Q4 2019 Earnings Call
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Welcome and thank you for joining todays why 19 fourth quarter, earning call for Richardson electronics. Please note that all lines will be muted until the Q and a portion of the call. We will provide you with instructions on how to ask a question at that time I will now turn the call over to Ed Richardson CEO . Please go ahead.
Yes.
Good morning, and welcome to Richardson Electronics conference call for the fourth quarter of fiscal year 2018.
Joining me today are Robert Ben Chief Financial Officer, Wendy Diddell, Chief operating Officer, and General manager for Richardson healthcare.
Greg Hillary Clinton General manager of our power and microwave technologies group and Yens Rupert General manager canvas.
As a reminder, this call is being recorded and will be available for audio playback.
I would also like to remind you that we'll be making forward looking statements and they are based on current expectations and involve risks and uncertainties.
Therefore, our actual results could be materially different.
Please refer to our press release and SEC filings for an explanation of our risk factors.
Fiscal year 2019 was overall a good year for Richardson electronics.
Our flight 19 revenues grew 2.1% over prior year on a full year basis.
PMG canvas healthcare all exceeded prior year performance with increased demand coming from the investments we've made in our growth initiatives.
Our core power grid to business also performed well, although it was negatively impacted.
By the continued slowdown in the semiconductor wafer fab equipment market.
Hi performance, even more remarkable when you consider equity 18 was a record year and we had one additional week.
The teams worked hard throughout the year to overcome market challenges, while continuing to take advantage of our existing global infrastructure.
Everyone is focused on efficiency gains.
Returning the company to profitability, while investing in our future growth is our top priority.
I will now turn the call over to Bob Ben who will share the highlights of our fourth quarter and full year financials.
Then, Greg Wendy and yen will provide more details on their business unit performance.
Thank you Ed and good morning, I will review, our financial results for our fourth quarter and fiscal year 2019, followed by a review of our cash position.
Net sales for the fourth quarter of fiscal year, 2019 were $42.2 million compared to the prior year's fourth quarter, a $45.5 million.
Which was a decrease of $3.3 million or 7.3%.
Net sales decreased $5.1 million for PMT.
Which was partially offset by increases of zero point $7 million or 10.8% for canvas.
And $1.1 million or 68.7% for Richardson healthcare.
Gross margin for the quarter was 29.7% of net sales compared to 34.1% of net sales in last years fourth quarter.
This was primarily due to a less favorable product mix, including a higher percentage of power conversion and RF and microwave components.
As well as higher costs related to CTG to production and health care inventory write downs.
In addition, gross margin in the fourth quarter fiscal 2018 also included over absorption in the Lafox manufacturing.
Area associated with higher demand.
From customers in the semi wafer fab equipment market.
Operating expenses were $12.5 million for the fourth quarter of fiscal 2019.
Compared to $13.7 million in the fourth quarter of fiscal 2018.
The decrease in operating expenses resulted from lower incentive compensation expense as well as lower salary and other related expenses.
Due to head count reductions throughout fiscal 2019.
Operating expenses as a percent of net sales decreased to 29.7% in the current quarter from 30.1% in last years fourth quarter.
In the fourth quarter fiscal 2019, the company recorded a 6.3 million non cash.
Goodwill impairment charge.
Which represented the full amount of goodwill associated with the high Mds reporting unit.
The impairment resulted from fourth quarter events that decreased the forecasted future cash flows and the fair value of the nine yes reporting.
Below its book value as of the March 3rd 2019 testing date.
Just to be clear.
This was a noncash accounting adjustment.
As a result, the company reported an operating loss of $6.4 million for the fourth quarter fiscal 2019.
Compared to an operating income of 1.9 million in the fourth quarter of fiscal 2018.
Excluding the non cash impairment of goodwill the company would have reported a $46000 operating loss for the fourth quarter of fiscal 2019.
Other income for the fourth quarter fiscal 2019, including interest income in foreign exchange was zero point $3 million.
The same as in the fourth quarter of fiscal 2018.
The income tax provision of zero point $3 million for the quarter reflected a provision for foreign income taxes, which was lower than in the prior years fourth quarter.
And no us tax benefit due to the valuation allowance recorded against the net operating loss.
Although there is no tax benefit shown in our financial statements from us net operating losses.
We can use our net operating losses to offset any cash tax liability reported in our us federal income tax return.
