RELL - NASDAQ

Ladies and gentlemen, thank you for standing by. Welcome to Richardson Electronics Earnings Call for the Fourth Quarter of Fiscal Year 2024. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Ed Richardson, Chief Executive Officer. Please go ahead.

Good morning, and welcome to Richardson Electronics Conference Call for the Fourth Quarter of Fiscal Year 2024. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power and Microwave Technologies Group, which includes Green Energy Solutions; and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. I'd also like to remind you that we'll be making forward-looking statements that 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 2024 was a difficult year for Richardson Electronics due to challenging conditions within our semiconductor wafer fab market and program delays across several of our Green Energy Solutions opportunities. Economic uncertainties and higher interest rates also contributed to lower sales in certain segments of our business. While these trends impacted sales and profitability during the year, our team is focused on improving gross margins, reducing inventory levels, strengthening our strong balance sheet and investing in our long-term strategic growth opportunities. In fact, the fourth quarter marked the second consecutive quarter, where we experienced reduction in inventory and the first year-over-year decline in inventory since fiscal 2017. In addition, the company generated $7.2 million in operating cash flow during the fourth quarter, and we ended the year with no debt, and $24.3 million in cash and cash equivalents. While it was a tough year for sales growth, our business remains strong, and I'm pleased with the direction we're headed. The strategies we're pursuing include increased engineered solutions, leveraging our distribution partners and global customer base and supporting opportunities such as green energy. During fiscal 2024, key successes included achieving a significant milestone in the number of wind turbine generator modules sold, expansion of our global customer base in Green Energy Solutions market, and the launch of starter modules used to replace lead acid batteries in locomotives. In fact, within our GES business, we now offer multiple solutions for lead acid battery replacements and several OEM turbines compared to the ULTRA3000 last year. Greg, Wendy and Jens will provide more details on our business unit performance, including an update on our growth strategies, new product development, program wins and expanding customer relationships. First, I will turn the call over to Bob Ben, our Chief Financial Officer, to review our fourth quarter and fiscal year 2024 financial performance.

