Q2 2025 Richardson Electronics Ltd Earnings Call
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Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Ed Richardson CEO of Richardson Electronics. Please go ahead.
Good morning, and thank you all for joining Richardson Electronics conference call for the second quarter of fiscal year 2025.
Speaker Change: Joining me today are Rob <unk>, Chief Financial Officer, Wendy <unk>, Chief operating Officer, and General manager for Richardson healthcare.
Speaker Change: Greg powered Quinn general manager of our power and microwave technologies group.
Jens Rupert: Which includes Green energy solutions, and Jens Rupert General manager of canvas.
Jens Rupert: As a reminder, this call is being recorded and will be available for playback.
Speaker Change: I would also like to remind you that we'll be making forward looking statements. They are based on current.
Our expectations and involve risks and uncertainties.
Speaker Change: Therefore, our actual results could be materially different.
Speaker Change: Please refer to our press release and SEC filings for an explanation of our risk factors.
Speaker Change: I am pleased to share an encouraging update on our second quarter performance as we are making significant progress with multi year growth strategy.
Speaker Change: During the second quarter, we experienced sequential improvements in sales and delivering positive operating income in October and November.
Speaker Change: In addition to this operational momentum we generated positive free cash flow during the quarter.
Speaker Change: We achieved outstanding growth in our Green energy solutions business during the second quarter.
Speaker Change: With sales more than doubling compared to the prior year.
The more we experienced a significant improvement in revenues from our semiconductor wafer fab business underscoring the strength of our diversified business segments.
Overall second quarter sales reached $49 5 million exceeding $44 $1 million, which we recorded in Q2 last year.
Solid 12% year over year increase.
Speaker Change: With this overview I'll now hand, the call over to Bob <unk>, Our Chief Financial Officer, who will provide a detailed review of our second quarter financial results and capital position.
Greg Wendy: Following Bob's remarks, Greg Wendy onions were offered in depth updates on our business unit performance, including progress on our growth strategies, new product developments key program wins and the expansion of our customer relations.
Bob: Thank you and now over to Bob.
Speaker Change: Thank you Ed and good morning, I will review our financial results for our second quarter of fiscal year 2025, followed by a review of our cash position.
Consolidated net sales for the second quarter of fiscal 2025 increased 12, 1% to $49 5 million compared to net sales of $44 1 million in the prior year second quarter.
Speaker Change: This was our second consecutive quarterly year over year increase in sales.
Speaker Change: Second quarter net sales growth was led by 129% increase in sales for our Green energy solutions business unit and a nine 9% increase in PMT sales, which was due primarily to higher sales to semiconductor wafer fab customers.
Speaker Change: Sales growth for the second quarter of fiscal 2025 was partially offset by a six <unk>.
Percent decrease in canvas sales and a 22, 8% decline in healthcare sales, reflecting lower demand in the quarter unrelated to any specific customer or program loss.
Speaker Change: Consolidated gross margin for the second quarter was 31% of net sales compared to 28, 4% during the second quarter of fiscal 2024.
Speaker Change: The largest component of the 260 basis point increase in consolidated gross margin was due to margin expansion across most parts of our business.
Speaker Change: PMT gross margin increased to 33%.
Speaker Change: 28, 5% as a result of an improved product mix.
Speaker Change: Ges gross margin increased to 32, 8% from 29, 2% also due to product mix.
Speaker Change: Healthcare margin increased to 35, 7% from 14, 8% because of the improved product mix and manufacturing efficiencies.
Speaker Change: Partially offsetting these improvements in gross margin was lower gross margin for canvas compared to the prior year second quarter.
Speaker Change: Operating expenses as a percentage of net sales improved to 32, 3% for the second quarter of fiscal 2025 compared to 32, 8% in the second quarter of fiscal 2024.
Speaker Change: Operating loss was <unk> 7 million for the second quarter of fiscal 2025 versus an operating loss of $2 <unk> million in the second quarter of last year.
Speaker Change: Income tax benefit was zero point $3 million or an effective tax rate of 28, 8% versus an income tax benefit of <unk> 5 million or an effective tax rate of 21, 6% in the prior year second quarter.
Net loss for the second quarter of fiscal 2025 was <unk> 8 million or <unk> <unk> per diluted share.
Speaker Change: <unk> to net loss of $1 8 million or <unk> 13 per diluted share in the second quarter of fiscal 2024.
Speaker Change: EBITDA for the second quarter of fiscal 2025 improved and was approximately breakeven versus negative $1 2 million in the prior year's second quarter. Please.
Speaker Change: Please note that EBITDA is a non-GAAP financial measure and a reconciliation of the non-GAAP items to the comparable GAAP measure is available in our second quarter fiscal year 2025 press release that was issued yesterday.
Speaker Change: Turning to a review of the results for the first six months of fiscal year 2025.
Speaker Change: Net sales for the first six months of fiscal year 2025 were $103 2 million an increase of six 7%.
Speaker Change: <unk> $96 7 million in the first six months of fiscal year, 2024, which reflected higher sales across our business segments, except for canvas.
Speaker Change: Gross margin was 38% of net sales, which was unchanged from the first six months of fiscal 2024.
Speaker Change: As a percentage of net sales operating expenses for the first six months of the fiscal year were 31, 1% compared to 31, 3% for the first six months of the prior fiscal year.