The amount of federal and wells is $14.9 million.
Overall, we had a net loss of $6.4 million for the fourth quarter fiscal 2019, including the 6.3 million noncash write down of goodwill.
As compared to a net income of 1.7 million in the fourth quarter fiscal 2018.
Turning to a review of the results for fiscal year 2019.
Net sales for fiscal year 2019 were $166.7 million.
An increase of 2.1% from fiscal 2018 net sales of $163.2 million.
There were 52 weeks in fiscal 2019 compared to 53 weeks in fiscal 2018.
Net sales increased by zero point $6 million.
Or 0.5% for PMT $1.3 million or 4.8% for canvas.
And $1.6 million or 18.8% for Richardson healthcare.
Gross margin decreased to 31.0% from 33.7%.
Primarily reflecting an unfavorable product mix.
And under absorption of manufacturing costs.
To comply with customer requests, we delayed downsizing or semi fab manufacturing unit.
Which took longer than we anticipated.
And resulted in more than $1 million loss margin as compared to prior year.
In fiscal year 2018, Lafox manufacturing was over absorbed as the company works over time.
Can meet the demand for semiconductor wafer fab products.
As noted previously.
The company has taken actions to correct.
The unfavorable manufacturing variances associated with under absorption.
Operating expenses were 52.2 million for fiscal year, 2019, which represented an increase of 0.5 million from the last fiscal year.
The increase was due to higher severance legal expenses as well as an increase in bad debt expense, which primarily related to a large fiscal 2017 bad debt that was recovered and collected in fiscal 2018.
These increases were mostly offset by lower incentive compensation expense.
Throughout the year, we made change to the organization.
To address market conditions, including significant head count reductions.
And management changes everyone continues to focus on efficiency gains.
As a result operating expenses as a percent of net sales without the higher severance and legal costs as well as bad debt expense related to the large recovery.
Decreased to 30.5% in fiscal 2019.
From 31.7% in fiscal 2018.
Our operating loss for fiscal year 2019.
Was 6.8 million, including the 6.3 million noncash goodwill write off.
As compared to operating income of $3.6 million.
For fiscal year, 2018, which included a 0.3 million gain from the disposal of assets.
Excluding the higher severance legal fees and bad debt expense related to the large recovery as well as the impairment of goodwill to company would have reported an operating income of zero point $8 million for fiscal 2019.
Other income for fiscal 2019, including interest income in foreign exchange was zero point $5 million compared to other income of zero point $2 million for fiscal 2018.
The income tax provision of $1.0 million for fiscal 2019, primarily reflected a provision for foreign income taxes and no us tax benefit due to the valuation allowance recorded against the net operating loss.
Loss from continuing operations for fiscal 2019 was $7.3 million.
Compared to income from continuing operations of 2.3 million in fiscal 2018.
Excluding the higher severance legal costs.
And bad debt.
Expense from the larger pedigree as well as the impairment of goodwill there would have been income from continuing operations of zero point $3 million.
In addition, during the second quarter fiscal 2018.
The company received an income tax refund from the state of Illinois.
Inclusive of interest and that of professional fees of $1.5 million.
This refund was a result of the conclusion of the Illinois amended return related to the sale of the RF wireless and power Division in 2011.
And was therefore classified as income from discontinued operations.
Overall, we had a net loss of $7.3 million for fiscal 2019.
Which included the goodwill impairment charge of $6.3 million.
As compared to net income of 3.8 million inclusive of the tax refund for fiscal year 2018.
Turning to a review of our cash position.
Cash and investments at the end of fiscal 2019.
Or $50.0 million compared to $49.4 million.
At the end of the third quarter of fiscal 2019.
And $60.5 million at the end of fiscal 2018.
Approximately $5.9 million of a 10.5 million in cash and investments used during fiscal 2019 was related to inventory increases from our PMG and Richardson healthcare growth initiatives.
Use cash and investments at the end of fiscal 2019 or $20.7 million in fiscal 2019, we repatriated $8.2 million foreign cash and have plans for a similar amount to be repatriated during fiscal 2020.
Capital expenditures were zero point $7 million in the fourth quarter of fiscal 2019 compared to $1.0 million in the fourth quarter fiscal year 2018, approximately 0.3 million related to our investments in our healthcare growth strategy.
0.2 million to our IP system, and another zero point $2 million for facilities and other projects.
