Q3 2025 Richardson Electronics Ltd Earnings Call
Music
Richardson CEO: 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 at Richardson CEO. Please go ahead Sir.
Speaker Change: Good morning.
Speaker Change: Thank you all for joining Richardson Electronics conference call for the third quarter of fiscal year 2025.
Speaker Change: Joining me today are Bob Ben Chief Financial Officer, Wendy The Dow Chief Operating Officer, Greg Pellicle, and general manager of our power and microwave technologies group, which includes Green energy solutions and <unk>.
Rupert: Yes, it's Rupert general manager of canvas.
Rupert: Todays comments include GAAP and non-GAAP financial results, a detailed reconciliation between GAAP and non-GAAP results can be found in the press release.
Rupert: As a reminder, this call is being recorded and will be available for playback.
Rupert: I'd also like to remind you that we'll be making forward looking statements are based on current expectations and involve risks and uncertainties.
Rupert: Therefore, actual results could be materially different.
Rupert: Please refer to our press release and SEC filings for an explanation of our risk factors.
Rupert: During the third quarter, we saw significant growth across key segments.
Rupert: The semiconductor wafer fab sales surged by 139%, while canvas sales increased 39.5%.
Rupert: We achieved positive operating cash flow for the fourth consecutive quarter.
Rupert: With no debt and $36 $7 million in cash and equivalents.
Rupert: Well. This was helped by $8 2 million from the health care asset sale in Q3, FY 'twenty five the company also generated cash from its ongoing business.
Rupert: We believe our strong balance sheet is an important competitive advantage with our customers and supports our long term strategies.
Rupert: Despite the one time $4 9 million dollar health care charge, representing the loss on the sale of assets. We are encouraged by our fiscal Q3 2025 results.
Rupert: Excluding the charge our non-GAAP operating profit for the quarter rose to $2 2 million.
Rupert: From 1 million last year.
Rupert: This marks the initial step in our strategic focus on our core businesses, particularly in Green energy solutions segments.
Rupert: The current operating environment is extremely fluid and impacting our business in different ways.
Rupert: Greg Jensen Wendy will provide additional details in their prepared remarks on our near and long term expectations for our markets.
Rupert: Overall, we believe Richardson electronics is well positioned to capitalize on current policies intended to drive manufacturing back to the U S and to increase the need for U S content.
Rupert: With our global infrastructure and strong vendor partnerships, we're prepared for a supply chain adjustments and will benefit from a larger policy environment.
Speaker Change: Before we discuss the sale of our health care business and our go forward strategy I will turn the call over to Bob Ben Our Chief Financial Officer, who will provide a detailed review of our third quarter financial results and capital position.
Speaker Change: Bob's remarks, Greg and yes, we will provide updates on our business unit performance and then Wendy will follow up with more details on the healthcare divestiture in our future.
Speaker Change: Thank you Ed and good morning, I will review our financial results for our third quarter and first nine months of fiscal year 2025, followed by a review of our cash position.
Speaker Change: In addition, please note that I'll be discussing non-GAAP financial measures are.
Speaker Change: A reconciliation of non-GAAP items to the comparable GAAP measures.
Speaker Change: Bailable in our third quarter fiscal year 2025 press release that was issued yesterday.
Speaker Change: Consolidated net sales for the third quarter of fiscal 2025 increased two 7%.
Speaker Change: $253 8 million.
Speaker Change: Compared to net sales of $52 4 million in the prior year's third quarter.
Speaker Change: This was our third consecutive quarterly year over year increase in sales.
Speaker Change: Third quarter net sales growth was led by a 39, 5% increase in sales for our canvas business unit.
Speaker Change: And a six 6% increase in PMT sales, which was due to higher sales to semiconductor wafer fab customers.
Sales growth for the third quarter of fiscal 2025 was partially offset by a 1.1 million decrease in healthcare sales from lower net sales in February 2025. After the sale of the majority of health care assets.
Speaker Change: In addition, there was a $2 2 million dollar decline in Ges sales, reflecting lower sales of wind turbine battery modules, which are project based and can vary by quarter.
Speaker Change: Consolidated gross margin for the third quarter was 31, 8% of net sales compared to 29, 5%.
Speaker Change: During the third quarter fiscal 2024.
Speaker Change: The largest component of the 150 basis point increase in consolidated gross margin.
Speaker Change: It was due to margin expansion in both PMT and Ges.
Speaker Change: Pmt's gross margin increased to 38% from 28, 3% as a result of an improved product mix.
Speaker Change: <unk> gross margin increased to 32, 8% from 26, 6% also due to product mix.
Speaker Change: Partially offsetting these improvements in gross margin was lower gross margin for both canvas and healthcare compared to the prior year's third quarter.