Speaker Change: Operating loss for the first six months of fiscal year 2025 was <unk> 4 million as compared to an operating loss of zero point $5 million for the first six months of fiscal year 2024.
Speaker Change: Income tax benefit was <unk> 2 million during the first six months of fiscal 2025.
Versus an income tax benefit of <unk> 1 million in the prior year's first six months.
The company reported a net loss of <unk> 2 million or <unk> <unk> per diluted common share for the first six months of fiscal year 2025 versus net loss of <unk> dollars 6 million or <unk> <unk> per diluted common share for the first six months of fiscal year 2024.
Speaker Change: EBITDA for the first six months of fiscal 2025 was $1 7 million versus $1 4 million in the prior year's first six months.
Speaker Change: Moving to a review of our cash position.
Speaker Change: Cash and cash equivalents at the end of the second quarter of fiscal 2025, or $26 6 million compared to $23 8 million at the end of the first quarter of fiscal 2025.
Speaker Change: Operating cash flow was $5 5 million compared to zero point $8 million in the prior year second quarter.
Speaker Change: This was the third consecutive quarter of positive operating cash flow.
Speaker Change: Capital expenditures of <unk> 5 million in the second quarter of fiscal 2025 were primarily related to our facilities and it systems versus one 5 million in the second quarter of fiscal year 2024.
Speaker Change: As a result free cash flow was $4 9 million for the second quarter of fiscal 2025.
Speaker Change: We paid zero point $9 million in cash dividends in the second quarter of fiscal year 2025.
Speaker Change: In addition, based on our current financial position our board of directors declared a regular quarterly cash dividend of <unk> <unk> per common share.
Speaker Change: Which will be paid in the third quarter of fiscal 2025.
Speaker Change: As at the end of the second quarter of fiscal 2025, the company has no outstanding debt.
Speaker Change: It is $30 million revolving line of credit with PNC Bank.
Greg: Now I will turn the call over to Greg who will provide more details for our PMT and Ges business groups.
Greg: Thank you Bob and good morning, everyone.
Greg: As we have stated in prior calls we remain very optimistic about the future both over the short and long term coming.
Bill: Coming out of FY 'twenty, four we had a strong backlog numerous new product introductions and expanded customer base and several development programs transitioning from beta testing to preproduction Bill.
Bill: Building on this positive momentum we are pleased to report continued growth in Q2, FY 'twenty, five and both our Ges and PMT strategic business units, including quarter over quarter and year over year growth in our semiconductor wafer fab equipment manufacturing business.
Bill: Starting with our Ges business GE sales grew 129% to $5 9 million.
Bill: The strong sales growth in this quarter was enhanced by strong bookings and increased backlog growing by over 16% in Q2.
Bill: Many of our recent achievements have been in development since FY2023 in FY 'twenty four.
Bill: And it is rewarding to see them come to fruition.
Bill: Pitch energy modules and other products continue to gain momentum and market share as we add new customers and complete beta testing with our key owner operators.
Today, we serve dozens of wind turbine owners and operators, including exclusive partnerships with the top four owner operators with GE wind turbines in North America, specifically, our WEP in for energy and Nextera.
Bill: Additionally, we continue to grow this program globally, expanding into Europe, and Asia with GE and other new products for turbine platforms, such as Susan line, Sylvia on Nordics and SSB.
Bill: As we have mentioned previously our GDS growth strategy is focused on power management applications in the Green energy space.
Bill: In a short time, we have designed multiple products received several patents and built a growing base of large global and industrial leading customers and partners.
Bill: This process positions us to establish a more predictable quarterly revenue and booking stream in our ges business scales.
Bill: We believe our second quarter performance demonstrates the benefits of our multiyear GDS growth strategy.
Bill: Additionally, our customers continue to highlight our strong market position in our core Ges power management applications.
Bill: Our global pipeline continues to grow as we capitalize on numerous opportunities to support the significant energy transformation, such as wind turbine repowering projects.
Bill: Turning to power and microwave technologies group or PMT, which includes the electron device group, our legacy tube and semiconductor wafer fab equipment business and the power and microwave group sale.
Bill: Sales were $34 4 million up nine 9% compared to prior year.
Bill: We continue to see growth in RF, and microwave components business and with our semi fab equipment manufacturing customers.
Bill: Our combined <unk> and PMT backlog remains strong as it increased to over $101 million in Q2.
Bill: Given our inventory position, we will continue to ship many incoming orders from stock as you did last quarter.
We remain focused on managing all aspects of our business to maximize profits while meeting the needs of our expanding customer base.
Bill: A key component of our growth strategy.
Bill: <unk> expanding our global technology partnerships, we continue to add new partners, who address technology gaps in our offering and align with our strategic growth priorities.
Bill: Through these partnerships, we often identify opportunities for new products that we design, we manufacture and test in house.
Bill: This approach enhances the value we provide our customers and allows us to capture more revenue, while expanding and diversifying our customer base.
<unk> out of the partner relationships are extremely strong and when appropriate we collaborate on new component development strategic purchases and long term planning.
Bill: We are investing in our infrastructure to support our growth.
Bill: This includes hiring talented design and field engineers to enhance our design and manufacturing capabilities.