On a year to date basis capital expenditures totaled 3.9 million as compared to 5.2 million in fiscal 2018, Lastly, we paid 0.8 million in dividends in the fourth quarter and $3.1 million for fiscal 2019.
Now I will turn the call over to Greg who will discuss the results for our power and microwave technologies group.
Thank you Bob and good morning, everyone.
Our fourth quarter of fiscal year 2019.
PMT sales were $32.1 million versus $37.2 million in Q4 of F.Y. 18.
Our gross margins in the quarter were 30.7% versus 34.3% in Q4 of last year.
Q4 results when compared to prior year, we are once again affected by the downturn in the semi fab wafer market.
However, this market decline was partially offset by the excellent growth with a new technology partners supporting the RF wireless in power markets and some market share gains in Thursday legacy two businesses.
Our book to Bill in Q4 was 1.07 as we continue to see major booking trends in our PMG business unit.
This growth is based on the demand creation model with a new technology partners numerous design wins at our unique business model.
This strategy allowed us to grow sales and Thats why 19, even with such a major downturn in one of our largest markets.
We grew the main parts of our core business throughout their flight 19, as we are taking advantage of our long term customer relationships, while our customer count continues to grow with our expanded product range.
Favorable market conditions in industrial RF wireless infrastructure for Fiveg.
In equity markets are leading this growth.
We will weather the storm in the semi fab market decline.
And are prepared to meet the demands when business picks up again.
As market conditions change, we responded quickly throughout halfway 19 to improve efficiencies and help offset the slowdown.
These actions allowed us to generate more opportunities in growing markets using our existing global infrastructure and head count.
Our revenue growth with our new technologies is being supported by key partners, such as Korbel, Maycom, Nokia wave silicon carbide and Fuji.
Our core legacy business continues to be greatly supported by the key to manufacturers in the industry. So just CPI tell us and GRC and photonics.
Key markets and applications showing growth in Q4 include Fiveg wireless infrastructure Dotcom Defense Communications, RF industrial Highpower microwave and marine.
Specific to the Fiveg infrastructure markets, we are continuing to gain traction throughout the world. We have an ever growing list of design wins in base station multicast equipment in satcom applications through our relationships with the world leaders in Gan and beam steering technology, which is the technology of choice for Fiveg, we are helping our customers grab market share.
But as Fiveg rollout, we are primarily focused on the millimeter wave applications their newest technical challenges in designing at these higher frequencies.
This makes our global experienced group of field design engineers, even more valuable to our customers suppliers in this wireless infrastructure rollout.
Really have hundreds of ongoing designs globally.
We are very excited about the booking trends at our new growth markets as I mentioned before with our new technology partners, we could do component level designing and split the majority of the customers board level needs.
These customers are the key Oems in the world as well as medium sized customers that are supporting a portion of the larger OEM system.
Our customers welcome rails local field engineering team to support their designs and our local technology partners Love, our global reach and ability of our field engineering resources to design in their product into true demand creation.
I can't stress enough the value of Richardson electronics unparalleled capability and go to market strategy that is unique to the power and RF microwave industries.
Our world leading position the manufacturing distribution of electron devices supports legacy equipment as well as new equipment or solid state cannot replace tubes.
We do have some headwinds going into Q1 flight 20.
In Q1 at 2018, we still had very strong shipments of the semi market. This will be hard to overcome in a year over year comparison.
Also lead times are still long in the power and microwave semiconductor markets.
However, we have a global forecasting system and have been very aggressive in increasing our orders to make these extended lead times and opportunity to gain market share.
With a growing backlog and reallocation of personnel and resources, our ability to grow business with our new technology partners, even faster should help us show growth and get us back to consistent improved sales and profits. We're committed to finding solutions to continue our improved profitability with topline growth each quarter through the combination of our experience PMT team and our unique go to market strategy with that I will turn it over to lending in Richardson healthcare.
Thank you, Greg and good morning, everyone.
Our sales in the fourth quarter grew 68% over the fourth quarter of fiscal 2000 total growth was driven by the sale of replacement CTG tubes for capital equipment revenue from PC growth.
An increase in both of those pricing correct.
During the fourth quarter, we also shipped or are pre arrow candidates CTP systems with our potential site, which helps create kick in a little surprising to us.
We are pleased to announce we recently achieved a critical milestone realized 82%.
We now have several alternative sales led to more than 400 days lies in terrible.