Speaker Change: Operating expenses as a percentage of net sales improved to 26, 9% for the third quarter of fiscal 2025 compared to 27, 6% in the third quarter of fiscal 2024.
Speaker Change: Loss on disposal of assets of $4 9 million resulted from the sale of the majority of health care assets to direct med imaging on January 24 2025.
Speaker Change: Included in the loss was.
$1 4 million in excess components.
Speaker Change: We are not needed once the exclusive supply agreement for manufacturing Alta tubes is completed.
Speaker Change: $1 1 million for intangible assets from the <unk> purchased that are no longer needed.
Speaker Change: A $1 2 million margin loss on sales of Alta tubes, as detailed under the exclusive supply agreement.
Speaker Change: 0.5 million write down of altra related fixed assets that will no longer be needed. After the exclusive supply agreement ends.
Speaker Change: And zero point $7 million and other directly related costs.
Speaker Change: In future periods Healthcare's financial results will no longer be a standalone segment and will be consolidated into the company's PMT business unit.
Speaker Change: Operating loss.
Speaker Change: Was $2 7 million and non-GAAP operating income was $2 2 million for the third quarter of fiscal 2025.
Speaker Change: Compared to an operating income of 1.81 million in the prior year's third quarter.
Speaker Change: Net loss was $2 1 million and non-GAAP net income was $1 6 million for the third quarter of fiscal 2025 compared to a net income of zero point $8 million in the third quarter of fiscal 2024.
Speaker Change: Net loss per common share diluted was <unk> 15 cents.
Speaker Change: non-GAAP earnings per common share diluted were 11.
Speaker Change: In the third quarter fiscal 2025 compared to earnings per common share diluted of <unk> in the third quarter of fiscal 2024.
Speaker Change: EBITDA for the third quarter of fiscal 2025 was a negative $2 1 million.
Speaker Change: EBITDA after adjusting to exclude the loss on sale of the majority of health care assets or adjusted EBITDA was $2 8 million.
Speaker Change: Versus $2 1 million in the prior year's third quarter.
Speaker Change: Turning to a review of the results for the first nine months of fiscal year 2025.
Speaker Change: Net sales for the first nine months of fiscal year $2025 $157 million, an increase of five 3% from $149 1 million in the first nine months of fiscal year 2024.
Speaker Change: Which primarily reflected higher sales in PMT and Ges.
Speaker Change: Gross margin was 38% of net sales, which was 50 basis points higher than the first nine months of fiscal year 2024, primarily due to product mix.
Speaker Change: As a percentage of net sales operating expenses for the first nine months of the fiscal year with 29, 7%.
Speaker Change: Compared to 30.8% for the first nine months of the prior fiscal year.
Speaker Change: Loss on disposal of assets of $4 9 million resulted from the sale of the majority of health care assets to direct med imaging in January 2025.
Speaker Change: Operating loss was $3 1 million.
Speaker Change: non-GAAP operating income was $1 8 million during the first nine months of fiscal 2025 compared to operating income of zero point $5 million. During the first nine months of fiscal 2024.
Speaker Change: Net loss was $2 2 million and non-GAAP net income was $1 4 million for the first nine months of fiscal 2025.
Speaker Change: Versus a net income of 0.2 million during the first nine months of fiscal 2024.
Speaker Change: Net loss per common share diluted was <unk> 16.
Speaker Change: And non-GAAP earnings per common share diluted was <unk> 10.
Speaker Change: For the first nine months of fiscal 2025.
Speaker Change: Compared to <unk> <unk> earnings per common share diluted for the first nine months of fiscal 2024.
Speaker Change: EBITDA for the first nine months of fiscal 2025 with negative zero point $5 million.
Speaker Change: Adjusted EBITDA was $4 5 million versus $3 5 million in the prior year's first nine months.
Speaker Change: Moving to a review of our cash position.
Speaker Change: Cash and cash equivalents at the end of the third quarter of fiscal 2025 were $36 7 million and $28 5 million when excluding the sale of healthcare assets compared to $26 6 million at the end of the second quarter of fiscal 2025.
Speaker Change: Cash flow provided from operations was $4 6 million compared to cash flow used in operations of $2 5 million in the prior year's third quarter.
Speaker Change: This was the fourth consecutive quarter of positive operating cash flow.
Speaker Change: Capital expenditures of zero point $5 million in the third quarter fiscal 2025 were primarily related to our facilities and it systems versus zero point $4 million in the third quarter of fiscal year 2024.
Speaker Change: As a result free cash flow was $4 1 million for the third quarter of fiscal 2025.
Speaker Change: We paid 0.9 million cash dividends in the third quarter of fiscal year 2025.
In addition, based on our current financial position.