Bill: Our growing in house design engineering and manufacturing teams are doing an excellent job supporting increased demand for current products and new product designs.
Bill: Our field engineering team continues to identify new customers and opportunities.
Bill: With this team, we will keep identifying developing and introducing innovative products and technologies for Green energy power management and RF microwave applications.
Bill: Heading into Q3, FY 'twenty five we're excited about the opportunities within PMT and <unk> businesses.
Bill: As I mentioned Q2, FY 'twenty five bookings were extremely strong in our Ges SBU and we see a positive outlook in our semi fab market.
Bill: Key customers in Ges in RF and microwave are forecasting growth in FY 'twenty five and <unk>.
Bill: Technology partners continue to support our unique global business model driving our business forward.
Bill: We have many reasons to be optimistic about the growth strategies, we are pursuing and the future of our business.
Bill: Our unparalleled capability and global go to market strategy set us apart in the power management, RF and microwave and Green energy markets.
Bill: We have developed a unique business model that combines legacy products with new technology partners and Es capabilities are lending our growth strategy to deliver engineered solutions to our global customer base.
Bill: This model differentiates us from our competition.
Bill: Maintaining our steadfast and creative focus on customers, we continued to excel capitalizing on opportunities as they arise.
Speaker Change: The execution of our strategy has never been stronger and is evident that our customer and technology partners rely on Richardson electronics products and support more than ever and with that I'll turn it over to Wendy to Dell to discuss Richardson healthcare.
Wendy: Thank you, Greg and good morning, everyone.
Wendy Dell: In the second quarter of fiscal year 2025, our health care Division generated $2 3 million in sales, reflecting a 22, 8% year over year decline.
Wendy Dell: All product lines experienced lower performance compared to the prior year.
Wendy Dell: Despite the sales drop gross margin improved to 35, 7% up from 14, 8% in the same period last year and 32, 3% in Q1.
Wendy Dell: This growth was driven by improved manufacturing absorption and a favorable product mix, notably higher margin parts and Ctg's sales.
Wendy Dell: We maintained steady production if repaired Stratton D tube and advanced our repair program for the Stratton Nx NXP and NXP 46.
Although the first amex serious life gain fell short of expectations, our engineering team quickly isolated problems and implemented improvement.
Wendy Dell: This allowed us to restart life testing in December keeping us on track for launch later this fiscal year.
Wendy Dell: Through disciplined expense management, and an improved gross margin our losses year to date are less than the prior year. Looking ahead, we are committed to enhancing sales and profitability, while exploring strategic options for the health care business.
Wendy Dell: I'll now pass the call to Andrew to discuss canvas results.
Andrew: So Andy and good morning, everyone.
Andrew: <unk> engineers manufacturers since as custom displays to original equipment manufacturers across global industrial and medical markets. Despite some macroeconomic related challenges impact the second quarter, Kansas remains resilient and its mission to deliver high quality solutions tailored to our customers' needs.
Andrew: Net sales decreased 6.0% to $6 9 million during the second quarter of fiscal 2025 compared to $7 3 million in the second quarter of fiscal 2024.
Andrew: Letting a temporary dip due to lower sales in our European markets.
Andrew: Nevertheless, we are confident in our ability to navigate this fluctuations.
Andrew: The German economy, one of our core markets is currently facing headwinds.
Andrew: The iPhone business climate index, a key indicator for economic conditions to $84 seven points in December from 856 in November.
Andrew: <unk> the lowest level since may 2020.
Andrew: Why is this represents challenges canvas is poised to adapt and emerge stronger by focusing on innovation and customer engagement in.
Andrew: In this difficult global economic environment.
Andrew: On a positive note our backlog grew from $38 1 billion at the end of fiscal 2025 first quarter to $39 1 million at the end of the fiscal 2025 second quarter, providing a robust foundation for future business.
Andrew: The increase highlights the trust our customers place in our products and services.
Andrew: Gross margin as a percentage of net sales was 31, 7% during the second quarter of fiscal 2025 compared to 33, 5% in the same fiscal 2024 period, largely due to increased freight costs we.
Andrew: We are actively exploring ways to optimize costs and improve efficiency to enhance our margins moving forward.
Speaker Change: During the quarter Candace secured orders from both repeat and first time medical OEM customers.
Andrew: A variety of applications.
Andrew: Additionally, our solutions continue to assess numerous commercial and industrial applications for instance, our products enhance passenger information systems within trains and buses as well as human machine interfaces HSI technologies used in printing bending milling and packaging machines.
Andrew: Our strategic initiatives are designed to elevate canvas is visibility and position us as a leading player in the market.
Andrew: By actively seeking new opportunities and fostering connections with potential customers, we aim to drive sustained growth and innovation.
Andrew: We continue to engage directly with industry peers and stakeholders.
Andrew: Oster and collaborations and strengthening our market presence.
Andrew: Despite recent economic challenges primarily in our European markets, we remain committed to supporting our customers as they adapt to these conditions. Many are taking a cautious approach to new product development and inventory management and we are here to help them succeed in this environment.
Looking ahead, we are cautiously optimistic about improving demand in the north American markets positive indicators suggest a steady recovery as conditions stabilize reinforced by encouraging customers feedback.
Andrew: Our dedicated sales teams continue to explore new opportunities what I focus on implementing strategic plans to ensure sustainable growth and deliver long term value to our stakeholders.