We also have several large multi vendor service organization around to ensure replacement on a regular basis.
The only ensco has a very high percentage of systems under contract we are making progress.
Interest in our tier three capitated risk programs grew throughout the year.
At Dk program with a good option for customers, who want to avoid the risk of early two bright area.
And to me it relates our recurring revenue contracts were Richardson agrees to provide replacement are attentive sales for a fixed locus over a three year period.
This is Jim sales during the contract period third place liver not on the customer.
We continue to offer pastries with installation were provided by third party service companies, we have tripled.
This option allows operators to move away from the early ever indices, which will enter service third party service provider or a combination of both.
Unlike many areas, we are flexible and providing programs tailored to our customers' requirements.
We also provide CTG still trails are the hospitals IDN and third party service organizations as well as 24, several technical support right.
On a full year basis healthcare sales were up 18.8% 52 revenues increased 24.8% over prior year in spite of the areas aggressive actions to retain the business.
To tear liquid certified pre empted those wells the alternative.
The number of alternatives sold increased quarter over quarter throughout the fiscal year.
With the advent of our proactive outbound telemarketing group, we have been able to identify the location of many additional retailers.
Still it's conversations have led to numerous sales curve that lets turn to features 82 of opportunity.
Toshiba part sales were up year over year other price competition to update at a lower level.
Intuit's, our Latin American customer eschar appreciably over the prior year.
Gross margin in the fourth quarter fiscal 2018 was 15.3% versus 34.9% in the same period last year.
Our margin was negatively impacted by product mix as well as additional scrap charges, resulting from our manufacturing improvement.
Cost adjustments to equipment purchases earlier period also continued to play it.
We have new procedures in place to reduce the potential for such charges in the future. Excluding these charges growth regulated deliver low 30% range.
For the full year of growth regulatory corporate 5%.
Sector with the same adjustment of under absorption earlier in the year gross margin related they are closer to 35% for the year.
This is below our target margin that as sales increase we are little towns that margins will continue to improve.
We are still able to obtain CE approval, the CE mark as required to seller altitudes throughout Europe earlier customers ready to purchase relative to sales we are approved.
We anticipate receiving final approval before the end of that little too, but it appears we have scheduled I like many companies require to comply with the new medical device regulation prior to the May 2020 deadline.
We continually registration efforts in other countries as loan, including Russia, and China, We recently traveled to China.
There are now 30000, LCD deserves with plans to grow to 100000 within the next several years. This will be a really good opportunity for replacement tubes in the future.
We remain committed to our healthcare strategy, our engineering team is making good progress with our net sales and we have identified priorities for future development.
Hospitals continue to be under tremendous pressure to reduce costs. We are told repeatedly by hospitals or third party service companies throughout the world that the third party replaced with CTG to a critical and that they will support us.
We look forward to reading the confidence and the resulting growth unsecured debt.
I'll now turn the call over to you know to refer to discuss fourth quarter results the candidate.
Thanks, Andy and good morning, everyone.
10 minutes, which includes to engineering manufacture and sale of custom display toilets and equipment Meditech trip.
In industrial and medical markets that have a strong performance with sales of $7.3 million during the fourth quarter fiscal 2019.
An increase of 10.8% over the same period last year.
The revenue increase for the fourth quarter was related to an increased customer demand mainly throughout North America.
On a year to day basis global sales grew 4.8% compared to a very strong fiscal 2018.
That had sales growth of 29.9% versus 50 of 17.
Gross margin decreased slightly as a percentage of sales in the fourth quarter fiscal 2019% to 32.2% from 32.7% for the same period last year.
The decrease gross margin was still very strong flow display business was related to an unfavorable product mix and hung currency effects.
On a year to date basis fiscal year 2019, gross margin as a percentage of sales increased to 32.5% from 31.5% versus fiscal year 2018.
Q4 fiscal 2019, with our strongest revenue quarter since Q3 FY 18.
Even with the strong growth, we were able to increase our backlog quarter over quarter again.
But as the backlog position along with projects that are currently in the engineering stage.
Position us well for further growth.
Our backlog consists of purchase orders typically ship, although one or more years.
Customer issue qualify autistic vary quarter to quarter based on customer demand regulatory issues and other factors.
During the quarter, we received seven new orders from both existing and fast time medical OEM customers.
Applications of our displays are used on numbers.