Thank you, Ed, and good morning. I will review our financial results for our fourth quarter and fiscal year 2024, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. A reconciliation of non-GAAP items to the comparable GAAP measures is available in our fourth quarter fiscal year 2024 press release that was issued yesterday. Net sales for the fourth quarter of fiscal 2024 were $47.4 million, compared to net sales of $58.8 million in the prior year's fourth quarter. PMT sales decreased by $1.0 million from last year's fourth quarter, primarily due to lower sales of RF and microwave products. Sales for GES declined $10.6 million from last year's fourth quarter, which included approximately $11 million of EV locomotive battery modules that did not recur in fiscal 2024. Canvys sales decreased by $0.5 million, primarily due to economic conditions impacting medical OEM sales in North America. Richardson Healthcare sales increased by $0.7 million or 24.3% compared to the fourth quarter of fiscal 2023, as a result of higher systems, CT tube and parts demand. Backlog totaled $147.8 million at the end of the fourth quarter of fiscal 2024 versus $147.7 million at the end of the third quarter of fiscal 2024. The sequential increase was in GES, partially offset by slight decreases primarily in PMT and Canvys, which remain healthy. GES backlog of $42.3 million increased by $5.5 million since the third quarter of fiscal 2024. Consolidated gross margin for the fourth quarter was 31.1% of net sales, a significant improvement compared to 27.9% in last year's fourth quarter. All of our business units had higher gross margin in the quarter versus prior year. PMT's gross margin increased to 31.1% from 29.0%, due to a favorable product mix. GES gross margin increased in the fourth quarter of fiscal 2024 to 25.5% from 23.4% in the prior year's fourth quarter due to product mix. Healthcare's gross margin increased to 32.5% in the fourth quarter of fiscal 2024, compared to 23.7% in the prior year's fourth quarter, as a result of an improved product mix and lower scrap costs. Canvys' gross margin increased in the fourth quarter of fiscal 2024 to 33.5% from 32.9% in the prior year's fourth quarter because of product mix. Operating expenses were $14.8 million for the fourth quarter of fiscal 2024, compared to $15.0 million in the fourth quarter of fiscal 2023. The decrease in operating expenses resulted from lower incentives expense, partially offset by higher R&D expense. The company reported an operating loss of $0.1 million for the fourth quarter of fiscal 2024 versus operating income of $1.4 million in the fourth quarter of last year. Other expense for the fourth quarter of fiscal 2024, including interest income and foreign exchange was less than $0.1 million, compared to other income of $0.1 million in the fourth quarter of fiscal 2023. Income tax benefit was less than $0.1 million, and non-GAAP income tax benefit was $0.4 million for the fourth quarter of fiscal 2024 versus an income tax benefit of $2.6 million and non-GAAP income tax benefit of $0.2 million in the prior year's fourth quarter. The fourth quarter of fiscal 2024 included $0.4 million for an R&D tax credit for the current fiscal year and a one-time total credit of $0.5 million for fiscal years 2020 through 2023. In addition, the fourth quarter of fiscal 2024 included $0.9 million in income tax expense for the establishment of an Illinois state tax valuation allowance related to the limitation of NOLs. Net loss for the fourth quarter of fiscal 2024 was $0.1 million and non-GAAP net income was $0.3 million compared to net income of $4.1 million and non-GAAP net income of $1.8 million in the fourth quarter of fiscal 2023. Loss per common share diluted was $0.01 per share, and non-GAAP earnings per common share diluted were $0.02 in the fourth quarter of fiscal 2024, compared to earnings per common share diluted of $0.27 and non-GAAP earnings per comes diluted of $0.11 in the fourth quarter of fiscal 2023. Turning to a review of the results for fiscal year 2024. On a year-to-date basis, net sales for fiscal year 2024 were $196.5 million, a decrease from $262.7 million in fiscal year 2023. Net sales decreased by $35.6 million for PMT, $24.4 million for GES, and $6.9 million for Canvys, while sales increased by $0.7 million for Richardson Healthcare. Gross margin for fiscal 2024 was 30.5% of net sales compared to 31.9% during fiscal 2023, primarily because of product mix and manufacturing under absorption in PMT, product mix and GES and increased manufacturing under absorption in healthcare, partially offset by a favorable product mix and lower freight costs for Canvys. Operating expenses were $59.5 million for the fiscal year, which represented an increase of $0.8 million from last fiscal year. The increase in operating expenses resulted from higher R&D and salaries expenses, partially offset by lower incentives. Operating income for fiscal year 2024 was $0.3 million compared to an operating income of $25 million for fiscal year 2023. Other expenses for fiscal 2024, including interest income and foreign exchange were $0.2 million, as compared to other income of less than $0.1 million for fiscal 2023. Income tax expense was $0.1 million and non-GAAP income tax benefit was $0.3 million for fiscal 2024. The income tax expense of $0.1 million for fiscal 2024 resulted from the $0.9 million establishment of an Illinois state tax valuation allowance, offset by both current year R&D tax credit of $0.4 million and prior year's R&D tax credits of $0.5 million. The income tax expense was $2.7 million and non-GAAP income tax expense was $5.0 million for fiscal 2023. Net income for fiscal 2024 was $0.1 million, and non-GAAP net income was $0.5 million versus net income of $22.3 million and non-GAAP net income of $20.0 million during fiscal 2023. Earnings per common share diluted were $0.00 and non-GAAP earnings per common share diluted were $0.03 for fiscal 2024 compared to earnings per common share diluted of $1.55 and non-GAAP earnings per common share diluted of $1.39 for fiscal 2023. Moving to a review of our cash position. Cash and cash equivalents at the end of fiscal 2024 were $24.3 million compared to $18.9 million at the end of the third quarter of fiscal 2024, and $25.0 million at the end of fiscal 2023. Cash generated of $5.4 million in the fourth quarter of fiscal 2024 was primarily due to decreases in accounts receivable and inventory, partially offset by lower accounts payable. U.S. cash and cash equivalents were $6.5 million at the end of fiscal 2024 versus $5.2 million at the end of the third quarter of fiscal 2024, and $7.6 million at the end of fiscal 2023. Capital expenditures of $1 million in the fourth quarter of fiscal 2024 were primarily related to our facilities and IT systems versus $2.4 million in the fourth quarter of fiscal year 2023. Total capital expenditures were $4.0 million in fiscal 2024 as compared to $7.4 million in fiscal 2023. We paid $0.8 million in cash dividends in the fourth quarter and a total of $3.4 million in fiscal year 2024. In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of $0.06 per common share, which will be paid in the first quarter of fiscal 2025. As of the