Andrew: Our dedicated sales team continues to explore new opportunities, while I have focused on implementing strategic plans to ensure sustainable growth and deliver long term value for our shareholders.
Ed: I will now turn the call back over to Ed.
Ed: Thanks, <unk>, we knew Q2 would be a challenge.
Ed: However, it's nice to see the plan to return to growth in the third quarter.
Ed: Reported by incremental growth in Kansas backlog.
Despite the ongoing uncertainties in the global and change in the political landscape.
Ed: We remain steadfast in our commitment to our long term growth strategies are.
Ed: Green Energy solutions business continues to present exciting opportunities with an expanding pipeline of global customers across the wind energy transportation and power management sectors ship.
Ed: Shipping orders from inventory on a regular basis helps improve our cash flow.
Ed: And expands our gross margin.
Ed: Product deployment and customer approvals are still taking longer than we'd like but these partnerships are solid and support our confidence in our multiyear growth strategy.
Ed: At the same time, we're seeing strong momentum in our semiconductor wafer Fab Assembly business rising semiconductor demand driven by advances in AI increased data center capacity.
Ed: <unk> deployment and efforts to vocalize semiconductor manufacturing is fueling this growth.
Ed: We have good visibility for this coming quarter, we anticipated sustained growth in the semiconductor wafer fab equipment market.
Ed: Which provides the resources needed to support the continued investment in our Green energy solutions business.
Ed: Our disciplined approach to managing expenses optimizing inventory levels and maintaining a strong balance sheet remains a top priority.
Ed: These efforts will enable us to generate operating leverage as sales continued to grow.
Speaker Change: On behalf of everyone at Richardson electronics. Thank you for your continued support.
We look forward to sharing updates on our progress and are happy to answer your questions.
Speaker Change: Thank you, ladies and gentlemen, due to time constraints, we ask that you. Please limit yourself to one question and one follow up again, we ask that you. Please limit yourself to one question and a follow up until all of that had a chance to ask a question after.
Speaker Change: We will answer additional questions from you as time permits.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
Speaker Change: Please stand by while we compile the Q&A roster.
Our first question comes from the line of Anya solder strong from Sidoti.
Speaker Change: Hi, Thank you for taking my questions and congrats on the quarter here it seems like Yan.
Speaker Change: Are coming out as expected with a pickup in the second half, but I'm just wondering with the recent multimillion orders what timeframe.
Speaker Change: Are you expecting those to ship to them.
Speaker Change: Hi, good morning.
Speaker Change: Yes, they've already.
Speaker Change: Can you hear me Okay, yes, yes, we've already started to ship.
The balance of it will ship throughout calendar year 2025.
Speaker Change: But.
Speaker Change: Those products those contracts, we've already started to ship at the at the beginning of December So it's moving along great.
Speaker Change: And those with more than winter.
Speaker Change: Wind turbine pitch modulus right.
Speaker Change: Well there were a combination in terms of overall bookings, but the two largest orders that I mentioned in the press release, where both for GE wind turbine platforms.
Speaker Change: With from two of the largest.
Speaker Change: Owner operators.
Speaker Change: <unk> is one of them is a new customer.
Speaker Change: <unk> energy and the other one is <unk>.
Speaker Change: Yeah.
Speaker Change: And how penetrated are you with us.
Speaker Change: Would there be.
Speaker Change: Potential for follow ups there.
Absolutely in fact, that's one of the things the Altra 3000.
Speaker Change: We shipped close to $30 million.
Speaker Change: The numbers, we see we haven't even put a dent into the opportunity.
Speaker Change: So yes. They will continue this is phase one of most of it what they do is they pick a number of farms they roll that out to another capital expenditure at the end of 2025 to another rollout and then it continues until they've completed all of our wind turbines one thing I want to add.
Speaker Change: Really fantastic for the company is the large order from.
Speaker Change: <unk>.
This customer was for Repower program and so this is where we.
Speaker Change: Are listed on the bill of materials, when they do a repower for their entire wind turbine, which is similar to if you took the counterpart and replaced everything on it.
Speaker Change: Make it brand new again, and so Richardson being listed on the bill of materials for.
<unk>.
Speaker Change: Should expedite that the sales growth of the ultra 3000 in the multi brand.
Speaker Change: Okay. Thank you I'm just going to squeeze in one more can you just talk to some other opportunities.
Speaker Change: I think could come to this litigation in the near term.
Speaker Change: Yes, the programs, we're working on the multi brand we introduced that at the end of Q2.
Speaker Change: In Europe, that's getting traction.
Speaker Change: Both in Asia and Europe.
Speaker Change: We have a number of testing going on with our <unk> modules also wind turbines.
Speaker Change: When the process of finalizing our ESF strategy.
Speaker Change: And so.
Speaker Change: These aren't.
Speaker Change: Replacement of lead acid batteries, but these are products that don't exist today and they have to be designed to support and work in the customer's entire system not just in that battery box. So the engineering team has done a great job it takes time, but.
But all of those programs are moving forward and we have weekly and biweekly calls with some large owner operators to continue.
Speaker Change: Making the product fit and work within their system moving.
Moving forward so very positive.
Speaker Change: Okay. Thank you I'll get back in queue.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Bobby Brooks from Northland Capital markets.
