Q2 2024 Richardson Electronics Ltd Earnings Call
[music].
Yeah.
Yeah.
Good day, and thank you for standing by and welcome to Richardson Electronics earnings call for the second quarter of fiscal year 2024 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during this session.
You will need to press star one on your telephone you will then hear an automated message advising your hand is raised 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 over to your speaker today Edward Richardson CEO. Please go ahead.
Good morning, and welcome to Richardson Electronics conference call for the second quarter of fiscal year 2024.
Joining me today are Robert Ben Chief Financial Officer, Wendy to Dell, Chief Operating Officer, and General manager for Richardson Healthcare Greg.
<unk> powered Glen General manager of our power and microwave technologies group, which includes screen energy solutions and Yen's 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 will be making forward looking statements are based on current expectations and involve risks and uncertainties.
Therefore, actual results could be materially different.
Please refer to our press release and SEC filings for an explanation of our risk factors.
Financial results for the second quarter of the fiscal year 2024 fell short of our expectations.
Economic conditions rising interest rates higher inventory levels.
And your economy in China negatively impacted customer demand for our products.
As we operate over the near term with a more uncertain economic climate, we remain focused on pursuing our long term growth strategies.
These strategies position the business to take advantage of large rapidly growing global opportunities.
The expertise of our management team is a significant asset during this period as we have successfully navigated difficult economic periods throughout our history.
This is exactly why we maintain a strong balance sheet with access to additional sources of capital if necessary.
We've also made the strategic decision to maintain stable levels of manufacturing employees in salespeople as many of the Green energy solutions and semiconductor equipment customers expect demand to recover in calendar 2024.
Therefore, maintaining continuity in our manufacturing team is important to ensure we can quickly adapt to increased orders and grow market share.
Unfortunately profitability was impacted in the second quarter as our gross margin reflects the under absorption in our factory.
Within our healthcare business, we've made some changes to improve inventory and focus on strategic objectives, which Wendy will tell you about shortly.
Overall the team continues to do an excellent job managing expenses, we are focused on driving efficiencies, while simultaneously positioning the company for future growth.
While we acknowledge revenues will be lower in FY 'twenty four than previously anticipated we maintained our optimistic outlook and remain committed to our long term strategy.
We continue to expand our product road map for Green energy solutions.
We are adding new customers for wind electric vehicles in rail and the applications that take advantage of energy transition initiatives underway across many geographies.
We're in the early innings of this transformation, we have quickly developed a compelling roadmap of products technologies and are establishing Richardson electronics as a leading provider of innovative engineered solutions for global Green energy markets.
Activity across our our business remains extremely strong and specifically for the green energies business.
Our pipeline of potential projects continues to increase in addition to public and private energy transition initiatives that are underway.
We believe that the inflation reduction act of 2022 will create further opportunities for the company.
One recent example was a new order from a U S based technology company, that's using a 100 kilowatt generators to power a pilot reactor to make crystal in diamond materials for high Tech applications.
Under the inflationary reduction act this customer is applying for a grant to pay.
Military reactor factory, which will require a significant number of 100 kilowatt generators.
I believe other wind and electric vehicle and rail customers or benefit from inflation reduction Act, which we expect to support our higher sales forecast.
As our Ges business gets to scale in the coming quarters and years much of our near term New business is project based and timing is not always easy to predict.
I wanted to stress that we've not lost any opportunities and remain focused on capitalizing on market opportunities supported by the inflation reduction Act and other energy transition initiatives globally.
We're also focused on adding suppliers that will fill our technology gaps.
These relationships are critical to our business model as our partners often support new engineered solution opportunities for the company that drive higher and more profitable sales.
Our balance sheet remains strong with nearly $23 million in cash and no debt.
Inventory increased in the quarter in line with purchases of catalyst products, which would support our profitable <unk> business as well as long lead time capacitors that are required to support our green energy growth initiatives.
Alex of our inventory remained flat.
Transit inventory was down, indicating we are reducing inventory purchases in line with sales.
With this introduction I would like to turn the call over to Bob Ben Our Chief Financial Officer to review, our second quarter financial performance in detail, then, Greg Wendy and yen sort of discuss our numerous opportunities within our business units, including the significant number of new products programs and customers that drive our app.
And is it for future growth.
Okay.
Thank you Ed and good morning, I will review our financial results for our second quarter of fiscal year 2024.
By a review of our cash position.
Net sales for the second quarter of fiscal 2024 were down 33% to $44 1 million compared to net sales of $65 9 million in the prior year second quarter.
PMT sales decreased by $9 3 million from last years second quarter, driven primarily by a decline in manufactured products for semiconductor wafer fabrication equipment customers.
