfill it inside six months or less type of situation will absolutely.
Okay cool unique about the large order we received when we started this program they pick.
Pick sites and they did a complete repower, meaning they took all the lead acid batteries out and put these in some of these other owner operators. It's when they have a bet. That's one of the unique things about our product from the competition is that you can put it in a turbine and keep if you want to put too and you can keep the other 16 bad.
<unk>.
In the turbine until they.
Warranty runs out or the batteries fail. So they replace him as the batteries fail versus just doing a sweep of every site.
So that's just a timing thing but.
Great business, Great program, great product.
Okay, and this and that type of technology with Siemens is a little different is it not youre, saying its like one that it's one of the base, but its probably a much.
More powerful one than what we're seeing is the economics might not be.
Same as times 18 for GE or may be times, six versus along but I would assume that's a pretty valuable.
Union at the base.
Each Siemens tower.
Yeah. So the the UBS Tech product has a different technology than the ultra 3000, geos or 3000 of the pitch energy module. The ups's power uninterrupted power supply. So there's only one per turbine, but it's five times the amount of AR.
Alastair 3000, so that's the seamless design, we're working on right now is for the UBS now.
<unk> 3000.
And that's a similar margin.
Yes.
Okay. Okay. So it looks I mean, that's really setting up well, we got a market here that seems to be focused on looking at speed and concerned about what's going on which leads to my next area and I know I'm almost close to ask two questions, but Ed and Wendy millimeter, they know that I'm not.
I can only ask two questions.
That's okay. So.
So one of the things I'm looking at it at this point in time.
This company is actually selling it at net net working capital the markets are assigning a zero value to the business, it's literally saying that Richardson, it's worth nothing.
Other than what you can liquidate its current assets for.
When I look at that.
Tells me that there's something really just kind of wrong with the thinking and now you've done an amazing job of changing this company I mean, this company going back a number of years was a highly cyclical really focused and all into one primary area and you've diversified and I think your data would be really proud of what you've done with it.
And to be honest, what I'm hearing on this Paul I think in two years and data is going to be would be beyond.
Satisfied with you, but I think he'd be enthusiastic if I'm hearing you guys talk about you put these pieces together, we're looking at a return to not just the level of earnings you had last year and earnings that can be meaningfully higher than that meaning when I model that out I get $1 $82 a share in fiscal 'twenty five for you and I think.
The inability to market to appreciate that is problematic, but I also want to say that I think that there are some things that.
We can do with that one is in the past you've indicated that you're banking of course doesn't allow you to buyback stock.
When you're selling it net net working capital and I've talked to bankers.
One of the guys in golf with Us.
Vice chairman of one of the world's four or five biggest financial institutions. They don't bank down at this level, but he tells me it's absolutely asinine you can't buy back stock in your bank acquired given your balance sheet and I think that I for one would argue we need to get a bank and card that reflects what <unk> is today and where they go.
<unk>, we think it's going to go parabolic, it's going to be a massive free cash flow generator.
There is no risk to our banking lending new money. So it's time that we start to get banks that respect us and give us that type of opportunity.
That's my Ross Taylor Snooty comment at the moment on your banking.
Situations.
I do think that if you do that we're looking at a desktop it's down a lot. This year you have five plus million, yes, 100 acres plus an unused land that's zero asset right now relates being what it's being farms at this point.
Correct.
What kind of correct when.
When you get on on leasing up that acreage to be farmed.
Oh, you get about $340 an acre we sold 55 so.
225 acres that 55000 acres.
I'll tell you I'm pretty much with the values.
Right, So right now youre getting about $34000.
A year on that land.
No.
Yes, we think that ultimately that the electric.
The electric locomotives with progress rail and <unk> are going to be huge business and we want them.
<unk> space that we can expand.
Backwards and around 25 acres in the front of the 120 acre property.
We want to keep space to be able to expand.
No.
If you sold off.
Yeah, 50 acres and you've got the 55000.
You did before.
And you turn that into <unk>.
You bought 10 year treasuries.
You literally increase the income off of that land by a factor of four or five.
And so I would suggest and you could use that in this environment and that still leaves you a lot of land to expand leaves you 50 acres to expand into but it does strike me as in some ways.
You are on the cusp of something major here the market is smart enough to figure it out.
There is a reason why.
My career is based on the stupidity of the market.
Now I'd like to tell my daughters.
Thank you.
Yes, I'd say I'd tell me right or am I far southeast market just stupid.
So we look at that point, if we can do something that's in the way of monetizing some of that asset. There is a lot of good things, we can do even with just make more money.
That's a that's a penny plus a share pre tax.
At the same time, you could use that may be a few bankers would wake up they might let you use some of that to retire stock in a Dutch auction or something and take the selling pressure off in the end of the year because people are looking at their feet not the opportunity side.
So I think that's something we need to look at because zero reason why the stock should trade at net net working capital you're business is worth.
Easily a low teens multiple on the earnings power of this business and the net net working capital should be an AD and I don't have anything in my universe. It's trading at net net working capital I challenge people to find much that is.