Hey, good morning, guys. Thank you. Good morning, Thank you for taking the question so.
Speaker Change: In the prepared remarks or the press release.
Speaker Change: New program wins were mentioned as a benefit to the second quarter. So I was just hoping to get some more color on where those wins are core occurred and why I know maybe some of it was from the earlier press release. So those multimillion dollar orders are those and then just secondly are those program wins expected to be a multi.
Speaker Change: Quarter benefit or is it more like a new customer buying ultra three thousands for the first time for kind of a smaller project.
Speaker Change: Yes, I'll touch on the bookings side of it.
Speaker Change: They are new customers and again, one of the things I've always mentioned over the past two years as we continue to gain market share.
Speaker Change: We started out with a couple of large customers today, we are selling to over 17 of them.
Speaker Change: In North America, and so from a bookings point of view they were customers that were working with doing designs.
Speaker Change: And then we.
Speaker Change: We did a great job supporting it got approved by engineering, they've got their capital expenses approved and they place the order in the second quarter. So it's new customers.
Speaker Change: But like I mentioned, the larger orders that we did the press release on where with.
Speaker Change: The Altra 3000.
Speaker Change: Okay, and so just to kind of confirm those new program wins are really kind of centered within the.
Speaker Change: The turbine opportunities or was it anything outside of that.
Yes, the majority of it was in the wind turbine application.
Okay, Great and then.
Speaker Change: Just kind of.
Speaker Change: SG&A was up 10% year on year, compared with sales up 12% on a year over year basis.
Speaker Change: The press release mentioned it was tied to incentives that were tied to sales growth. So I'm just trying to sort out if we see similar growth rates going forward as SG&A going to continue to increase at a similar pace and I'll just add in the first quarter sales were up two 2% and SG&A was up 2%.
Speaker Change: Got it feels like we're SGA trends as sales grow.
Bob: Hi, Bob It's Bob Ben.
Bob: As you noted most of the increase in the second quarter was due to the incentives tied to the sales growth in the quarter a year ago, we really didn't pay out any incentives due to the performance than there was.
Bob: Large loss in sales were low so this quarter that with the improvement.
Bob: Over the six month period, there was an increase there regarding going forward.
Bob: I think we expect some sort of an increase in the next two quarters again based upon sales growth, but not at the levels that.
Speaker Change: You mentioned down to 10%.
Speaker Change: So ill lag sales growth more notably.
Speaker Change: Yes.
Speaker Change: Got it I'll return to the queue. Thank you guys.
Robby: Thanks Robby.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Brett Davidson from Investor letter.
Speaker Change: Okay.
Speaker Change: Good morning from Sunny 15 degree Buffalo.
Speaker Change:
Speaker Change: Good morning, Brett.
Speaker Change: Good morning, I got a couple of quick questions. One is can you guys provide an update on the shipping timeline for the diesel locomotive family of products.
Speaker Change: Yes, the one major program, we're working on this expected to ship over $1 million at the end of Q3.
Speaker Change: And that's the main one and then they're taking that product and obviously building up their locomotives and shipping them to their customers to get.
Speaker Change: Testing done there so on the electric locomotives.
Speaker Change: We have a large shipment going out which is scheduled to go out at the end of Q3.
Speaker Change: Although the starter modules or the battery electric.
Speaker Change: Electric locomotives.
Speaker Change: <unk> modules for.
Speaker Change: Electric and diesel locomotives those have started to ship.
Speaker Change: Dave just gave us their forecast for 1000 trains this calendar year and we'll start shipping those this quarter and then throughout 2025 and it's a 1000 trains one per train.
Speaker Change: Wow.
Speaker Change: Kim can you.
Speaker Change: Can you provide color on the drawdown in inventory during the course of the year or are we looking at.
Speaker Change: A couple of million dollars $5 million $10 million, what does that kind of look like through the course of the year.
Speaker Change: Hi, Brett its Bob Ben Yes, the inventory as you know it was down a little bit in the second quarter.
Speaker Change: And that's due to improved.
Speaker Change: Improved management.
Speaker Change: We're trying to bring in less inventory and so what we have on hand, but going forward in the third and fourth quarter.
Speaker Change: As we as we said we're expecting an increase in sales.
So I think there'll be some growth, but it shouldnt be that significant we're going to have to bring in some.
Speaker Change: Products to sell.
Speaker Change: For Q3, and Q4 sales, but I don't expect a significant growth there.
Speaker Change: Okay. So youre expecting that to track kind of where does that now theyre not not a drawdown during the course of the remaining portion of the year.
Speaker Change: Yes, probably not a drawdown with increased sales.
Speaker Change: But again right now.
Speaker Change: Yes.
Speaker Change: Got it.
Speaker Change: Thanks.
Speaker Change: Great.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, we ask that you. Please limit yourself to one question and a follow up until all have had a chance to ask a.
Question after which we will answer additional questions from you as time permits.
Ross Taylor: Our next question comes from the line of Ross Taylor from Ars investment partners.
Speaker Change: Thank you.
Speaker Change: Got it.
Speaker Change: Congratulations on the progress you guys are making.
Speaker Change: Quick in the past you've talked about the outlook for the semi cap equipment.
Speaker Change: Equipment related space as having calendar.