Sales for Ges declined $9 7 million from last year's second quarter, primarily due to lower sales of Ultracapacitor modules for wind turbines as a result of the project based nature of this product line.
Canvas sales decreased by $2 8 million, primarily due to customer push outs in North America.
However, canvas backlog increased reflecting higher overall demand.
Richardson healthcare sales were comparable to the second quarter of fiscal 2023, as higher CET tube and parts demand offset lower system sales.
Consolidated gross margin for the second quarter was 28, 4% of net sales compared to 33, 2% in last years second quarter, due primarily to product mix and under absorption.
Without under absorption of the company's manufacturing facility.
Management estimates that the company's consolidated gross margin for the second quarter of fiscal 2024 would have been 31, 3%.
Okay.
Pmt's gross margin decreased to 28, 5% from 34, 5%, primarily due to product mix and zero point $9 million of manufacturing under absorption.
Ges gross margin decreased in the second quarter of fiscal 2024 to 29, 2% from 33, 9% in the prior year second quarter due to product mix.
Healthcare's gross margin decreased to 14, 8% in the second quarter fiscal 2024.
Compared to 23, 2% in the prior year second quarter.
As a result of a zero point $3 million increase in manufacturing under absorption.
Canvas gross margin increased in the second quarter of fiscal 2024 to 33, 5%.
29, 7% in the prior year second quarter.
The product mix and lower freight costs.
Operating expenses were $14 5 million.
For the second quarter of fiscal 2024.
Compared to $14 7 million in the second quarter of fiscal 2023.
The decrease in operating expenses resulted from lower incentive expenses.
Partially offset by higher employee compensation expenses.
The company reported an operating loss of $2.8 million for the second quarter of fiscal 2024 versus operating income of $7 2 million in the second quarter of last year.
Other expense for the second quarter of fiscal 2024, including interest income and foreign exchange was <unk> 3 million.
Compared to other expense of zero point $1 million in the second quarter of fiscal 2023.
Tax benefit was <unk> 5 million.
Or a 21, 6% effective tax rate versus an income tax provision of $1 5 million or 21, 5% effective tax rate for the second quarter of fiscal 2023.
Net loss for the second quarter of fiscal 2024 was $1 8 million or 13 cents per diluted common share.
<unk> net income of $5 5 million or <unk> 39 per diluted common share in the second quarter of fiscal 2023.
Turning to a review of the results for the first six months of fiscal year 2024.
Net sales for the first six months of fiscal year 2024 were $96 7 million a decrease of 27, 5%.
$133 5 million in the first six months of fiscal year, 2023, which reflected lower sales across our business segments.
Gross margin decreased to 38% from 33, 6%.
Primarily reflecting product mix and manufacturing under absorption in PMT.
As well as increased scrap expense and manufacturing under absorption in healthcare, which was partially offset by a favorable product mix and lower freight costs for canvas.
Operating expenses were $30 3 million for the first six months of the fiscal year.
Which represented an increase of $1 4 million from the first six months of the last fiscal year. The increase was due to higher employee compensation expenses associated with the higher staffing levels.
Fiscal 2023, combined with severance costs relating primarily to healthcare's reduction in staff.
Operating loss for the first six months of fiscal year 2024.
Zero point $5 million.
As compared to an operating income of $16 1 million for the first six months of fiscal year 2023.
Other expense for the first six months of fiscal 2024, including interest income and foreign exchange.
Zero point $1 million.
As compared to other expense of <unk> 5 million for the first six months of fiscal 2023.
Income tax benefit was <unk> 1 million.
Or an effective tax rate of 16, 5% during the first six months of fiscal 2024.
First as an income tax provision of $3 6 million or an effective tax rate of 23, 4% in the prior year's first six months.
The company reported a net loss of <unk> 6 million or <unk> <unk> per diluted common share for the first six months of fiscal year 2024.
Versus net income of $11 9 million or 83 per diluted common share for the first six months of fiscal year 2023.
Moving to a review of our cash position.
U S cash and investments were $8 8 million.
At the end of the second quarter of fiscal 2024.
Versus $8 4 million at the end of the first quarter of fiscal 2024.
Capital expenditures were $1 5 million in the second quarter versus $1 3 million in the second quarter of fiscal year 2023.
Approximately $1 1 million related to investments in manufacturing.
Including facility expansion and included final costs for the renovation of our office space.
We paid zero point $8 million in cash dividends in the second quarter of fiscal year 2024.
In addition, based on our current financial position our board of directors declared a regular quarterly cash dividend of <unk> per common share, which will be paid in the third quarter of fiscal 2024.
As of the end of the second quarter of fiscal 2024. The company had not made any draws on its $30 million revolving line of credit with PNC Bank.