Speaker Change: Ward of directors declared a regular quarterly cash dividend of <unk> <unk> per common share.
Speaker Change: Which will be paid in the fourth quarter of fiscal 2025.
Speaker Change: As of the end of the third quarter of fiscal 2025, the company had no outstanding debt on its $30 million revolving line of credit with PNC Bank.
Speaker Change: And 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: Coming out of FY 'twenty four specifically in Ges, we had a strong backlog numerous new product introductions expanded customer base and several development programs transitioning from beta testing to preproduction build.
Greg: Building on that positive momentum, we expect to growth. This year. We are pleased to report that Q3, Ges sales totaled $9 3, million% to 55% increase over our most recent Q2.
Greg: But down 19% year over year as a result of lower sales in the wind turbine battery modules, which are project based and can vary by quarter. However.
Greg: On a year to date basis, Ges sales are $23 million, an increase of 26% over the prior year.
Greg: Our current backlog, we expect year over year growth in Q4, FY 'twenty five and for the full year.
Greg: Our pitch energy modules and related with energy products continue to gain market share.
Greg: <unk> from new customers and key owner operators, who recently completed beta testing.
Greg: Today, we serve dozens of wind turbine owners and operators, including exclusive partnerships with the top four owner operators of GE wind turbines are W. E. Inver energy E Mail and Nextera. Additionally, we continue to grow the program globally, expanding into Europe, and Asia with new products and other turbine platforms.
Greg: Such as Susan line, <unk>, Nordics and SSB.
Greg: Our <unk> growth strategy is focused on power management applications.
Greg: In a short time, we have designed multiple products received several patents and.
Greg: <unk> built a growing base of large global industry, leading customers and technology partners.
Greg: Our success is evident in our growing global pipeline as we capitalize on numerous growth opportunities to support significant energy transformation and wind turbine repowering projects.
Greg: Continuing in Q4, we will make further investments to our organization to expedite the new product introduction process and global expansion, we need to get products to market faster and in FY 'twenty six we were making the necessary investments to meet the strategic objectives.
Greg: Turning to power and microwave or PMT, which includes electron device group or EDG legacy tube and semiconductor wafer fab equipment business and the power and microwave components group sales were $32 $2 million up 7% compared to the prior year led by growth in our RF and microwave components business.
And our semi fab equipment manufacturing customers.
Greg: Our combined Ges in PMT backlog remains strong at $95 million at the end of Q3.
Greg: The team has done a good job, making sure we have the right products at the right time, and then our inventory decreases again in the third quarter, helping the company generate positive cash flow.
Greg: We remain focused on managing all aspects of the business to maximize profits while meeting the needs of our expanding customer base.
Greg: Heading into the fourth quarter and next fiscal year, we are excited about the opportunities within our PMT and <unk> businesses.
Greg: Like many companies we are navigating a high degree of near term uncertainty associated with the impact of new reciprocal tariffs and marketing conditions.
Greg: But we are also pursuing opportunities that may come from these disruptions.
Greg: Route calendar year 2025, we expect limited market growth in the U S. But we expect Richardson will continue to grow sales by grabbing market share and introducing new products.
Greg: A key component of our growth strategy.
Greg: <unk>, expanding our global technology partnerships and engineered solution products.
Greg: We continue to add new partners, who address technology gaps in our offerings and align with our strategic growth priorities.
Greg: Through these partnerships, we often identify opportunities for new products that we design manufacture and test in house.
Greg: This approach enhances the value we provide our customers and allows us to capture more revenue, while expanding and diversifying our customer base.
Greg: Technology partnerships are extremely strong and when appropriate we collaborate on new component design and development strategic purchases and long term planning.
Greg: These technology partnerships are key to the customer relationships for all of our products.
Greg: We're investing in the infrastructure to support our growth. This includes hiring talented design and field engineers and enhancing our design and manufacturing capabilities.
Greg: Our growing in house design engineering and manufacturing teams are doing a good job supporting increased demand for current products and new product designs.
Greg: Our field engineering team continues to identify new customers and opportunities we.
Greg: We need to invest in the team to keep identifying developing and introducing innovative products and technologies for Green energy power management, and RF and microwave applications.
Greg: Our unique global capabilities and global go to market strategy set us apart in the power management, RF and microwave and Green energy markets. We've developed a unique business model that combines legacy products with new technology partners and solutions aligning with our growth strategy to deliver engineered solutions to our global customer base.
Greg: This model differentiates us from all of our competitors.
Greg: And finally as a global company, we are analyzing the effects of the announced tariffs and we will make needed adjustments to our global supply chain to continue our growth.
Greg: And with that I'll turn it over to Yens to discuss canvas.
Yens: Thanks, Craig and good morning, everyone.