Speaker Change: 25, particularly second half showing significant run rate in your key customers, indicating that they would do that.
Speaker Change: Second half of 'twenty five first half of 'twenty six you could be running at.
Speaker Change: Levels.
Speaker Change: Equal to or better than you saw it peak a few years ago.
Speaker Change: Is that scenario still playing out you think.
Speaker Change: Right now.
Speaker Change: I think we mentioned it in the script that visibility is more challenging and just that.
Speaker Change: For the for example for US for the Q3, we have good visibility in the numbers look good they should increase again, but beyond that it seems like our customers are kind of keeping their cards, a little closer to the vest. This time.
Speaker Change: We're not hearing anything to the contrary on that Ross, meaning they're not telling us expect a drop off and as a matter of fact, they can tell us that they tell us to keep the momentum going.
Speaker Change: That's what we can see right now so no bad news has been given to us and we continue to see quarter over quarter increases in our revenue in an on demand.
Speaker Change: Okay, great Great and second I think people at times get confused about your wind turbine business.
Speaker Change: They see moves or steps that might slow the adoption of our implementation of new turbines as being negative to your business. It's my understanding that you are really in aftermarket.
Speaker Change: We fit rebuild type.
Speaker Change: And that market is still very lightly penetrated even pro comments you made on this call. Today. So is that really the case, where if the U S. If the president where success President elect were successful in following the adoption of new wind turbines.
Speaker Change: Shouldn't have a significant impact on your wind turbine related business over the next several years.
Speaker Change: Yes, that's correct.
Speaker Change: Our products go into existing wind turbines today and as I mentioned before we have also now started to participate in the Repowering of wind turbines, which most people do instead of buying new ones.
Speaker Change: Like cars.
Speaker Change: So that will have no effect, if there is a decrease in.
Speaker Change: New wind turbines being shipped over the next are sold over the next couple of years, because our business is focused on existing wind turbines and getting the lead acid batteries out of those.
Speaker Change: Great and if I can sneak one or two quick and one with regard to your inventories where do you stand with regard to building up your <unk>.
Inventory.
<unk> to cover for the fact that policy will be stepping out of the business you've been building that up fairly aggressively it's a fairly significant portion I think if you overall inventories.
Speaker Change: And at some point my assumption is you will probably achieve a level, where you're comfortable and at which point then you will stop building them and actually eventually those will become cash flow as they move into the market.
Speaker Change: And the second question I wanted to ask just quickly regarding the medical imaging space in the past you've talked about the idea that it basically need to either be able to support them on its own or would take steps to move away from monetize that where do we stand with regard to whether thats going to be able to swim on its own or.
Speaker Change: Need to monetize so call us related inventories as a percent of overall inventories.
Speaker Change: Limiting the future.
Speaker Change: Sure. It's harness talus is concerned we've had an agreement with <unk> now that goes back about 20 years and so we were manufacturing identical products in <unk>, France that we acquired from Philips and we made an agreement to consolidated our manufacturing facilities with there is inter know France.
Speaker Change: It's been a very successful agreement we.
Speaker Change: We do over $20 million a year on those products.
Speaker Change: The unfortunate part is that Telus has made a decision that they are going to exit the manufacturer of those products in the next two or three years to come.
Speaker Change: So with us in a position to try to move equipment and technology that belongs to us to other sources.
Speaker Change: So in the meantime, we built up a very substantial inventory, which now youre seeing start to level off and theyre going to discontinue that when to use it in 2025, we have one more year of inventory build Ross and that will end at the end of December.
Speaker Change: Inventory will go down substantially as we.
Speaker Change: Move the equipment to other sources.
Speaker Change: And you'll continue to see that we had a similar situation when we closed our business in France.
Speaker Change: We took in $10 million worth of inventory and I can tell you that we sold every one of those tubes.
And so although it looks like we are buying a lot of inventory tubes are like.
Speaker Change: Ryan why they last forever.
Speaker Change: In a vacuum those tubes youre going to sell our problem is going to be trying to find other sources. So those two.
Speaker Change: Okay, well and and what you have I assume you are in the process of attempting to qualify our discover who those sources.
Speaker Change: We're going to be.
Speaker Change: Yeah, that's correct I mean, we could move them here, but we bought 25 different divisions. The two companies and it takes over a year to relocate equipment and sometimes it takes another year to get it operating correctly.
Speaker Change: It's a massive project.
Speaker Change: Okay, but it sounds like you guys are on top of that the business continues to roll forward as expected in spite of the.
Speaker Change: Small hiccup on the revenue and EPS quarter, just past absolutely I mean, we've made acquisitions as I mentioned of over 25% to companies in the world. So we've been through this many many times.
Speaker Change: Yes.
Ross Taylor: Great Alright, Ross, let me take your second question.
And regarding the healthcare business unit.
Ross Taylor: And at the risk of being very vague ethylene eradicate it.
Ross Taylor: We are focused on running the business.
Ross Taylor: And we are making improvements and gross.
Ross Taylor: Gross margin is improving the factory absorption is improving as we introduce the additional tools that we've been discussing.
We are we feel good about the business here. It is still losing money and we are still exploring other alternatives.
Speaker Change: Okay, great. Thank you very much.
Ross Taylor: Youre welcome Thanks Ross.