Lastly, the Companys board of directors created new ownership requirements for outside directors.
This includes owning a minimum of $150000 of our stock.
After a three year period.
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.
As expected the <unk>.
2024 second quarter was challenging for our Green energy solutions and power and microwave technologies groups due to a fluid economic environment. The timing of some project based orders and a decline in sales in the semiconductor wafer fab market.
For our Ges business in particular, our second quarter results reflect the startup nature of any new business. As a reminder, we are in the infancy of our GDS growth strategy, having started to pursue new Ges opportunity is only two years ago with new designs and customer requirements, establishing manufacturing and test and also launching.
<unk> testing, we expect sales to fluctuate as we get to scale and develop more predictable revenue streams. However in a short amount of time, we have designed numerous new products received several patents and shipped over $77 million to an ever growing list of key customers with more than $35 million in backlog going into <unk>.
The year 2024.
We expect significant bookings to be received in Q3, and Q4 of FY 'twenty four.
So needless to say, we continue to be very excited about the next three years.
Last year Ges benefited from several large projects, including electric locomotive development.
And major owner operators or GE wind turbines, such as Nextera E Mail and Inver energy.
Given the project nature of our Ges business revenue.
Revenue from these products are not necessarily consistent quarter to quarter. In fact, many of our customers over the past three months completed calendar year, 2024 budgets, including our product and we will rollout purchases in the first half of calendar 2024.
Weekly conversations with our major customers. They note. It was only a matter of time until new orders are placed our customers repeatedly tell us we have maintained our market share for <unk> applications and have identified new product opportunities and the decline in revenue. We are experiencing is purely a timing issue in fact, our customer pipeline and the number.
There are opportunities continues to increase as you look to take advantage of significant energy transformation projects globally.
S&P empty backlogs remained strong at over $100 million.
Given our inventory position, we believe we will ship many incoming orders from stock, which we expect will convert working capital into cash in the coming quarters, we are managing our ges business to support our customers' needs when they are ready.
So with that introduction, let's look at the second quarter performance of Ges and PMT groups in more detail.
<unk> sales were $2 6 million in the quarter down from $12 3 million in the prior year's record second quarter.
The year over year decline in <unk> sales was due to timing and several major project based opportunities last year Ges revenues included the first phase of Rollouts to a wind turbine customers and prototype builds for our EV locomotive customers.
During the quarter, we added several major new customers, such as BP energy EDF energy and Edp renewables I am pleased to report that 90% of our ultra 3000 sales in Q2 with new wind customers. We continue to increase our market share with the customers naming our niche patented green energy products, we believe.
As to rollout for our wind customers will begin in Q3, and Q4 of FY 'twenty four.
As many of these customers recently completed their 'twenty 'twenty four budgeting process the.
The forecast they have provided point to growing orders, which we believe will drive stronger GE sales.
Our fiscal third and fourth quarters.
We continue to beta site, our patented pending ultra UBS 3000, which replaces lead acid batteries in the <unk> system at the base of the wind turbines.
The <unk> thousand will be used by Siemens and by other owner operators of GE wind turbines.
Forward.
Tests are going well and we have led to important improvements in the product.
We're also testing the ultra P. M 3000, which supports other wind turbine platforms, such as <unk> <unk> and Nordics.
This is helping us expand our market outside of North America.
One major program for the ultra Perm or multi brand.
Is beta testing with Susan lawn and an OEM and replacement basis. This opportunity is for more than 7000 turbines in India alone.
And several thousand more in North America.
This product is also in final testing with several owner operators in Latin America, and North America. We believe initial ultra P. M orders will begin in Q4 of FY 'twenty four.
And the locomotive segment due to supply chain issues for piece parts from our suppliers.
Our superstructure builds for long Island railroad and be NSF electric locomotives will be completed in late Q3, and Q4 of this fiscal year, we anticipate phase III for our EV locomotive customers will be in the third and fourth quarters of calendar 2024.
We also have beta orders for our patented ultra Gen 3000 starter module with two large diesel electric motor manufacturers. It is important to note that these are exclusive with both manufacturers.
We continue to identify other niche applications for the Altra. Gen 3000 were in beta testing with several refrigeration truck manufacturers were also agenda is replacing lead acid batteries.
There are numerous other markets that can benefit from this loosen such as construction equipment heska.
Excavators loaders and backwards.
These are longer term opportunities that we expect to add incremental growth in the future periods as we leverage our leadership position utilizing ultracapacitors and other related technologies as power sources across various applications with many large companies throughout the world.
In summary, we believe we will begin to see sequential revenue growth in Q3, and Q4 within our Ges business driven by new products customers.
And technology partners, all supported by the forecast and backlog from these project based customers I want to stress that we have not lost any market share in.