end of fiscal 2024, the company had no outstanding debt on its $30 million revolving line of credit with PNC Bank. Now, I will turn the call over to Greg, who'll discuss the results for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. While our fiscal 2024 fourth quarter results for both PMT and our GES strategic business units were challenging, we remain optimistic about the future, both short and long-term. First, looking at GES with the bookings and backlog being a strong indicator of the health of a business, we were excited to see Q4 was our strongest booking quarter this fiscal year, growing our backlog 16% over Q3. In addition, our bookings in Q4 FY '24 were up 70% versus Q4 FY '23. Strong bookings include sales to new customers for recently introduced products, including our ULTRAGEN starter modules for locomotives and pitch energy modules and new wind turbine platforms. The increase in bookings led to a higher backlog in GES during the fourth quarter and gives us confidence that Q1 FY '25 will show sequential growth. In addition, I'm pleased to report that our gross margin in GES improved over the previous year. Looking at our results in more detail. After showing revenue growth in our Green Energy Group in Q3, our revenue decreased to $4.7 million in the quarter. We had a number of Q4 pushouts into Q1 FY '25 that negatively impacted our shipments during the quarter. However, as we predicted, the second half of FY '24 was up over 131%, with revenues of $16.2 million versus $7 million in the first half of the year. Our GES growth strategy is still somewhat in its infancy stage. And as our new products mature, we will see sales fluctuate from quarter-to-quarter. On the positive side, for FY '24, we had sales of $23.2 million with numerous new customers, products, and technology partners added throughout the year. The team continues to do a good job identifying customer requirements, establishing design and manufacturing capabilities, and launching beta site testing. In a short amount of time, we have designed numerous products, received several patents and developed a growing list of key customers. All of this will help develop a more predictable quarterly revenue stream. Last year, GES benefited from several large projects, including prototype electric locomotive development and large-scale rollout of pitch energy modules to replace lead acid batteries with major owner operators of GE wind turbines such as NextEra, Enel and Invenergy. In FY '24, we saw the market share grow with an agreement to outfit 1,000 diesel locomotives with our patent-pending starter module. In addition, our pitch energy modules were selected by four new wind turbine platforms, including Suzlon, Senvion, Nordex and SSB. We now have over 18 wind turbine owner operators purchasing numerous products from us, and we are expanding globally with the rollout of the new wind turbine platforms in Europe, Latin America and Southeast Asia. Our customers repeatedly tell us that we have maintained our market share for our core GES power management applications, suggesting the slowdown in shipments in FY '24 was primarily a timing issue. In fact, our customer pipeline and the number of opportunities continue to increase, as we take advantage of significant energy transformation projects globally. Turning to Power and Microwave Technologies, or PMT, which includes the Electron Device Group, EDG, our legacy tube business and Power & Microwave Group, or PMG, sales decreased 3% from $31.5 million to $30.5 million in the fourth quarter. This decline was primarily due to the slowdown in our semiconductor wafer fabrication equipment business. However, we saw semi-fab demand increased during the quarter as we experienced higher shipments and bookings. In fact, Q4 FY '24 was our largest revenue quarter this year for the semi wafer fab business, up 71% over Q3. We expect to see year-over-year growth for semiconductor wafer fabrication equipment business in FY '25 based on customer feedback and market predictions. On the RF and wireless side, we are extremely happy to see a book-to-bill of 1.38 going into FY '25. Our combined GES and PMT backlog remains strong at over $102 million. Given our inventory position, we'll continue to ship many incoming orders from stock, as we were able to do in Q3 and Q4 of this past fiscal year. This resulted in a reduction of inventory, which will convert to cash in the coming quarters as receivables are collected. We remain focused on managing our business to support customers' needs when they are ready. Having inventory on hand allows us to capture and maintain market share. We collaborate with both our customers and suppliers and leverage our customers' forecast to help us strategically invest in inventory and ensure we can meet our customers' needs. A key to our growth strategy is selectively expanding our global technology partners. In Q4, we added technology partners who fill technology gaps in our offering and support our growth strategy. Often these partnerships, we identify opportunities for new products that we design, manufacture and test in-house. This increases the value we provide customers and allows us to capture more revenue, while expanding and diversifying our customer base. These long-term supplier relationships are extremely strong and when appropriate, we work with them on strategic purchases to maintain proper inventory levels. We negotiate special payment terms, stock adjustment privileges, and shipping schedules to help improve cash flow. We continue to invest in our infrastructure to support our growth. We are bringing on talented engineers, both field engineers and design engineers and making investment to enhance our design to manufacturing capabilities. Our growing in-house design, engineering and manufacturing teams are doing a great job, supporting increased demand for current products and new product designs. With this team and our field sales engineers, we will continue to identify, develop and introduce new products and technologies for green energy and other power management applications, along with microwave applications. Going into FY '25, we remain excited about the opportunities with our PMT and GES businesses. Bookings in Q4 FY '24 exceeded bookings in Q4 FY '23. We did not lose any market share in FY '24, in fact, we gained market share with our current customers and grew our share with the addition of new products and customers. With the positive outlook in the semi fab market, key customers forecasting growth in FY '25 and our technology partners continuing to drive our business and the new global business model, we have many reasons to be excited about our growth strategies and the future of our business. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power and energy, RF and microwave and green energy markets. We have developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions capabilities. Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities when they arise. The execution of our strategy has never been better. There's no question, our customers and technology partners need Richardson products and support more than ever. And with that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare.