In the World now onto my next Goodbye handgun toes, Ross and Roscoe's Places one thing.
We got a good time.
I'm really frustrated with your board you got three directors, who have been there for 10 years. They owned zero stock I'll be honest with you you guys had been there for 10 years shouldn't own less stock that my dogs.
Right I mean, it's it's not acceptable and I look at your business. It's changing your business is going places you Werent before I would love to see you changed your board I'd Love to have you put people on who believe enough in this company that they are willing to spend the price of a happy meal and a lot every day to buy a share of stock and I.
Also we'd like to see those people come in with expertise because you've got you've got such a great opportunity here and you've done such a great job with this company that if you surround yourself with people, who have green energy background people who have.
Background in the semi cap equipment space, you know people, who have capital markets background and things of that nature.
And those people not just brought their expertise brought their pocketbooks and bought stock I think it would send a message to the state that they just they need to look at this opportunity and they need to take you guys seriously and I know, it's always hard I understand boards 10.
These are people who have been around for a long time, but from my outside perspective, their unwillingness to commit capital to buy stock and the lack of clear industry.
<unk> expertise and financial expertise tells me that we need as outside investors I need people to be my champion on your board 90 people to bring you. The skills. So that you guys get everything you can out of this opportunity and so I would strongly advocate we bring some new blood into the board.
I'm in my mid 60, so I hate calling people in their seventy's old but.
You know that we need new new people on this board, who bring that expertise and honestly has come in and are excited by this opportunity and say you know I right now can buy a stock for zero to 50 cents above net net working capital I think is going to earn close to two bucks in two years.
And thats insane, and I want to own a lot of them.
Okay.
Thank you well we start we certainly agree with you in May we had a long discussion with the board when they were here this week about buying stock and that's under consideration.
We agree we think this company will be $500 million in the next three to five years and.
We have $25 million in cash today, we will go cash flow positive in 2025. So all the things you say, we agree with and we appreciate your opinion.
Thank you.
We're going to move on okay.
Thank you. Our next question will come from the line of Barry Mendel with Mendel money management. Your line is now open.
Okay.
Yeah, a couple of things one.
When do you expect your backlog to start increasing because I think that would be a catalyst for the stock.
Don't expect a big locomotive orders or at least last quarter, you said sometime in the third or fourth quarter. This year. So when do you.
We expect the backlog to kind of thought about.
Yeah.
Yeah, and on the Ges side and in the PMT side, we look at the backlog.
Start having some of these are project based businesses.
The end of Q2.
At the very beginning of our Q3.
And then we expect the delivery will be over the next six months after that so end of Q2.
Based on.
Some of the beta testing, we have and the.
The customers' forecast and then but Q3 should be a very strong very strong booking quarter Q3.
Your fiscal year peso for free.
Our fiscal Q3, yes, okay.
In terms of the semi space.
Call risk order I believe you mentioned that semi space expected to improve in the first half.
Of calendar 'twenty for let's say the second half.
44.
Hmm.
What's the reason for that.
Hi, Wendy.
I think we've been consistent saying it.
The our customers are have been forecasting improvement in the second half.
We're hoping that maybe we would see some of that start to come in in the first half, but its always been consistent that they were not anticipating significant or really any recovery until the second half of calendar year 2024.
Okay and then.
If you have the Megatron, what's going on with that business.
I'm, sorry could you repeat that we are a little bit distorted.
Oh, what's going out with the Megatron business in terms of capacity in the sales there.
Oh, it magnitude items, yes wow.
You know we're building new test equipment, we've improved the carbonization that's element on the tube.
There's a huge demand out there probably over 5000 tubes, a year and we're trying to.
Build our capacity too.
In order to take advantage of that and we're we have monthly progress in that area plus a 915 megahertz magnet drawn at 100 kilowatts or is the huge market.
For also creating synthetic diamonds and then they make hydrogen.
Out of methane gas.
Which is another big application so that the magnetron businesses are strong and well in our restriction is how fast we can develop.
Higher power magnetron and improve the year.
The quality of the ones, we make already.
As I recall, you weren't wasn't doubling capacity in that business.
Earlier this year in the spring early summer.
Yes.
They are having difficulty there the problem is that tube type of equipment is all custom made in.
We've geared up now where we can build about 240, a month, but we need to get to 500, a month on the wide <unk> hundred which is a 60 kilowatt too.
But we're getting there its progress it slow.
When do you expect the local side part of the month.
I would say six months out.
Okay.
Okay.
Thank you.
Thank you. Thank you one moment for our next question. Please.
Our next question comes from the line of Ron Richard Your line is now open Sir.
Yeah.
Hi, I was wondering in.
In light of all the problem with Siemens has had and I know that you're in beta testing right now do you have any.
Yes.
We might start receiving some orders from Siemens.
Yeah, I think it's similar to the other ones based on how they structure their capital requested and money is still there.
Put in for it the parts Ben.
You know successful in testing and again Q3 Q4 of our fiscal year is when we think we'll be getting per them production orders. We've already received orders for beta testing in alpha testing, but production orders, probably Q3 Q4 based on what they are telling us.