In fact, we continue to increase our market share with new products applications and customers and our recent performance as a result of timing issues and the emerging nature of our Ges business.
So turning to PMT, which includes EDG, our legacy <unk> business and PMG, our power and microwave components group sales decreased 22, 9% to $31 3 million. This decline was mainly due to continued slowdown.
Conductor wafer fabrication equipment business the semiconductor wafer fabrication business has always been cyclical we anticipated a slowdown in 2023, but maintain our expectations that the business will recover in the second half of calendar 2024.
The frustration with the cyclical downturn of the wafer fabrication business was offset by strong double digit bookings growth in RF and wireless business, mainly supporting wireless infrastructure and communication customers as.
As mentioned our engineered solution strategy is led by our global Technology partners.
We continue to add partners, who fill technology gaps in our offering and support our growth often through these partnerships, we identify opportunities for new products that we design and manufacture in house.
This increase the value, we provide customers and allows us to capture more revenue, while expanding and diversifying our customer base.
These long term supplier relationships are extremely strong and when appropriate we work with them on strategic long term purchases to maintain appropriate levels of supply.
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.
Collaborate with both our customers and suppliers and leverage our customers' forecast to help us strategically invest in inventory ensure we can meet our customers' needs.
Our growing customer base and strong relationships with these customers and suppliers using our version of our customer intimacy model helps us develop new products and opportunities with our existing customer base.
We also continue to invest in our infrastructure to support our growth where needed we're bringing in talented design and field engineers and making investments to enhance our manufacturing capabilities are.
Our growing in house design and engineering manufacturing teams are doing a great job supporting increased demand for current products and new product designs 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.
I cannot stress enough the value of Richardson electronics' model to our customers and suppliers are unparalleled capability and global go to market strategy, our unique to the power and energy and RF microwave and Green energy markets. We developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions <unk>.
Abilities.
We are steadfast in creative focus on customers, we will continue to excel by taking advantage of opportunities when they arise the execution of our strategy has never been better Theres No question, our customers and technology partners need richardson's capabilities products and support more than ever and with that I'll turn it over to Wendy to Delta.
Discuss Richardson healthcare.
Thanks, Greg Good morning, everyone.
Quarterly sales for the health care Division were $2 9 million down less than 1% compared to the second quarter of last year and improved over our most recent first quarter.
Cte tubes, and part sales were up versus the prior year second quarter, while system sales were down due primarily to timing of cash receipts from customers in Latin America.
In the quarter, we benefited from sales of our repaired Siemens Stratton Z kids.
Health Care's gross margin in the quarter was very low at 14, 8% compared to 23, 2% last year. The reason for the decline in margin was due to under absorption associated with our decision to produce.
Our Alta tubes in the quarter as well as higher scrap cost.
Throughout prior quarters healthcare inventory has increased due in large part to a growing supply of Alta tubes. These are the replacement tubes for canon scanners.
We decided at the end of the quarter to reduce our staff and temporarily suspend Alta tube production, which will allow us to sell off inventory.
We did retain critical resources, who will focus on continual product design and president and cost reduction opportunities, but reduced production may continue to drive our overall gross margin lower than anticipated.
We did not lay off resources working on the repaired Siemens Chip program. In fact, we are supporting the development team by reallocating some of the employees who are focusing on the Alta tubes.
We continue to make excellent progress with the Siemens program and with more focus team anticipate this to continue.
The Siemens repair program includes four tube types.
Z annex NXP and NXP 46, there.
Prepared strategy is in full production and performing well in the field Stratton Z sales are just starting to ramp up as we have a steadier flow of production.
The first repair down next series tubes are in test and provided our beta testing goes well, we anticipate introducing these to the market later in the third quarter.
As I mentioned last period sales of the Amex theory will be limited due to supply until FY 'twenty five.
In the quarter. We also received our GMP certification in Brazil, GMP stands for good manufacturing practices.
The standards set by the National agency of health surveillance or an VSAT in Brazil.
This paves the way for us to export or to a specific customer in Brazil, who will reload and seller Alta tubes and country.
We anticipate the first shipments to this customer will be made in the quarter with limited sales in the fiscal year.
Rest assured we continue to monitor health care financial performance with the goal of achieving a breakeven point in the fourth quarter.
This will be more of a challenge with lower production going through the plant, but we are doing the right things to balance our investments with opportunities in the business.
I will now turn the call over to <unk> to discuss the results for canvas.
Thanks, Wendy and good morning, everyone.
Canvas engineers manufacturers SaaS custom displays to original equipment manufacturers in industrial and medical markets throughout the world.
Canvas the sales for the second quarter of fiscal 2024 reflect certain customer push outs, primarily in North America.