Some of these include optically biomimicry measuring that anatomical characteristic API.
Cryolipolysis systems that breakdown felt by cooling of body fat.
To to cut cost copy of textile Hi, Craig said, the two neoplasia.
As Ted talked laser treatment machines used for skin treatments, such as Skus, Petsmart and Greenfield treatment tool removals SLF covenant heavy redemption.
Medical device control inside the operating room.
Patient monitoring well monetize our installs every multiplication.
Such a central enough patients CNS.
Volumetric laser and the microscopy in imaging system that are used to evaluate and diagnose conditions offset focus.
Coronary imaging consoles for imaging and utilizing the coronary artery lumen.
And divestments flare.
And dental treatment centers, where patients can receive radiographic images online video from an entire on camera and other media such as educational videos a promotion.
We are proud to support Blue chip companies with recognizable names in the medical industry.
In the non medical space, we received orders for value. This based on the auto loan product publications, including passenger information system fuel strength.
Food processing machines, but does this have to be recognized and compete the feeds terrific how awful high temperature water Jeff.
Display and packaging machines large pharma billboards printers, and teleprompter used in the full cup market.
In May 2022, new medical device regulation or MDR approved by the European Council and Parliament, we come into effect and we are preparing ourselves for compliance.
There are many new regulatory requirements challenging on medical device company that has a closer and more detailed post market surveillance, although conclusive documentation and has published amount of Creditability fault medical product towards unique identification number.
Why do we too are challenged we see it as a benefit for our company. We already have established quality management systems in place, including ISO 9001, and I will let in 45.
Complying to them MDR will be our advantage in the long run.
As you will be on the shortlist of this big companies that meet the new more stringent regulations.
Considering all the new programs, we are working on I'm optimistic that we will continue growing our business by adding more customers and programs.
I will regularly review and adjust our business strategy with the goal of further improving the operating performance of the division.
Maximizing cash flow as an ongoing priority and to continue to focus on inventory turns and collections.
I will work closely with our partners to help us reduce inventory, while being able to meet the demands of our customers.
I will now turn the call back over to Act.
Thanks Vince.
We've hit the ground running and ask lightweight and we're optimistic that we'll have another growth year.
Healthcare had strong sales in the fourth quarter and RCT to sales are picking up.
We now have several large customers buying our tubes on a regular basis in engineering is focused on new development.
PMT continues to do well with its users to uptick technologies.
We're working closely with our suppliers to ensure we have sufficient inventory to support the global rollout aside Q.
Our industrial power to business in Canada are performing well and provide cash to support the company now and in the future.
We will continue to conserve cash to support our key initiatives, while the company returns to profitability.
At this point, we'll be happy to answer a few questions.
Okay as we move to culinary please feel free to place yourself and to the question to by pressing pounds to on your telephone keypad.
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Caller your line is on mute it.
Hi, Good morning can you guys hear me.
Yes, yes.
Oh, yes.
Good morning, everyone.
Hi, Mark.
I'm going to try to pin you down a little bit.
Guidance for.
Fiscal year 2014, so.
Yes.
You mentioned, you're expecting growth so.
Are you expecting sales growth.
Yes. We are you know our plan is for sales growth a lot has to do with whether the semiconductor wafer fab.
Business recoveries quickly.
That business is like a roller coaster and right now it's pretty much on the bottom.
Right.
But at the same time.
Hey, PMG business is growing dramatically as you can see.
Healthcare is starting to get traction so yes, we're predicting growth.
Okay. So just generally.
I mean, you do have some growth levers.
But the greatest.
Unknown is.
Somewhat the semis the semiconductor space.
And how fast that might recover is that fair to say.
Oh, I guess I mean to give you some idea again last year that total business between several customers. It was about $20 million and this year it dropped to 12 somewhere in that area.
So.
An $8 million swing, but so far.
Erin and us even more than made up for that.
Okay great.
And.
Greg how are you.
I guess I'm looking for some color on that.
Batsmen.
Compared to the prior year.
Ill ramp up is it progressing that way or is there.
Some delayed just because the general uncertainty with with Skyline and whatnot.
Yes, yes. They are all in a fiveg is very unique just because it's a complete upgrade of the current system will be longer will be lighter.
The warm yet we have the technology, we will be more advanced.
In talking to our suppliers.
In our key customers.
They are seeing large double digit growth, obviously last year ours is much higher because we obviously have a little bit less market share as we grow.