Ross Taylor: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Bobby Brooks from Northland Capital markets.
Hey, guys just wanted to jump back on real quick and ask.
So $142 million in backlog I think Greg mentioned $110 million of that was PMT and Ges backlog. So I was just trying to get a sense of one the timeline of that backlog turning into revenues and then second is it right for me to assume that much of that backlog will directly be.
Speaker Change: John from inventory or is it more nuanced than that.
Speaker Change: On the.
Speaker Change: For PMT and Ges combined backlogs.
Speaker Change: <unk> 1 million and in looking at that backlog about 80% of it is currently scheduled to ship.
Speaker Change: Over the next nine months.
Speaker Change: I don't have that breakdown.
Speaker Change:
Speaker Change: So.
Speaker Change: We're excited about is the new business with new products and new technology, a lot of that backlog is also.
Speaker Change: Two based.
Speaker Change: And so that's scheduled out some cases for a longer period of time and then the land backlog. They don't give us a lot of visibility when theyre going to take that and as Wendy mentioned.
What they've given us for Q3 shows strong growth again in Q3, but outside of that.
Speaker Change: Hard to put a number on it.
Speaker Change: Okay, but is.
Speaker Change: So there's a lot of that is in.
Thanks for the correction on the $101 million, but theres a lot of that backlog then.
Speaker Change: More.
Speaker Change: Hey, Hey, we want to get it shipped now and then you go out and produce you go and make it or is that.
Speaker Change: Saying, Hey, we want it now and then you just tapping into your inventory and shipping it right away.
Speaker Change: No other than the MRO business most of our backlog is scheduled and in most cases, they give you a 12 months schedule.
Speaker Change: Mainly based on people are still having nightmares over the long lead times, just 18 months ago, where things are going out to 56 weeks.
Speaker Change: So people.
Speaker Change: Giving us orders and in most cases, specifically on the Ges and.
Speaker Change: PMG side. It is 12 months schedule and I looked at it recently before the board meeting and about 80% of that is scheduled to ship.
Over the next.
Speaker Change: 12 months. However, you can see our book to Bill is continuing to grow and be strong we have a.
Speaker Change: Hundreds of current design opportunities, we look at a design registration program, where we register every single design, we're working on globally and track it to fruition and we're seeing.
A lot of wins some stuff we thought we'd get in Q4, we got in Q2 and that kind of stuff you just kind of manage that.
Speaker Change: Last 20% of the business.
Speaker Change: If bookings continue at the rate they are which we've seen for the past couple of quarters, obviously, the backlog will grow and again, we're getting scheduled orders over 12 months and about 80% of that today is showing that it's going to ship.
Speaker Change: In 2025, Thank you Bob.
Speaker Change: Ultra 3000 that was will shift from inventory that was part of his question because we do have those bill if its other products and a lot of cases, we have raw material already in stock that will be used so its not a matter of us having to go out and buy 100% of the components for new orders that we get with our inventory position we have.
Speaker Change: Especially this fiscal year shipped the majority of it from stock and that's why you've seen a reduction in inventory because we built it up due to lead times make sure we take care of our customers and.
Speaker Change: So that's kind of the the process we go through tough.
Speaker Change: Tough to manage a lot of visibility, but we're able to support the customer.
Speaker Change: Yes for sure I can appreciate that thank you guys for answering the question. Thanks Bobby.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Andrew <unk> from <unk> partners.
Andrew: Hi, guys nice quarter.
Speaker Change: Greg can you give the detail on the backlog in TMT and then also ges.
Andrew: Sure.
Andrew: Within Ges the backlog grew substantially.
Andrew: It's right around $45 million.
Andrew: And that backlog is scheduled.
Andrew: As we've just talked about to all ship in 2025.
Andrew: PMT side, which is.
Andrew: Our RF and microwave components business and our.
Andrew: Legacy MRO to business that is.
Andrew: About <unk>.
Andrew: $50 million.
Andrew: And that's kind of how it breaks down so the ges backlog has grown quite substantially.
Andrew: Up to $44 million and the balance of it as PMT.
Speaker Change: Okay, I guess can you just clarify if.
PMT is 50 and Ges is 45, that's 95 and you said total was.
Speaker Change: Yes.
Speaker Change: Yes, so right now it's.
Ges is $44 million and the balance of that the equal 101 is I've got a bunch of documents.
Speaker Change: As PMT.
Speaker Change: Very good alright.
Speaker Change: And then.
Speaker Change: I guess you had.
Speaker Change: Well actually I want to go back to the <unk>.
Speaker Change: Question earlier on the inventory related to the talents.
Speaker Change: Is that current balance.
Speaker Change: Okay.
Speaker Change: It's around $30 million.
Speaker Change: Okay, so very similar to last quarter.
Speaker Change: That's about right.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Yeah.
Okay.
Okay, and then I wanted to go back I think you guys said.
Speaker Change: Previously that.
Speaker Change: You might add.
Speaker Change: So is that still the case.
Speaker Change: Okay.
No I think we have about $5 million left in talent inventory is that what you're asking.
Yeah.
Speaker Change: In terms of purchases this year yeah.
Speaker Change: $5 million this year and calendar year 2025.
Speaker Change: And we're selling over $20 million a year of that inventory. So it will start to deplete.
Speaker Change: Okay, Yes that was the other thing to that.