As a result sales were $7 3 million for the second quarter compared to $10 1 million for the second quarter of last year.
On the positive side, we finished the quarter with a very strong backlog of $48 2 million, which increased by $5 6 million from the first quarter of fiscal 2024.
Gross margin as a percentage of net sales improved to 33, 5% during the second quarter of fiscal 2024 compared to 29, 7% during the second quarter of fiscal 2023.
The increase in gross margin was primarily related to a more favorable product mix and lower freight costs.
During the quarter, we received seven new orders from both existing and first time medical OEM customers. Some of these applications include medical device controls within the operating room.
Surgical navigation.
Laser ablation.
Radiotherapy.
Tori equipment Super pulse laser systems, robotic assisted surgery and microscopy.
In the nonmedical space or our products are used in a variety of commercial and industrial applications.
Fluids displays using the public transportation space human machine interface applications.
Prompting talent monitors and clocks used in the probe card market.
Over the past couple of months, we have seen more caution in some of our customers ordering behaviors.
With the rapid rise in interest rates continued global weakness and expanding GOP.
Your political uncertainty our OEM customers have seen a slowdown in ordering particularly in industrial and more recently some medical applications.
Given the strong growth drivers in the various emerging markets and our customers level of excitement to what's next generation products with <unk> Suisse.
Dynamics as temporary.
Design cycles that canvas alone potentially causing sales to vary quarter by quarter.
However, we remain focused on adding new customers and programs globally.
<unk> leverage and promote our best in class design engineering and service capabilities.
Despite a more cautious macro outlook over the near term, we believe sales will accelerate towards the end of the fiscal year supported by a growing backlog and the number of projects currently in the engineering stage.
From the variety of customers and applications as well as the value of orders from existing and new customers. It is clear view of our global customers outstanding products and localized service.
Our sales organization stays focused on new opportunities as they are focused on improving the operating performance of the division maximizing cash flow managing inventory and improving candidates.
<unk> is an ongoing priority.
We continue to work closely with our partners to meet the demand of our customers.
I will now turn the call back over to Ed.
Thank you <unk>. We appreciate your team's efforts to manage customer pressure outs without sacrificing our long term partnerships.
As you heard from Greg Randy and yes, there is much to be excited about and Richardson electronics, we remain committed to our long term strategy and we will continue investing in our growth initiatives with an emphasis on engineered solutions that improve sustainability.
We will protect our cash and focus on improving profitability.
Inventory turns in the coming quarters. We're also committed to our shareholders and are pleased to announce we've implemented a program requiring our outside directors to purchase shares and maintain ownership of our stock.
At this time, we'll be happy to answer your questions.
And 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 yourselves to one question and one follow up.
Until all have had a chance to ask a question after which we will answer additional questions from you as time permits.
And one moment for our first question.
Okay.
And our first question comes from Anja Soderstrom from Sidoti. Your line is now open.
Good morning, Thank you for taking my questions.
So for Japan.
Working with the Indian wind turbines.
Randy.
No sorry in beta testing.
Are you seeing.
Do you see any risk to this order.
It's being pushed out as well.
Specific to the multi brand, which has three different platforms of wind turbine.
Manufacturers.
<unk> and <unk> in the Nordics.
No.
Right now the beta testing is going great the opportunity we're exclusive.
The numbers they have given us.
Susan.
Wind turbines and.
We're actually going to India.
Few weeks.
Finish up the installation of the beta testing.
And again, that's a working units so we're very excited about that opportunity.
Steve I gave the numbers in my opening so.
Could things be delayed a quarter or two yes, that's just the nature of this.
Rollout I mean, thats an infrastructure rollout.
Historically I've had a lot of experience.
And our marketing director role at Motorola will rollout.
Technology into the base station Arena.
This wind turbine market is very similar where when economic.
Issues are applied in a certain area of the world or globally.
For example, one of the things we're seeing in Q1, and Q2, where they are budgeted and forecasted to rollout five different sites the only good too but.
But that doesn't change the opportunity or the.
And result of what will be shipping into that customer. It's just a timing thing based on budgets economic conditions et cetera, So the reduction would be.
Lowering the number of sites, but the total opportunity no we don't see that being limited.
Okay. Thank you and it doesn't just semiconductor how is the conversation theyre going with Lam research and are you still confident in that starting to pick up in India.
In the third quarter.
Well, we listen to their vendor calls on a monthly basis and they are telling us.
Or even subsidize their vendors to maintain.
Eric capability, because they think by the end of 2024 that the business will be stronger than it's ever been.
So that remains to be seen in our business is down from about $40 million $20 million. This year.