And next year. They look at the same type of of numbers between 20% to 30% growth.
And the infrastructure rollout night I want to separate this mark and I know we've talked about it.
The numbers coming out from the Fiveg rollout includes handset business that has that portion of business that we address were looking directly at the infrastructure rollout, which is based on different parameters.
Then we handset business.
We had an excellent year.
We shipped.
Over $25 million into the Fiveg market last year are in fiscal year 19. So.
Its booming our book to Bill.
It was 1.38 in that business and Q4. So again, if you talk you talked to the service providers you talked to the Oems and talk to our suppliers. The numbers are are very.
Some of the trading price.
Okay great.
Our Beaumont.
Okay are you seeing any.
Settled.
So Mike.
Memory versus storage for instance.
There's some evidence that memories.
Turning to come back a little bit.
I mean is that how you divide up the semi space that way or does that not matter.
Not that it doesn't matter, but never Asia microprocessor DSP easier field programmable products.
Thats kind of on the cloud side and the handset side on the infrastructure side, we look mainly at the RF.
Todd kind of Apple trends transmitter content.
Hey look at Pico cells micro cells.
Test equipment for the packaging systems, Statcom, which is going to help.
Indicate the issues of pepperidge with Fiveg base stations using satellites. That's that's really what I look at and that business is still very strong and again.
Our portion of it is small now and continue to grow.
Okay great.
And when the.
Wondering.
Yes.
If you might be willing to go out on a limb.
In terms of health care for fiscal Q1 is there is a possibility.
That you might experience like.
A step up growth.
Is that possible.
Or or or.
Well, a slow gradual type ramp.
Yes, I guess am I willing to go at it alone we absolutely expect growth.
Slide 20.
We are seeing.
Definite pickup in interest.
Thank you.
And as we said we wanted to see if there were seeing growth in our part sales.
And.
Net sales continued to be very strong, particularly in Latin America, and some of the other developing countries.
So we feel good about growth.
And I think that's where we'll leave that for now.
Okay very good thanks, guys.
Okay.
And then.
Last question.
Operating cash flow for fiscal year, what do you think it will be positive.
I think it will be close to what we had in fiscal year 19.
So I would say no fiscal year 19 was a minus 2.6 million I think we'll be close to that.
We'll be close to that great. That's very helpful. Okay.
That's it from me thank you.
Thanks Mark.
And we'll take our next question caller. Please remember to state your name and question.
Good morning, Eric Landry VML capital can you hear me.
Hi, Eric Yeah, we sure Dan.
Okay great.
So grain so P.M.T. was down 5.2 million I, just like to sort of.
Piece together.
The drivers of that so.
Oh, there was some comments that last year. Some of my wafer fab was 7 million and currently.
Or at least in the in just finished quarter. It was running at about a million a month. So that's a delta of minus 4 million.
And I'm, assuming that you're you're PMG business grew quite well so that made up.
Probably of a portion of that and also that the other legacy power to business was also growing so.
I'm kind of surprised that the delta was was $5 million down.
I would have thought something in that.
Maybe the $1 million to $3 million down so could you help me understand what.
I guess what.
Send a downside rather than than a small number.
Yeah, it and looking at quarter over quarter comparisons to Q4 was the largest quarter four for four gram or the.
Silicon wafer fab market.
And that was down close to 4 million just in the quarter.
Right.
Also the.
Also the legacy to business, although we had some product lines that were up others, others that were down surprisingly lower than we thought they would be.
And then the increase in the CMG business, although bookings went through the rough was a strong quarter. It wasn't enough in the quarter to make up the downturn specific to that quarter. However for the year, we completely made up the downturn in the semi fab market and certain to legacy product lines that were down so like we talked about at the beginning of the year I was very confident that the growth in.
DMG would offset the sales growth decline in the in the wafer fab market and that's what we were able to do.
So are you, saying that there were well I guess the surprise was that the legacy power to business.
Good.
Grower wasnt, even flat so that the largest piece of this segment.
Which is probably somewhere just under $100 million.
It was little bit of a negative surprise in the quarter is that am I kind of reading that right.
Yes.
The print business.
Has increased in Q1, so far.
It just was timing of certain orders so the biggest miss or the surprise was the decline in certain product lines of the two business in Q4 was much more than we thought.
And the increase in PNG could that make that up.