Speaker Change: Previously you guys had said.
Speaker Change: That was kind of long dated inventory that you would sell it out over I think the commentary that I remember it was over.
Speaker Change: The next slide seven years, but that doesn't sound like what you are saying today.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: <unk> thousand 30, alright.
Speaker Change: So while we when we first said it was seven years now.
Speaker Change: Yes, okay.
Speaker Change: And then maybe just lastly.
Speaker Change: <unk> done a nice job on the on the cash flow.
Speaker Change: From here over fiscal 'twenty five.
Speaker Change: What is the key in terms of I mean, so far in this case this quarter I guess it was more kind of a.
AP was was the big driver on yesterday and look at the second half of the year.
Speaker Change: What allows you to continue to put up nice positive cash flow.
Speaker Change: Well earnings would certainly help.
Speaker Change: Yes, we do expect a good increase in sales in the second half of the year and with continued tight management of inventory.
Speaker Change: That of course accounts receivable, we do expect to grow due to the increased sales, but that turns pretty well mark.
Speaker Change: <unk> was around 40% to 45 days so.
Continuing to do what we're doing.
Speaker Change: Yes, so if working capital is kind of stable sales go up and then the profit should kind of lift with it and then that kind of drops down.
Speaker Change: That's kind of what I was thinking just that the profitability is the bigger driver in the second half of the year versus working capital on that in the first half of the year.
Speaker Change: I think thats correct.
Speaker Change: Yeah, Okay. Thank you guys good quarter.
Speaker Change: Thank you Andrew.
Speaker Change: Thank you one moment for our next question.
Our next question comes from the line of Brett Davidson from Investor letter.
Speaker Change: Okay.
Speaker Change: Sonny 16 degree Buffalo without any.
Speaker Change: 16, Thats a heatwave Bret.
Speaker Change: Okay.
Speaker Change: So intrigued by that.
Speaker Change: Registration program for new products.
Speaker Change: He said that Theres over 100 of those currently right now how does that compare to <unk>.
Speaker Change: Last year or five years ago.
Speaker Change: Can you give me some context.
Speaker Change: Is this.
Speaker Change: Huge increase from what is normally seen or is this kind of.
Speaker Change: Standard fare.
Speaker Change: Yes. This is <unk>.
Speaker Change: Graham that we've implemented here many many many years ago and it's for our engineering organization and every opportunity that they are working on are identified they registered if you will on our system and thats the data.
Speaker Change: Part number of customer application quantity forecast and Thats the document that they use in the quarterly business reviews with the Prada.
Speaker Change: Product and sales management team and so as we add new products and as we add new technology partners that list has continued to grow every year.
Speaker Change: Every year, our conversion rate today is about 27% to 30%.
Speaker Change: <unk>.
Speaker Change: Of that list, which again, we've used this type of system for well over a decade, and that's kind of the norm, but it's a very detailed.
Speaker Change: I guess, it's more of a sales and marketing management tool that we document every opportunity because as you know they can get lost in.
Speaker Change: And that focused on and so one interesting thing to add to that is every opportunity is given a 1% of that will be booked in the next six months. So you have a 30 60 and 90% number put on that and we focus on what does it take to get that $60 to 90 that 30% to 60, and then that 90% group to 100%.
Speaker Change: And Thats greatly helped us manage our opportunities and like I mentioned before.
Speaker Change: Just with the Altra 3000, we have.
Speaker Change: Well over 40 different sites in North America that we're talking to.
Speaker Change: To generate beta testing alpha testing. So it's more of a software program that we use to track our opportunities globally and has grown every quarter since I came back about 10 years ago.
Speaker Change: So over the past five years I mean was it something like 50 and now we're at 100 and is this largely driven by the Green energy.
Speaker Change: No it's good.
Speaker Change: Yes, it can be green energy RF and microwave.
Speaker Change: Anywhere we have technology partner shows the component side of it and then the engineered solutions side of it I don't have the exact number right now.
Speaker Change: Or the growth of that over the years, but it's hundreds globally that the team is working on.
Speaker Change: And I'll get you that number give to you Brendan give me a call.
Speaker Change: Okay.
Speaker Change: I mean, I'm just curious what's the driving factor in the increase is it.
Speaker Change: Business wide or is it.
Speaker Change: Tilted towards Green energy.
It's tilted toward.
Speaker Change: The number of new products, we introduced obviously that generates more opportunities because you have more products to sell.
Speaker Change: We signed these technology agreements like you've seen the press releases like Nava tests. These are world leading component suppliers.
Speaker Change: That generates more opportunities because you have more products to sell and right now looking at the percent.
Speaker Change: A majority of it in terms of the increase is like you said is green energy Green energy applications.
Speaker Change: Both component and then our own engineered solutions products.
Speaker Change: Got it thank you.
Speaker Change: You bet.
Speaker Change: Thank you at this time I would now like to turn the conference back over to Ed Richardson for closing remarks.
Speaker Change: Thank you again for joining US today, we certainly appreciate your investment and interest in Richardson electronics.
Speaker Change: Youre welcome to call us at any time, we're happy to speak to you individually for questions that we didn't cover today.
Speaker Change: And we look forward to our ongoing discussions and sharing our third quarter results with you in April.
Speaker Change: You very much.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.