Richardson Electronics Ltd (RELL) Q3 2024 Earnings Call Transcript Highlights: Navigating ...
Net Sales: $52.4 million in Q3 FY24, down from $70.4 million in Q3 FY23.
Gross Margin: 29.5% in Q3 FY24, down from 31.8% in Q3 FY23.
Operating Income: $1.0 million in Q3 FY24, down from $7.6 million in Q3 FY23.
Net Income: $0.8 million in Q3 FY24, or $0.05 per diluted share, down from $6.3 million, or $0.44 per diluted share in Q3 FY23.
Backlog: $147.7 million at end of Q3 FY24, down from $150.7 million at end of Q2 FY24.
Inventory: Decreased by $4 million in Q3 FY24.
Cash and Investments: $18.9 million at end of Q3 FY24, down from $22.8 million at end of Q2 FY24.
Dividends: Paid $0.8 million in Q3 FY24, with a declared quarterly dividend of $0.06 per share for Q4 FY24.
Debt: No outstanding debt on $30 million revolving line of credit.
Capital Expenditures: $0.4 million in Q3 FY24.
GES Sales: $11.5 million in Q3 FY24, up 342% sequentially from Q2 FY24.
PMT Sales: Decreased 33% from $46.8 million in Q3 FY23 to $31.2 million in Q3 FY24.
Healthcare Sales: $3.1 million in Q3 FY24, up 29.6% from Q3 FY23.
Canvys Sales: $6.6 million in Q3 FY24, down from $9.7 million in Q3 FY23.
Release Date: April 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Richardson Electronics Ltd (NASDAQ:RELL) returned to profitability in the third quarter with sales increasing 18.7% sequentially.
Strong demand for ULTRA3000 from new and existing wind customers drove higher Green Energy Solutions (GES) sales.
The company experienced a $4 million sequential decrease in inventory, reflecting improved working capital levels.
Richardson Healthcare sales increased by $0.7 million compared to the third quarter of fiscal 2023 due to higher CT tube and parts demand.
The company has a strong balance sheet with nearly $19 million in cash and no debt.
Negative Points
Net sales for the third quarter of fiscal 2024 were down compared to the prior year's third quarter ($52.4 million compared to $70.4 million).
Sales to semiconductor wafer fab customers declined $11.5 million during the quarter.
Consolidated gross margin for the third quarter decreased to 29.5% of net sales compared to 31.8% in last year's third quarter.
Operating income for the third quarter of fiscal 2024 was significantly lower than the third quarter of the previous year ($1.0 million versus $7.6 million).
Canvys sales decreased by $3.1 million, primarily due to short-term customer pushouts in North America.
Q & A Highlights
Q: What drove the sequential jump in GES business increase this quarter? Was it a specific large project or several different projects? A: Gregory Peloquin, Executive Vice President - Power and Microwave Technologies Group, explained that the increase was due to a larger customer base, particularly for the ULTRA3000 business. They shipped to over 12 new customers, as the product becomes more accepted in the market. The increase was also due to CapEx approvals for 2024, which led to more orders being placed.
Q: Can we expect the same magnitude from Phase 2 of the ULTRA3000 business as from Phase 1? A: Gregory Peloquin indicated that Phase 2 could be the same or slightly higher based on customer forecasts. They started with the four largest owner-operators of GE wind turbines, and the balance of smaller groups could amount to a similar volume.
Q: What kind of visibility do you have beyond this quarter for GES business, and what gives you confidence in the sequential growth increase continuing in the fourth quarter? A: Gregory Peloquin mentioned confidence based on deliveries, backlog, and inventory available to meet demand. The customer base has been meeting their forecasts, which is a positive sign for continued growth.
Q: With expected growth, should we expect inventory to continue to decline, stay flat, or even increase in the coming quarters? A: Gregory Peloquin expects sales to increase and inventory to go down for GES. Wendy Diddell, Chief Operating Officer, added that the entire management team is focused on reducing inventory, and while they can't guarantee a decrease, it is their intent to make it happen.
Q: What is the current state of the semi-cap equipment business, and do you expect calendar '25 to be a record year for revenues? A: Edward Richardson, CEO, confirmed that customers expect calendar '25 to be a record year for the semi-cap equipment business. He anticipates revenues to be higher than ever, potentially over $40 million, with good margins due to proprietary products.
Q: What is the status of the relationship with Progress Rail and Wabtec, and what are the expectations for shipping starter modules? A: Gregory Peloquin mentioned that they have met all commitments for initial orders for prototypes with Progress Rail and are now in the design-in phase with their customers. They expect to start shipping orders for diesel locomotives in the fourth quarter of FY25.
Q: Can you discuss the quality of the inventory and the ability to deliver it at cost on the balance sheet? A: Bob Ben, CFO, stated that they feel very good about the quality of their inventory, with a total reserve of about $5 million on $113 million of inventory. Most of the inventory is finished goods, and they review every product at least once a year.
Q: Why hasn't the company been aggressive in buying back its own stock given the current valuation? A: Edward Richardson explained that the company discusses the possibility of buying back stock at every Board meeting. However, they are currently focused on maintaining positive cash flow and reducing inventory. Past experiences with stock buybacks have not been favorable, but they will consider it once they are cash flow positive.
Q: Do you have plans to develop proprietary products around Ideal Power's bidirectional wave distributor technology? A: Gregory Peloquin confirmed that they have plans to develop proprietary products using Ideal Power's technology. They are already discussing a couple of products for one of their designs and are excited about the potential applications in various markets.
Q: What is the average selling price (ASP) for the starter modules for Progress Rail and Wabtec, and how important could the relationship with Ideal Power be for the company? A: Gregory Peloquin could not share cost or resale information due to NDAs but indicated that the relationship with Ideal Power could be worth millions of dollars as they develop new products for high-growth markets.
Q: Could new product applications from Ideal Power change the trajectory and perception of the company to be valued as a growth company again? A: Gregory Peloquin believes that the model with Ideal Power and other technology partners, along with engineered solutions, will help smooth out the cyclicality of the semiconductor cap equipment business and contribute to the company's growth.
Q: What is the status of the electric locomotive business and its significance for the company? A: Edward Richardson mentioned that the electric locomotive business is rolling out slower than anticipated, but the opportunity remains significant. The company is working closely with customers' engineering teams and is an integral player in their supply chain.
This article first appeared on GuruFocus.