Okay, and then we'll get those orders and those shipment.
Q1.
So you're saying that the.
The legacy power to business, which I am guessing somewhere a little bit less than 100 million on an annual basis, you're saying there were some orders that were pushed out or that they didnt materialize like unit volumes.
Both so it was timing of the order some were pushed out some.
Delivery from the supplier just a combination of a number of things.
Mid Q4 for the two business the legacy to business was down more than we had expected and we could make that up along with the wafer fab business with the CMG growth.
Okay and I think you also referenced that there were some push outs in your new high growth PMC business.
No.
No okay.
Okay, So you're referring strictly to the legacy power to business Thats, where the negative surprise was.
And.
I guess im still not clear that those were pushed out or just.
Business that didnt happen.
Both so we expected some orders the timing of some centers that MRO and repair business.
Hey that need the product Pill Hill Q1.
We thought they were going to take in Q4 and that didn't happen. So that's why the numbers I would say everywhere.
Okay I got you okay.
But would you still consider that legacy power to business to be doing okay sort of status quo.
Little up little down Yeah, you know it.
Right, so flat to plus or minus 3% growth what's been consistently doing for the past three years working at a doing the same in that's why 20 units.
Yes, it's obviously a great business model, but it's at Nada not a growth business its a.
MRO repair business, but it's a no brainer gels and if we can keep that flat.
Finally in good shape.
And there is no reason to believe that won't be the same in 2020 than it was in 19.
Yeah, we're forecasting a small single digit growth actually here. Okay. Great was there any issue with any orders that you are.
Shifting to clients of wild way.
Yes.
Well I mean, there there was a slowdown when may have stopped if they turned it back on and.
We had strong shipments in the fourth quarter to customers supporting wild way.
Ndtv.
The China market was actually pretty strong in Q4.
But now that they've.
Remove that to stop.
Things are back on and we're having a good Q4 and it's continued into Q1.
Okay, great. Thanks, Greg.
When do you have mentioned that carry you had to do with some inventory issues with that on <unk>.
Ken Kenny scanners Mason, mostly.
No that's great.
Hi, there closely at risk tenants are key to sit down and we did have a couple other different brands.
Vast majority of which the tissue et cetera.
Yes, Oh baby.
So basically you're you're seeing that theres been pretty widespread deflation in the price of.
Pre owned equipment in that space.
All their systems and new it systems are holding their price very very well and this is equipment that we bought sometime ago again America. She decided that he just that there is no when price of theory operation in some of the other category at the smaller categories and you know kind of the same things, where we might like products that we track components and you know.
Almost matched with beginning of of our launch in healthcare and we just didnt little quick enough. So those are the kinds of changes that we put in place to make sure that when we buy equipment.
We're slipping it within the night.
Any day range that we don't have the ongoing issue.
Does that imply any type of deflation for two prices.
No. It doesn't really have much to do active prices. It really is the older. You know scanners that are causing us to my problem.
Okay.
Is the GE in beta testing entered is still on the bench is there in the Hawks.
We've run why not a scanner that John and I and the assets that we are still in development and so its not out in the field. It is not in a customer data side it'll be a while before we put it into a customer site.
I thought the guidance was last time, we talked that you had hoped to do that by June .
Did I get that wrong.
It didn't have a beta in place in June .
So that they don't went well and now we're back.
Actually I'm, a box and we're working on.
Making sure that we have all the IP issues worked out that we have sources for all the components and that we can make them do and make it solid and then putting out into customer beta sites, but we did accomplish our goals have been running data that I am yet in June we absolutely succeeded on that front.
So is the June of 2020 date still the target or has that been pushed back.
It's still our target.
And we're working very hard to accommodate that but we want to make darn sure that we get it into the customer sites and they are long enough to validate any potential issues before we do a full release.
Okay I just have a couple more here so real quick when you I think 40% margin in health care has sort of been the number that's been talked about.
Any idea what if indeed, that's accurate what type of to volume that requires to get to that level.
He obviously more than what were selling today and.
I would say you know to get to a 40% it's not a lot I mean again, a big part of our issue as I mentioned in the call had to do with more of a manufacturing charges and they you know issues related to the systems, we just talked about.
So I would say that you know if we.
But maybe double a little bit more than doubled our two sales that will be a and then control. The other aspects of the gross margin will be fine, we'll be sitting close to that 40% Mark.