But we're sort of like a roller coaster it goes up and down when it went from <unk> to <unk>. It went from $22 million to $7 million in $4 million to $5 million.
$40 million.
So we're anticipating according to lam that it'll be higher than ever by the end of 2024.
Okay. Thanks, and then a quick.
Sorry, yes.
We do anticipate in Q3 Q4.
We're not we're not anticipating a lot of growth in the land business in Q3 and Q4 it will be starting after that as Ed mentioned in Q1, and Q2 of calendar year.
Okay.
Q3, Q4 calendar year 2024, our Q1 and Q2 of fiscal year 2025, sorry for the confusion.
And just a quick one analog when do you mentioned you still think you can which breakeven for the health care unit in the fourth quarter, what do you need in terms of revenue to breakeven at this point.
Speaker Change: Well, we need to sell.
We need to sell a lot more <unk>.
Steven and the repair of the Siemens and the.
After 750.
<unk>.
Terms of top line.
Should be in about one.
$1 million or so more than where we were in Q2 in order to hit that Q4 breakeven plan, maybe a little bit higher than that depends on how our margins. There as we mentioned we've had under absorption in the factory, which has hurt our gross margin. We did take the action in Q2 to reduce that.
Our cost there.
And reallocate those people some of the people to making more of the Siemens chips.
Should be in good shape, but we'll have to see how the margin holds up.
Okay. Thank you I'll get back in queue.
Thanks, Andrea and thank you.
And one moment.
One moment our next question.
And our next question comes from Deforest Hinman from <unk> Holdings. Your line is now open.
Hey, Thanks for taking the questions can you just give us.
Some more color on the opportunity within the Ges business I mean, just from a context perspective.
Really good performance in 2023.
It seemed like a lot of excitement a couple of quarters ago. It still sounds like there's a lot of business opportunities.
There but.
The revenue performance has just really been.
All over the place.
I think I don't know if it was six months ago, we were talking about growth in Ges could offset a lot of the softness within the.
The semi space, so that really hasnt.
Occurred so.
Can you just reframe.
What is the revenue opportunity there maybe within the next six months within the next 12 months and then what.
Could this business look like in 2000.
25, your fiscal 2000 2025.
Things start.
<unk>.
Yes. Thank you great great question.
So what we saw in 2023 is the rollout of new products, absolutely new design tested manufactured.
The cycle time that we brought those products to market because the customer was in such a need for it based on the cost and failures of the lead acid batteries.
Did an amazing job and I have been in the new product introduction.
<unk> my entire career and.
Getting that done within months versus for example, I mentioned the Motorola apart. It took us three five years to introduce al demos, which took over the infrastructure market.
The first rollout, we got budgets and forecasts from the top for owner operators of GE wind turbines in North America, which you also 3000.
It's designed for and that was Nextera energy <unk> and you know.
They gave us their forecast and kind of the opposite of this year.
The actually ordered almost 50% more than the budgeted.
However, the team did an amazing job yet all those supply chain issues et cetera, and we were able to meet all the requirements, but we didn't have a part in stock until March of last year.
And so what we saw this year a little bit.
Opposite the opportunity still in that the numbers are still there.
However, instead of doing as I mentioned before 10 sites they've done fine.
But in the meantime specific to the wind turbine business we've.
Beta site testing at other key owner operators and to this day as of today, we have over 12 customers in North America owner operators.
People like I mentioned I believe in our press release in December BP energy.
Edp Longwood energy partners pattern EDF.
If you add up the turbines that this program represents within their company it's over 12000.
498 turbines.
How will that rollout going to go over three years again, we're going to see huge samir and due to other issues were going to see less.
But add onto that.
We continue to look outside of North America, and as I mentioned before the <unk> opportunity in India also in the meantime, we were able to become the exclusive supplier to GE marketplace for the Altra 3000, and as new products come out, we will be adding more and more products to that marketplace.
Application. So you can kind of see why we're excited about just the ultra 3000 in the wind turbine business in the meantime that waiting for the market to come back or for orders to increase the team as I mentioned before is designed other products both to go into Green energy applications and.
Likely because of the strong relationships with the wind turbine owner operators. The altra UBS now Theres a one ultra ups's every single turbine that I, just mentioned and that's in beta site testing, it's going very very well, but the NPI process. There's a lot of hey, we need to change that changes with this.
Spec customer needs change.
But we have a very good team here that works directly with the customer on a scheduled weekly call and of course, there is calls every day and specific items.
So thats kind of the.
Wind turbine business for the Altra 3000 on the ultra UBS on the electric locomotive side. That's another program, where the customer came with needs needed to be expedited, we needed to design manufacture test and build battery modules and also superstructures.