Speaker Change: Canvas engineers manufacturers and <unk> custom displays to original equipment manufacturers across global industrial and medical markets. It is our mission to deliver high quality display solutions tailored to our customers' needs.
Speaker Change: Net sales increased 39, 5% to $9 2 million junior third quarter fiscal 2025, compared to $6 6 billion in the third quarter of fiscal 2024, driven by higher sales in North American markets.
Speaker Change: Gross margin as a percentage of net sales decreased to 33, 2% during the third quarter of fiscal 2025 from 34, 4% Yoga third quarter fiscal 2024, primarily due to product mix.
Speaker Change: Our backlog at the end of the fiscal 2025 third quarter remains strong at $36 6 million, providing a robust foundation for future business.
Speaker Change: During the quarter candidates received orders from both repeat and new medical OEM customers for various applications.
Speaker Change: Our focus remains on robotic assisted surgery navigation and as Capex and human machine interface HMA solutions for controlling medical devices. Additionally, our solutions extensively utilized in various commercial and industrial applications. For example, our products improve passenger information systems in <unk>.
Speaker Change: Trains and buses and enhanced H M. <unk> technologies employed in printing bending milling and packaging equipment.
Our strategic initiatives aimed to increase canvases visibility and market leadership.
Speaker Change: We seek new opportunities and build connections with potential customers to drive growth and innovation.
Speaker Change: We also engage with industry peers and stakeholders to strengthen our market presents through collaborations.
Speaker Change: Looking ahead, we are cautiously optimistic about improving demand in our markets.
Speaker Change: Positive indicators, such as increasing request for quotes and encouraging customer feedback suggests a steady recovery.
Our dedicated sales team continues to explore new opportunities what I focus on implementing strategic plans to ensure sustainable growth and deliver long term value for our shareholders.
Wendy: I will now turn the call over to Wendy.
Wendy: Thank you Ian and good morning, everyone.
Speaker Change: Under the terms of the January 24, 2025 asset sale Richardson electronics filled the healthcare business unit for $8 $2 million, but retained at Cte tube engineering repair and manufacturing assets during.
Wendy: During an exclusive 10 year global supply agreement with direct med imaging.
Wendy: The company will continue to support direct mat.
Wendy: This agreement with prepared Stephen Cte X-ray tubes, we will also make a limited supply of ultra C. T X-ray tubes, but will sunset our Alta tubes line, when we complete our quantity commitment.
Wendy: We anticipate this could take 12 to 18 months and May continue to generate a loss for the company in FY 'twenty six.
Wendy: While the company reported a loss on sale of assets. The strategic transaction is expected to simplify the company's business.
Wendy: Improve Richardson financial model long term and allow the company to prioritize profitable opportunities within higher growth markets.
Wendy: Remaining assets of the Richardson healthcare business, primarily Cte tube manufacturing and repair will be consolidated into the company's PMT reportable segment, beginning with Q4 FY 'twenty five.
Wendy: Richardson electronics intends to use proceeds from the asset sale to invest in the company's growth initiatives, primarily our green energy solutions business unit.
Wendy: And other high growth complementary businesses.
Wendy: As we navigate a more fluid economic environment, we believe maintaining a strong balance sheet will give us the flexibility needed to expand our position with our customers.
Wendy: It will also allow us to pursue opportunities to emerge stronger from this economic period and with a larger market share.
Wendy: As Greg discussed earlier, there are many exciting opportunities for growth just within PMT and clean energy solutions.
Wendy: We will continue our strategy of leveraging our core engineering capabilities and technology partnerships with our in house and U S based manufacturing to expand higher value sales and power management applications.
Wendy: Our success in developing patented products.
Wendy: Leading our Ultracapacitor based touch energy Mahjong and EV train start modules is a good example of how we successfully expand our markets and grow our scale.
Wendy: <unk> Zealand markets and applications that have large teams. We will continue to add resources that will allow us to increase market share on a global basis.
Wendy: We believe our success in these large power management applications supports additional opportunities across other power management energy transformation markets.
Speaker Change: This concludes the battery energy storage solutions, Greg discussed that is supported by advancements in battery technologies, and the rising demand for energy storage and grid stability.
Speaker Change: <unk> technologies are evolving and the use cases are wide. These include renewable energy integration.
Speaker Change: Shaving and load shifting backup power for remote a critical site.
Speaker Change: And EV charging.
Speaker Change: Market size and growth rates vary better sizeable fortune business insights valued the global energy storage market at $25 billion in 2024 up from $18 billion in 2023.
Speaker Change: They are projected to grow to $114 billion by 2032, reflecting a compound annual growth rate of 21% during the forecast period.