Thanks, Greg. Good morning, everyone. Fourth quarter sales for the Healthcare division were $3.5 million, an improvement of 24.3% compared to the fourth quarter of last year and a $400,000 or 13.3% increase over the most recent third quarter. CT tubes, parts and system sales were up versus the prior year's fourth quarter. During the quarter, we continued to benefit from sales of our repaired Siemens Straton

Thanks, Wendy, and good morning, everyone. Canvys engineers, manufacturers and sells custom displays to original equipment manufacturers across global industrial and medical markets. Canvys reported revenues of $8.7 million in the fourth quarter of fiscal year 2024, a modest decrease from the $9.2 million in the same quarter of the previous year, about a 31.8% sequential improvement from the $6.6 million in sales during the third quarter of fiscal year 2024. The sequential improvement in sales for this quarter was driven by recovering demand within the North American market. In fiscal year 2024, sales dropped by 17.5% to $32.4 million, largely due to pushouts earlier in the year from our North American customers. We ended the quarter with $42.9 million in backlog, providing a strong base of business for fiscal year '25. A significant achievement in the fourth quarter was the improvement of our gross margin. Our gross margin as a percentage of net sales rose to 33.5%, up from 32.9% in the fourth quarter of fiscal year '23. Our fiscal year 2024 gross margin as a percentage of sales increased to 33.8% from 31.5% in fiscal year 2023. The increase highlights our unwavering commitment to operational excellence and stringent cost control. During the quarter, our firm received orders from both repeat and first-time medical OEM customers. Some of these applications include, systems for polymerase chain reaction or PCR, pulsed field ablation, patient monitoring, medical device control, microsurgery, dental displays and robotic-assisted surgery. These new design wins demonstrate our dedication to delivering solutions that address the changing demands of our medical customers. Additionally, they showcase our capabilities to build and maintain long-term relationships with current and prospective customers who demand high standards, ensuring our ongoing expansion within this crucial industry. In fact, today, we serve more than half of the top 10 global medical device companies. We also provide solutions for numerous commercial and industrial purposes. Our products are used in control rooms, train cockpit, as human machine interface for large-size printing machines, ticket vending machines and packaging machines. Further, we secured a sizable order for all in once used in connection with product dispensers in retail environments. Due to significant market uncertainties, including economic challenges, regulatory changes and other factors, we recognize that many of our customers have adopted a conservative stance with respect to new product development and inventory. Nevertheless, we remain cautiously optimistic that customer demand will continue to improve in the upcoming year. We are noticing encouraging signs and expect a steady recovery if the market environment becomes more stable. What we hear directly from our customers reinforces this belief. Another key indicator is the increased number of projects our teams are working on. These new opportunities underscore growth within the markets we serve and the recognition and acceptance of our products and services. While our sales organization stays focused on new opportunities, I remain focused on executing our strategic initiatives to drive sustainable growth and create long-term value for our shareholders. I will now turn the call back over to Ed.