And the team and again with a partnership in this case with progress rail did an amazing job meeting and exceeding all the requirements and we have now shipped all of our products that go into that.
Electric locomotive that we finish that in the fourth quarter of last year.
Speaker Change: So now they are taking our product and of course, there are other suppliers for other products. They are building the finished unit and according to them Theyre shipping that.
To their end customer.
In our fiscal year Q4, and the beginning of FY 'twenty five Q1 and Q2, so we expect orders for that.
Production quantities sometime in the second half of calendar year 2024, and just remember these are prototype builds and just last year for those prototype builds we shipped over $24 million worth of products for the prototype builds so again math after that per tree.
And the numbers that they're talking about is the electric.
Locomotives gets accepted like electric vehicles get accepted by the customer base.
Needless to say.
We've never been more excited just doing math. This I've said this before I don't know what numbers you can come up with but easily $100 million opportunity. It's just math after that and we continue to add new products.
And new customers.
Speaker Change: Going forward.
So.
Within that we also have the ultra Gen 3000, which is the <unk>.
Third and fourth product, we have that product is.
Designed and because of our relationships with the electric load the locomotive market, we've designed and we have orders for.
Over 25 trains today.
Our starter modules for two of the top owner manufacturers of electric diesel.
And electric locomotives, so that business to US is obviously very exciting and everything I just talked about we're exclusive with them. There is not a competitive theres not a second source.
So as these relationships grow new products grow will continue to add to that pipeline, but the pipeline as it stands today is a timing issue as they rollout.
You used the word infrastructure because that's what the wind turbine business is its energy infrastructure like infrastructure for base stations.
Which I'm comparing it to.
It makes us very very excited on the Green energy energy front.
Okay.
That's helpful. I mean, obviously the market's not sharing your.
He was the ads and the stock's trading around probably book value at this point with no debt.
So it's two part question.
Should we as shareholders expect.
The management team to be buying stock.
And then should the board be.
Thinking about buying stock themselves.
<unk>.
Our share repurchase authorization.
Yes.
I want to touch on the excitement part of it.
The market and the shareholders got very excited last year.
And the enthusiasm is what I'm going to call phase one rollout of our Green energy solutions strategy might.
My opinion I think they should be just as excited about phase two which as I mentioned today is coming.
Coming the suppliers that customers have confirmed that.
It's project based.
But I.
I would be just as excited about the next steps as we roll out this new product line new products New SBU.
Going forward I'll, let Ed talk about the.
We just instituted a program with our board that they are required by a $150000 versus stack.
As part of their participation on the board and Thats just been implemented Youll see that go into place.
We have.
About 22 or $24 million in cash the difficulty is we have 24 foreign subsidiaries and only about $8 million of that cash is in the U S.
So the answer to our buying stock back is that we won't be doing that in the near future.
And thank you.
Speaker Change: And one moment by our next question.
And if you would like to ask a question that is star one again, if you would like to ask a question that is star one one moment our next question.
And again, if you'd like to ask a question that is star one one again that is star one one and our next question comes from Ross Taylor from our HRS investment partners. Your line is now open.
Thank you.
Good morning, Congratulations on the move with the board and getting the board to be.
Invested along with shareholders and management, because I think thats, a very important step I've rarely seen small companies succeed when the board doesn't have.
Stocks when the board doesn't have an interest along with other investors.
Okay.
Second really the first question is you commented, saying that Lam is telling you that.
You should be ready for my words fiscal 'twenty or calendar 2000.
25, being the biggest year, you've seen from them is that correct.
Speaker Change: Yes, that's correct.
And the biggest year you've had in that space was what two years ago at $40 million or so in revenues.
That's right.
So you Ross.
Great.
Okay. So what you're really looking at is a situation, where we would expect that pretty quickly once they get this turn going youre going to see a pretty significant.
Ramp up pushing those effectively like a 100%.
Plus growth in revenues off of what they are currently running at.
That's correct, yes, okay and Thats.
Probably carries a better than company average.
Multiple when you get up to that level.
Yes trading margin when you can note the product.
Make RF matches and.
Terry products, where the margin is better than our normal margins.
Okay, and so that alone we're talking about 20 plus million in revenues being added that.
Say mid <unk>, plus operating margin that itself is going to be a huge driver forward.
Absolutely.
Second as you've talked about the ability to convert.
<unk> into like into cash.
You have an idea of a thought process on how what kind of cash generation you can get.
Accretion you can get from drawing down your own inventories.
Well, what do we have about.
14000 of the Ultracapacitor modules already built for wind turbines.
Total number that we have already built.
414000 built in.
About that much on backlog with customers.
It's a matter of net yes.
Yes, it's when it's all timing when they're going to release normally these wind turbines.