Speaker Change: With ever increasing demand for power and the company's ability to act nimbly with new technologies.
Speaker Change: Richardson electronics is well positioned to differentiate itself and global niche markets like energy storage.
Speaker Change: As a result of the healthcare transaction and more recent maiden America mandates. We are redefining our growth strategy that we believe will reposition the company for sustainable growth by expanding our capabilities and our patented technology and optimizing our operational efficiencies.
Speaker Change: In the near term, we will make further investments in our business development and engineering teams to improve our reach and time to market.
Speaker Change: Longer term, we will also consider acquisitions that meet strict financial and operating requirements, including market applications manufacturing requirements geography profitability and cash flow.
Speaker Change: As technology evolves power management technologies evolve with it and our strategy is to provide flexible solutions that further differentiate the company.
Speaker Change: Selling the assets of Richardson healthcare served as an important catalyst that is driving our efforts to look for external opportunities to add scale and new capabilities.
Speaker Change: We are in the early stages of our strategic plan development, but have a solid foundation on which to build.
Speaker Change: We're positioning Richardson electronics to be a leader in power management and power conversion solutions for the markets we serve.
Speaker Change: Even our current priorities, we expect our M&A strategy will develop later in FY 'twenty six.
Speaker Change: Look forward to sharing more on future calls.
Ed: I'll now turn the call back over to Ed.
Ed: Thanks, Randy we're excited about the future of Richardson electronics.
Ed: Power grid tubes will always be at the heart of the organization.
Ed: Repositioning the company as a leader in power management brings a new level of focus.
Ed: Despite persistent global economic and political challenges, we delivered four 9% growth in Q3 from our core business units.
Ed: In the near term, we continue to see good opportunities with the rising semiconductor wafer fab equipment demand and for many new products and geographical expansion in our Green energy solutions business.
Ed: Our cash position from the sale of healthcare and the team's success in converting inventory to cash puts us in an excellent position to continue investing in our growth strategies and push forward the company's agenda to be a significant player in power management solutions.
Ed: On behalf of everyone at Richardson Electronics, we look forward to sharing more details with you in the coming quarters, We will now open the call for 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 one follow up until we have had a chance to ask questions. After which we will answer additional questions from you as time permits again to ask a question at this time.
Speaker Change: Please press star one on your telephone unless your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.
Speaker Change: Our first question is going to come from the line of Anya Sandstorm with Sidoti. Your line is open. Please go ahead.
Anya Sandstorm: Okay and thank you for taking my question.
Speaker Change: Nice job on the GFS business, there will be sequential growth.
Speaker Change: You mentioned that the backlog there remains strong.
Speaker Change: We expect in terms of.
Speaker Change: The sequential growth from here.
Speaker Change: Well, you know theres a lot going on out there, but we fully expect based on our backlog.
Speaker Change: Our inventory position as you know we made a strategic purchase to make sure. We had stock that we expect to grow in the fourth quarter and in FY 'twenty six probably the best visibility I can give you, but definitely with our backlog and current.
Speaker Change: Shipping schedule, we expect to grow.
Speaker Change: And in terms of the pipeline.
Speaker Change: The sales cycle has been quite prolonged or are you seeing any sort of cancellations or anything.
Speaker Change: <unk> still viable.
Speaker Change: And just being pushed out to future periods.
Speaker Change: Yes, no cancellations I mean timing of things aren't we're not happy with we don't have a lot of patients anyway.
Speaker Change: But every one of the programs and the products that we've identified.
Speaker Change: With help from our field team and our customers and our design teams that we feel we can win at they're all moving forward and as Wendy mentioned in FY 'twenty six specifically, starting now we're going to invest to expedite getting products to market faster, but very very positive in terms of things moving forward no cancellations no programs.
Speaker Change: Delayed it's just kind of in our end and it's these NPI processes. These are new products highly technical.
Speaker Change: And they just take some time, but they are all moving forward, which is very exciting.
Speaker Change: Okay.
Speaker Change: Okay. Thank you and the wafer fab business are also expected to remain strong what are you seeing that.
Speaker Change: Well again, not a lot of visibility we had a very strong quarter, we expect to have a.
Speaker Change: Growth in the fourth quarter also.
Speaker Change: And we will have growth for the fiscal year.
Speaker Change: I wasn't on the call, but I'll, let Wendy add she listened in on the Lam corporate call and they're predicting growth in what would be our FY 'twenty six.
That's correct Tanya.
Speaker Change: This was a call that we had yesterday and it was predominantly regarding tariff strategy.
Speaker Change: They are in a quiet period and they didn't.
Speaker Change: Comment on the balance of calendar year, 'twenty, five or calendar year 2026, but they have excellent strategies in place to manage these tariffs and we've been working with them.