So thats doubled from the annualized.
Most recent quarter or doubled from that.
Overall 2090 level.
Several of them overall 2019.
Okay, Great just to just two more here Bob.
I think if I have that correct you mentioned, 30.5%.
It would be the.
The Opex had all the charges not been in there, which requires little bit less than 51 million do I have that accurate.
That's correct.
Okay.
And I assume that has significantly less.
Incentive comp in there then in 2018 right.
That's correct.
Okay. So if you guys you know managed to grow I don't know 567, 10% is that is that likely to flex back up by a million and a half 2 million somewhere in that area.
Well, it's it's like it's likely to go up because it was and what you just stated the incentives go up as as profits go up and our plans are based on.
Targets and the percentages go up when the profits go up on the targets.
In addition, we have some merit increases that we have in there, but I don't expect a huge increase but those would be the two biggest.
Okay.
Thanks last one Ed you'd mentioned in presentations before and I don't know if I have it exactly right but.
I think its a 175 million boxes sort of the magic number now with your cost structure, where it is where half of every gross profit dollar drops too.
Operating income.
Do I have that right.
No it really won't be half of it really is.
Gross margin product Oh are we bet incentives and other things that that go up as you just mentioned.
That's certainly.
Our plan is in the <unk> and <unk>.
Excess of that number and if we make the plan.
It would be profitable next year lets put it that way.
Okay. Thanks, Thanks for letting me to ask any questions.
Thanks, Eric anything right.
Oh, right and we do have an additional question in queue.
Caller, please remember to state your name and question.
[noise].
At its Kevin Rendino from 180 degree capital very helpful. Having all the managers speak about their business I'm not sure that's really the problem I.
And this is as much of the independent directors to listen to.
And I certainly wanted to get your opinion and an answer on this but.
The lack a consideration for the shareholders given the dual split class is pretty well known.
From my perspective, it violates every last role of what proper corporate governance should be.
You know over the last 19 years, you've generated minus 50% return for your shareholders.
And yet you're hiding behind the voting interests instead of being accountable. If I was an independent director, who oversaw the governance and how you deal with this company I would be.
A shame that would either make changes or I'd quit.
I certainly recommend they do the right thing and create a proper voting structure.
Onto the other than that there is underperformance is going to go on forever. So Ed what's the reason for having the dual structure in your words banks.
Wow, it's part of the history of the company. It was put in place a 1983 and and you know its remainder ever since and the board supports it we appreciate your opinion.
And I'm sure they will.
They have to heart so far.
We haven't decided to make any change.
Expect a letter from us to the board for the record and possibly even a public letter. Thanks.
Okay.
All right and we do have a couple of written questions that have come in.
The first is could you describe please I M E S goodwill impairment change is more accounting procedure or.
We really lost this value.
Yes. It is.
And accounting procedure, and we don't feel that we've lost any value in I am yes were higher on the organization in health care than we've ever been.
Okay and my question was from Alex let Vince a with a second question as well.
What is the current amount of cash in U.S. and what is the threshold for starting repurchase of shares from market.
I'll, let Bob Oh, you about the cash in the U.S.
The cash in the U.S. as of the end of fiscal 2019 was 20.7 million.
All right.
Right. So far we of course, just had a board meeting again, we discussed the the cash position and the board is concerned and their priority.
Is as you saw we used about $10 million or the cash last year.
And it's it's possible where the increase in inventory for PNG and health care that.
We might use $10 million or the cash again this year.
So the immediate concern is that we have cash to fund the business in the meantime.
One CD Dewbre two doesn't make a complete and we're already looking at plans to develop a third too.
In the developed the CD to take somewhere from three to five years and $5 million minimum.
And.
So we really want to have cash reserves to develop our healthcare strategy to its fullest.
And thats the board's priority at the moment.
Alright, and I'm seeing that we have no additional questions. So Ed I'll, just turn the call back to you.
Okay, well. Thank you again for joining us into your ongoing interest in Richardson electronics.
We look forward to discussing our fiscal 2021st quarter results with you in October .
We encourage you to attend our annual shareholder meeting or visit us anytime if you're in the Chicago area.
It's a fire easier to understand the story here when you can see our state of the art manufacturing and engineering facility and we love the show to you.
So come and visit us Thank you very much.
That concludes our conference. Thank you for using 18 Te event conferencing enhanced you may now disconnect.
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