They do their maintenance in the spring of the year and as Greg mentioned right now, they're all going through a budgeting process. So we have these orders, but they havent released them. So it's a matter of timing.
But what we should see is.
The ability to convert.
Several million dollars of inventory into cash as they convert to <unk>.
Okay.
Which is ours.
Yes, okay.
Okay since its not several I'll take multi as being a larger number than several.
Thats correct.
Okay.
In a normal year, we do over $10 million a year with wind turbines alone.
Mhm.
It seems to me listening to you guys talk reading your release that there was this quarter was a combination of.
Unfortunate Carl Uncorrelated correlated events, they all hit in the same quarter, but at the same time that this should be the nadir for what we see going on and so we've really moving beyond this quarter as you move through the second half of your year, we should start to see some.
Incremental them then.
What's the idea as I always say about going broke slowly at first and then and then rapidly we should see incremental on that rapid.
Growth in top line earnings free cash flow generation at all I mean listening to this is actually the most bullish call you've had and it's kind of ironic that is occurring with the stock down.
20% on the day and trading under $10 a share.
No.
Dan I haven't seen you can't fall off the floor.
All of the things we have going we think that the company, 50% of our business would be green energy going forward.
Think within five years there'll be $500 million in extremely cash flow positive.
And that really that this is as you said that you can't fall off the floor. This is a point from which you don't think you can fall from.
No. We are absolutely amazed that it's just like <unk> fallen off.
Cliff that business went to this level.
But it did and Thats, where we are but we have the backlog we have the inventory so it's a matter of timing.
But when.
Okay.
Can you give a little bit of background on.
Opportunity in hydrogen.
Okay.
Market size.
Yes.
Just starting to work in that area.
They are buying.
100 kilowatt generators that we make.
They're converting methane gas into hydrogen and acetylene.
And actually at this point, the acetylene has more value than the hydrogen.
But a lot of companies, including caterpillar talking about having their equipment run on hydrogen in the future.
One of the most profitable ways to generate that hydrogen is using 100 kilowatt microwave generators that we manufacture.
The tube that's about $10000 in that generator is like 100000.
So that could be a profitable business for us in the future.
And how many tubes.
Do you need.
There is one tube and each generator.
We have one customer that we mentioned that.
Making this crystal lean for synthetic diamonds for industrial applications and Theyre talking about buying 200 generators over the next few years.
Over the next two years.
Several years.
Several years.
Yeah, Okay and then.
So when you look at this and I guess part of what that business model is you end up you sell the acetylene.
And if you sell the acetylene and actually reduces or eliminates the cost of making the hydrogen.
And then you have the hydrogen as a benefit beyond it.
Yes, that's correct.
Okay.
I think it's fast and this isn't the most bullish call I've heard you guys have.
Don't get discouraged by the fact that investors look at basically drive by looking at the head of the car.
Well, we've only been around for 76 years and my history. This tax been $3 75 in $2009. So we will get there just a matter of valeant.
Let's get back to new highs.
Okay. Thank you.
Congratulations.
And thank you and one moment please.
One moment, Okay. One moment our next question.
And our next question comes from Ronald Richard Your line is now open.
Good morning, Rob Hey, guys.
Good morning.
I'm sorry.
Those orders come in in India, and I was wondering about.
Penetration in other foreign markets, what kind of progress Youre, making.
Yes, the biggest opportunity is.
Susan lie on multi brand specific to.
Susan let in India, but that also is going to be tested at their facility to make it an OEM product, meaning it will be designed and it wont be replacing lead acid batteries in their wind turbines it'll actually be the PM system within their turbines that is by far the biggest opportunity we have.
Numerous.
Opportunity is not nearly as large but now in Italy.
With the Nordics and Germany.
So.
It's getting bigger.
Because of these relationships and the new products.
Getting the North American <unk> market.
Not 100% exclusive but grabbing all the market share we can now and we continue to train our global sales force on these products.
Again, there they're brand new to them too.
So we are seeing opportunities, but the biggest probably in the next 12 months is going to be sent beyond globally because once we.
Go into production for India that will translate into all their turbines and owner operators throughout the world.
I am Susan I'm, sorry, okay that sounds so much okay. Thank you.
Thank you.
Okay. Thank you.
And I am showing no further questions I would now like to turn the call back over to Ed Richardson.
CEO for closing remarks.
Thanks, Justin.
Well, we want to wish you all a very happy and prosperous new year and we appreciate your investment interest in Richardson electronics.
We assure you that it's only up from here and not a matter if but when and we look forward to discussing our fiscal year 2020 for a third quarter with you in April.
We are available to take your calls at any time, so don't hesitate to call us thanks very much.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.
Yes.
[music].
Yeah.
Okay.
[music].