Speaker Change: Really over the past year to make sure that tariffs don't impact our component prices do any extreme.
Speaker Change: Extreme extent and that's really what their call was with all of their suppliers is making sure that everybody moves things around and they're going to make some changes, possibly on where they manufacture certain equipment for certain countries. They appear to be in good shape.
Speaker Change: And I'd like to add to that I just wanted to mention that.
Speaker Change: The batteries and the ultra capacitors that we use in our ultra 3000, our new pitch energy monitoring multi brand our starter modules for the diesel locomotive industry. They are not made in China.
Speaker Change: So that was a positive thing in terms of those specific products, which are key to a number of our engineered.
Speaker Change: Loosens.
Speaker Change: Okay. Thank you for that.
Speaker Change: Hi.
Speaker Change: How are you seeing that youre being impacted by the Carlson.
Speaker Change: Navigating.
Speaker Change: Yes, it just seems like.
Speaker Change: Kind of a hold.
Speaker Change: We're doing a lot of engineering work, so thats continuing full speed.
Speaker Change: But even ourselves obviously theres a couple of large.
Speaker Change: We'd like to place because of lead times, but we're just kind of maybe holding off a week or two or kind of see what what settles in as you know.
Speaker Change: A few hours ago or day ago.
Speaker Change: The tariffs changed again, so I think a lot of people are just kind of a wait and see for a while in terms of placing any large.
Speaker Change: Orders.
Speaker Change: Andrew I'll add to Greg to answer.
Speaker Change: China of course is where the largest tariffs are in place and today over the past year about only 5% of our purchases that we made came from China.
Speaker Change: Our exposure in China from that perspective is a very small percentage of the total company.
Speaker Change: We also this is a wonderful time, when we're going to be able to take advantage of the infrastructure that we've put in place over the last 75 years, including we have multiple inventory hubs, where we can stock inventory. So we're moving things and ensuring that where we put our.
Speaker Change: He is closest to the customer where we don't incur significant tariffs.
Speaker Change: We have a robust duty drawback process in place that is still applicable for the majority of the tariffs.
Speaker Change: So I think as far as tariffs. So we're in a good position as we can be.
Speaker Change: Obviously, we don't know the impact at the end user the end demand level, but.
Speaker Change: We are doing everything we can again to minimize the impact on our customers.
Speaker Change: Therefore on the the end use demand and in addition to that we.
Speaker Change: Obviously, we're a entrepreneurial company.
Speaker Change: Step that mentality up for 75 years, we're looking at the opportunities that would come out of this and specifically I have three.
Speaker Change: To our customers and one of the supplier technology partner coming in to look to us to potentially either build or design products quote unquote made in America that they're currently dealing with tariffs because they're not made in America. So.
Speaker Change: Coming out of this obviously dealing with tariffs and purchasing and cost, but there's also opportunity specifically for a niche company like Richardson, which has design manufacturing and test capabilities.
Speaker Change: Okay. Thank you I'll get back in the queue.
Speaker Change: Thanks Danielle.
Speaker Change: Thank you and one moment as we move to our next question.
Speaker Change: Our next question comes from the line of Matthew Brooks with Northland Capital markets. Your line is open. Please go ahead.
Speaker Change: Hey.
Speaker Change: On for Bobby.
Speaker Change: Hello.
Speaker Change: Honeymoon.
Yes, yes.
Speaker Change: I'm filling out.
Speaker Change: Thanks for taking my question first.
Speaker Change: First though with.
Speaker Change: Sales up 139% year over year can you help us contextualize that a bit more with how that perform sequentially what drove that strength and is that strength continuing.
Speaker Change: Yeah.
Speaker Change: Yeah, So I mean, each quarter on quarter the.
Speaker Change: Semiconductor wafer fab business has increased.
Speaker Change: We're going to end up with a strong year.
Speaker Change: Last year was about $13 million will be way above that.
Speaker Change: <unk>.
Speaker Change: It's just that.
Speaker Change: The sequential growth going forward is just the lack of visibility everybody is looking at growing it but this year, we're coming out of a low point last year.
Speaker Change: And we're getting visibility from corporate but also from their engineering team is talking to our engineering teams. So we look at growing in Q4 again like we did in Q3, probably about 139%, but it will grow and we will growth substantially for the year and we'll look to grow in FY 'twenty six and again.
Speaker Change: Thats.
Speaker Change: Most visibility we have right now.
Speaker Change: Perfect that's great to hear and then one more just on capital allocation.
Speaker Change: Post closing out the healthcare sale.
Speaker Change: How should we think about allocation going forward, specifically with your M&A strategy starting in fiscal year 'twenty six.