Thanks, Jens. While it was a tough year for Canvys, your strong backlog and a pipeline of new opportunities with key medical OEMs, supports our confidence in a return to growth in FY '25. As a result, we believe Canvys will continue to produce exceptional operating performance in the future. Despite headwinds from uncertain economic conditions and higher interest rates, we're optimistic and committed to our long-term growth strategies. The list of our opportunities within our Green Energy Solutions business unit continues to grow. While the projects have taken more time to develop than we initially thought, we know we are making positive impression on growing list of customers in the global wind energy market, transportation and power management. None of the opportunities we've discussed over the past several quarters have been lost, and we continue to leverage our unique market position with leading technology partners to drive interest in our engineered solutions. A key component to our growth is to cultivate new opportunities within our green energy business, by leveraging our core engineering capabilities and relationships with our technology partners, we're expanding our product lines into a large, fast-growing global markets. Over the past two years, we've announced wins on large global platforms within the wind, transportation and power management markets, and we believe each new platform supports meaningful multi-year revenue opportunities. To support our growth strategies, we believe it's critical and important to maintain a strong balance sheet. Throughout fiscal 2024, we focused on improving our working capital levels and converting our inventory to cash. I'm pleased with the progress we made this year. We continue to closely manage our balance sheet to provide us with the flexibility to support our growth initiatives. We believe investing in growth produces the greatest return on investment compared to the uses of capital at this point. As our growth strategies scale and we're further solidifying our operating cash flow, we look at additional opportunities to allocate capital. While sales mix will impact gross margin on a quarter-to-quarter basis, we believe our compelling financial model is positioning to produce operating leverage as sales growth. We're starting to see early indications of improved demand within the semiconductor wafer fab markets, which combined with our existing growth strategies support our optimism that we will return to year-over-year sales growth and higher profitability in fiscal 2025. On behalf of everyone at Richardson Electronics, I look forward to updating you on the progress we're making, and we'll be happy to answer your questions.

Thank you. [Operator Instructions] Our first question comes from Bobby Brooks with Northland Capital Markets. Your line is open.

Hey, good morning, guys. Thank you for taking my call.

Hi, Bobby.

Good morning. So in the third quarter, something that you guys had talked about and you mentioned a bit in the prepared remarks was just a healthy broadening of customers wanting the ULTRA3000. And in the third quarter, GES revenues were really strong. Obviously, GES revenue stepped down sequentially. So I'm just curious to hear if that broadening trend seen in the third quarter was extended into the fourth quarter? And could you quantify that for us at all? And then maybe just talk about if that trend continued, then what was the driver of the sequential step down in GES?