Great.
Thank you.
Okay. Your fiscal Q3 Q4.
Yes.
Okay, great. Thank you and that particular product Ryan is it's the ultra UBS 3000, which is also intense with other large wind turbine companies.
Do you want to comment on that yes. It is.
Again, our base design that we're designing for Siemens, but also we have beta testing going on with Nextera and RW <unk>.
So yes, it's a and again it goes in every one of those they're turbine. So we're excited about that product and their aftermarket so siemens might be an OEM opportunity, but the other ones are aftermarket they're both they're both after Blair.
<unk> to be built so that youre concerned with Siemens not an issue yeah, yeah, no it's not based on new builds.
Okay, great. Thanks.
Thanks for the color appreciate it.
Thank you. Thank you. Thank you one moment for our next question. Please.
Our next question comes from the line of Michael Hughes of SGS capital markets. Your line is now open.
Good morning, Thanks for taking my questions.
First one can you just can you break out the backlog by by segment for the quarter. Please.
Okay.
Yeah, Hi, Michael This is Bob Ben.
Yes, so again the total backlog at the end of the quarter was $148 1 million of that approximately $67 4 million was PMT $36 5 million was green energy systems, $42 6 billion with canvas and the remaining $1 6 billion was healthcare.
Okay and then.
When do you think you referenced an issue where the critical components for the Siemens two program can you elaborate on that a little bit.
Sure.
A little bit I don't want to get into too much detail on this call, but it is it is a part that we thought we could use a.
Our refurbished part or a part that's already been used on another two and unfortunately that method is not going to work. So we have and we need to wait to the patent expires in the interim there are a number of the <unk> series that we can repair without replacing them that specific component and that's what we'll focus on which is why I say, we will have limited.
Slide until next summer.
When does the patent expire.
During the summer of 2024, Okay right right. Okay that makes sense and then last question for you I'm not sure if you'll disclose the precise number but what was the semi cap equipment revenue.
Up or down sequentially.
So it was down certainly from Q4.
It's pretty much flat.
So flat for the quarter.
Yes, it's running about four or $5 million a quarter.
Great. Thank you very much I appreciate it.
Thank you Michael Thank you one moment for our next question.
Yes.
Our next question comes from the line of Andrew Lim with <unk> Partners. Your line is open.
Good morning, Andrew.
Hey, guys. Thanks, a lot just on the beta test coming up in October what needs to be program and that beta test.
They've just stay they run it they add.
Take and take the turbine and shut it down so there's a logical follow up to see if it works.
They just for the most part just wanted to run it in a specific turbine.
For a period of time it varies somewhat to do it for a year. So I wanted to do it for six months some for three months, but it's just.
The beta testing we've done almost all the testing you can get the data in our labs and either a local turbine.
Then when we go to the the large orders these large customers.
It averages between three months to a year. They just want to run it in a turbine the to make sure. It works.
Okay. So now if I take kind of there might be.
Go ahead, Brian .
I was just going to say in beta testing. So then there might be a mechanical issue, meaning the way it fits into the box that we might have to do a tweak here and there, but it's just a handful of tweaks, but it really the performance of it.
They just need to run it for a certain period of time.
Okay, setting aside the nuance within mechanical box.
If we try to think where you simply expectation you've talked about 7000.
Wind towers.
But realistically knowing that the beta test could take.
Six months plus.
Probably wouldn't be until the back half of calendar 'twenty for where you might start seeing.
Full rollout.
That kind of deployment is that a fair assessment.
Yeah.
And that's specific to the Susana opportunity in India.
If everything.
Those perfectly well.
What we will see shipments.
In our Q4 and in the early part of fiscal year 'twenty five but.
Yes based on history, and the way these things work and I've been doing NPI or new product introductions burden.
One of them was 40 years.
Half of 2024.
Calendar year will be when we see the large production orders going out.
Alright.
Okay got it and I think the question or couple people grow thinking at Siemens Rob.
<unk> mentioned in his comment about stock buyback.
I want it.
I'll add to that comment by suggesting.
You might want to take a look at.
Foregoing dividend payment and do a stock buyback because that would be a much higher return.
While core investors. So it's a way to both paid and the investors back into more efficient way to do it because they don't have to pay taxes.
And obviously you should be able to if you realize what you guys are trying to do here. Obviously this auction being significantly higher so that would be a great return on investments for you and shareholders I'll start what he said about.
The board I would double down on that in terms of ownership.
Hum.
Tom.
I guess, that's two votes are for a couple of different thoughts there and then lastly, just it sounds like maybe you have a cold.
Hope you get well soon thanks, a lot guys.
Thank you.
Thank you.
I would now like to turn the conference back over to Mr. Richardson for closing remarks.
Well, we appreciate all your comments and we appreciate your investment and interest in the company Richardson electronics.
We look forward to ongoing discussions and sharing our fiscal 'twenty 'twenty four second quarter with you in January .
Do not hesitate to give us a call anytime we're happy to take your calls and talk to you individually.
No it was very good.
A question and answer period.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Hum.
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