Speaker Change: So our short term and that's really what we're prepared to talk more about it and I think both Greg and I mentioned in our prepared remarks that we will be making investment in <unk>.
Speaker Change: On people.
Speaker Change: And the technology that will allow us to expand more rapidly.
Speaker Change: Some of the products that are already released like the Ultracapacitor wind energy pitch energy modules.
Speaker Change: And so that's going to be our first priority with that cash as I mentioned, we're not prepared to discuss our M&A strategy and as we get better clarity and definition on that we'll be glad to share it with you.
Speaker Change: Sounds good thank you I'll hop back in the queue.
Speaker Change: Thanks Logan. Thank you one moment as we move onto the next question.
Speaker Change: Our next question comes from the line of Barry Mendel with Mendel money management. Your line is open. Please go ahead.
Barry Mendel: Yes, I didn't hear you talk.
Speaker Change: Hi, Wendy.
Speaker Change: Can you guys talk about progress rail or <unk> can you talk about what's going on with the two of them.
Speaker Change: Well, it's specific to that large locomotive company.
Speaker Change: Released.
Speaker Change: Very large order we're in the process of building that will start shipping that.
Speaker Change: In FY 'twenty six so.
Speaker Change: So that program has been a fantastic program.
Speaker Change: Again I've been in the NPI process on April 24.
Speaker Change: 40 years.
Speaker Change: And that's one of the most amazing quick <unk>.
Speaker Change: Detailed program with great success on their side. So the starter modules for two of our large locomotive manufacturers is moving forward very fast.
Speaker Change: And then on it was the other question.
Speaker Change: Progress rail.
Speaker Change: Well it's both.
Speaker Change: Progress rail.
Speaker Change: Okay progress rail yeah, we shipped with nice shipments to them in the quarter.
Speaker Change: But that program is will be the largest electric vehicle in the world. When it is completed and we continue to work with them on a weekly basis, and we will probably finished shipping the long Island railroad trains in FY 'twenty six.
Speaker Change: You see how do you say, how large that order was.
Speaker Change: I think it's $1 3 million.
Speaker Change: Any progress in Australia with progress rail.
Speaker Change: Yes, they are still working with their end customer again, we've completed our.
Speaker Change: Program with them in terms of what they needed from us.
Speaker Change: They're now working directly with their end customer.
Speaker Change: A ton of delays for various reasons technically et cetera, and the last feedback we got which was a week ago is they expect to ship the first <unk>.
Speaker Change: Nicole to their end customer Australian railroad.
Speaker Change: In the fall of this year and that's all we have from them.
Speaker Change: Again, theyre dealing directly with their end customer were not involved in those calls we've completed the engineering and support that they needed to complete the final training.
Speaker Change: Okay.
Speaker Change: And one last question.
Terms of healthcare I think Wendy mentioned theres going to be some continuing losses, there or can you frame the size of those losses.
Speaker Change: What they might be.
Speaker Change: Yes, we're not prepared to discuss that Barry we're still working through that obviously, our objective is to minimize that to the extent possible.
Speaker Change: So as we begin in more steady.
Speaker Change: Steady fashion, releasing the repaired Siemens that'll.
Speaker Change: And that will help take out some of the lost that's generated from the Alta tube manufacturing, but again bear in mind that FY 'twenty six only we'll be done with the Alta tubes before the end of that period.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thanks Barry.
Speaker Change: Thank you and if you have a question at this time, Please press star one one on.
Speaker Change: Your telephone our next question is going to come from the line of Ross Taylor with.
Ross Taylor: Rs investments <unk> partners. Your line is open. Please go ahead.
Speaker Change: Thank you sounds good morning, Ralph Good morning, how are you doing.
Ross Taylor: Does it such a formal night.
Speaker Change: Can you talk about how you see profitability playing out I think most of what you do is being relatively a small piece of a bigger puzzle in most cases for your customers.
Ross Taylor: With you.
Ross Taylor: Looking at things.
Ross Taylor: The semi wafer fab business, which is I believe probably been your most profitable business would you expect that as we push through this year you would be able to remain your most profitable business as it grows and also the same kind of thinking for the.
Ross Taylor: The wind turbine business and the like.
Ross Taylor: Things push forward.
Ross Taylor: Well, specifically on the wind turbine and really it's power management products that go into wind turbine.
Ross Taylor: Programs.
Ross Taylor: That's going to continue to grow not only as we expand again, 95% of our business. So far has been North America and one of the things we're talking about in terms of investment is take that model.
Ross Taylor: Model and drop it into Europe and in Asia.
Ross Taylor: Because we've proven that the success in North America.
Ross Taylor: And so youre going to see a couple of press releases coming up this quarter on other niche products. So what we're seeing now is since we have the relationships with the top owner operators.
Ross Taylor: Wind turbines GE wind turbines specifically.
Ross Taylor: They are coming to us for more and more products and again Richardson's.
Ross Taylor: Success has been identifying in this case, where we can be successful I mean, we could sit here and look at a 100 different products do you guys make those you guys make those no.
Ross Taylor: We pick products that we can be successful lives and we've done a good job of that and we continue to get from these owner operators in the wind turbine manufacturers requests for and burgers UBS is.
Turbine guards, all kinds of stuff that our team, which is very strong engineering wise is able to develop so what you're going to see is not only growth in the existing products. We have but continued growth in additive products, because obviously from a profit point of view one of the best ways to grow sales and grow profits.
Ross Taylor: Is to sell more products to an existing customer base because one of the most costly parts of a new product introduction process is identifying customers buying the content and going through the NPI process itself.
Ross Taylor: So yes were decided on the wind turbine product that has been a very profitable program internally, we call. It project turbo.
Ross Taylor: Lamb side, we're kind of at the hands of them.
Ross Taylor: How much market share they get.
Ross Taylor: The products, we make for them, we've made for them for a long time.
Ross Taylor: Pretty much exclusive but kind of on the semi wafer fab side.
Ross Taylor: Versus the wind turbine side, we can add resources go gurt business gained market share for those products on the land side, we're kind of seeing where they're at in terms of market share as they gain and what their business does.
Ross Taylor: So Ross, let me add to that that we still have excess capacity here within the lethargic manufacturing facility. So everything Greg that is true that we are seeing improved profit profits in the wind energy business.
Ross Taylor: Lam continues to be in the semiconductor market and overall continues to be a very healthy profitable part of our business, but we are in a very very good position to take advantage of these maiden America mandates in these tariffs that are asking people to do different things.
Ross Taylor: The nice thing is we don't have to do a lot to begin to realize additional profit from that.
Ross Taylor: We still have an issue with under absorption, which is impacting our gross margin and we will be able to reduce that.
Ross Taylor: As we focus those efforts on bringing more manufacturing items into this building.
Ross Taylor: Okay.
Ross Taylor: Basically you both out Youre looking at high margin product.
Ross Taylor: Growing the ability to push those into the market and while you do that youre actually going to be picking up you're.
Ross Taylor: Getting better coverage.
Ross Taylor: While at the same time.
Ross Taylor: With regard to your backlog.
Ross Taylor: Health care is still in your backlog, but it's really.
Ross Taylor: A very different role that we're playing could you give an idea of what your backlog and how quickly you can service backlog for things like land were to come to you how long how long does it take for you to pillow Lam orders, though in this uncertain period.
Ross Taylor: C.
Ross Taylor: More short term orders, where they come in and need something and we should be and you should be able to be responding.
Ross Taylor: Inside a quarter as opposed to over an extended period of time.
Ross Taylor: We do that with Wham, all the time I mean again, they're dropping in orders constantly and yes. We can we certainly can respond with human resources labor, we've got the capacity for that.
Ross Taylor: The long pole in the tent would be any components that have long lead times.
Ross Taylor: We've been building products for Lam way back when they first bought no Dallas or to double those six and a lot of those products that we're sole source on we're able to react to their increases in orders in a very short period of time.
Ross Taylor: What we wanted to C. Ross and this is what they keep telling US is first of all they said, we're one of their key vendors for deposition.
Ross Taylor: And they will continue to bring us new opportunities to look at so for us it's a matter of filling their existing business that both Ed and Greg have described but also winning more of it and that is also one of our key strategic points.
We will continue to work away at that.
Speaker Change: Okay, Great well you guys are doing an excellent job in uncertain times, but it seems that you do.
Ross Taylor: You have a pretty good idea of where youre going in.
Speaker Change: Yeah.
Speaker Change: Thank you, we just have to get an X because apparently that's the only place we're going to know what's happening.
Speaker Change: [laughter].
Speaker Change: Hang out tomorrow.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and I would now like to hand, the conference back over to Ed Richardson for further remarks.
Ed Richardson: Thanks Michelle.
Ed Richardson: Thanks again for joining us today, we appreciate your investment interest in Richardson electronics.
Ed Richardson: Please don't hesitate to call us at anytime were available and happy to talk with you.
Ed Richardson: Also posted an updated investor presentation on our website and we look forward to our ongoing discussions on growth and to share our fourth quarter and full year results with you in July.
Ed Richardson: Thank you very much.
Ed Richardson: This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.
Ed Richardson: Okay.
Ed Richardson: [music].
Ed Richardson: Okay.
Ed Richardson: Okay.
Ed Richardson: [music].
Ed Richardson: Okay.
Ed Richardson: [music].
Ed Richardson: Hum.