Sure, Bobby. Good to hear from you again. Having fluctuations from quarter-to-quarter in both revenues and bookings is very, very common when you're introducing new products through the NPI process and virtually a business start-up. So we're seeing that, that's common. But if you look at the fiscal year, what keeps us excited in those numbers, we've added a number of new products and a number of new customers throughout the year. So in Q2 -- Q1, Q2, that became revenue in Q3. And so, we had a large increase in bookings and actually year-over-year growth coming out of a record year. And then throughout the year, we've added over 20 new owner operators buying wind turbine pitch energy modules. In addition to that, throughout the year, we've added four new platforms with Suzlon, Senvion, Nordex and SSB. We also designed and developed with two of the largest locomotive manufacturers start -- modules, one ULTRACAPACITOR based, one lithium iron phosphate based, and some of the large bookings you saw in Q4 were from that. So you're going to see fluctuations in both revenues and bookings. We had strong bookings in Q2, which turned into shipments in Q3. We had excellent bookings in Q4, and that's transitioning into what's looking at a very strong Q1 FY '25, Q1. So that's kind of the premise of where the growth comes and why it fluctuates. We're adding more and more new customers that are buying this product as it becomes well known in the very niche market of wind turbine manufacturers. And then we continue to add new technology partners and new products to keep that pipeline going. But until it gets to more of a consistent revenue stream, we're going to see fluctuations quarter-to-quarter. But the end result is $23.2 million in revenue, margins up, profits are up, strong backlog of nearly $50 million going into Q1, four new pitch energy platforms with four new wind turbine manufacturers, which, by the way, with those like we are with GE, we are exclusive and adding new products to our very large EV and diesel locomotive manufacturers. Again, as I mentioned in starter modules, we also have IGBT inverter modules that we're working on have small orders for those, both in the wind turbine market and the electric locomotive and diesel locomotive market. And then to tie one last thing out of that, Bobby, and we talked about that when you're here. We're now expanding that globally. So this has mainly been North America is where we launched it. But as of next week, we have beta site testing going on in Italy and France. And as you already know through the press release, we're nearing the end of the beta testing with Suzlon in India. And if you look at these manufacturers, Suzlon has 12,000 turbines worldwide, Senvion has 4.000, Nordex, close to 2,000, and the SSB is about 3,500. So we haven't touched the surface as far as I am concerned. And once we get these products introduced in a more consistent revenue stream, you're going to kind of see these upticks from a positive point of view in revenue and bookings, but also kind of updating in quarter-to-quarter.

Got it. That's really good to hear. And then just switching topics to PMT. Greg, you mentioned that the sales in the wafer fab were up 71% sequentially, but then PMT sales overall stepped down sequentially. So what was weaker within PMT that offset that 71% increase or maybe just that 71% increase in the semi-wafer fab stuff was off of a very small base in the third quarter.

Yeah. I mean you get numbers like that of 171% because as compared to the prior year. And as you know, in the prior year, it was a record year for those products. So comparatively, year-over-year that they were dealing with that comparison. And the fourth quarter was our lowest year in terms of revenue and bookings for semiconductor wafer fab companies. And we just had a stronger, as it comes to pick up their forecast in that backlog, that's why you're seeing your numbers like that, but it's a comparison, but it's quarter-over-quarter growth in bookings and billings.

Just to clarify, yes, Q4 was stronger than Q3 in revenue for the semiconductor market. And to your point, though, it still was still considerably lower than the run rate it was in FY '23.

Great.

Okay. So well, it was that -- that nice sequential growth was because it was off of a small base and what were...

Exactly.

Okay. All right. I’ll return to the queue. Thanks, Bobby.

And the next question comes from Anja Soderstrom with Sidoti. Your line is open.

Thank you for taking my questions.

Good morning, Anja.

Hey. A follow-up on this wafer fab. Do you still expect the uptick in fiscal 2025, or do you see that maybe building up slower than you previously anticipated?

Yeah. According to the customers and then some of the market reports, which all of you see also, the real uptick that they're suggesting will be in calendar year 2025 or our second half of our FY '25. So we're going to see growth. As Bobby mentioned, off a smaller base in Q1 and Q2, but the real uptick getting back to some normal numbers from the past will be in calendar year 2025.

Okay. Thank you. And just like the margin, it seems like that was helped a lot by product mix. And last year was a little bit pressured, I think, by the prototype in the -- for the locomotive prototype you shipped. Can we expect something similar to occur in the coming quarters or is this margin sort of sustainable from here?

Yeah. The margins we make are obviously stronger on products we design, manufacture and test and lower on products like technology partners, where we're designing in their components into customers' applications. So if we -- as the uptick grows in our engineered solutions capability, that margin will be maintained. And as we just talked about, we're expecting both Lam and our Green Energy, Engineered Solutions to grow quarter-over-quarter and year-over-year in FY '25.

Okay. And then in terms of inventory, you've been working that down, but it seems like you need to keep some inventory for strategic purposes. How should we think about inventory going forward? Should we -- do you think that -- should that continue to decline? Or will it start increasing?

Yeah. The inventory itself, we made some strategic purposes because funny how people forget, we were dealing with for almost 1.5 years of supply chain issues where we can get products for 50 to 55 weeks. And so, these infrastructure rollouts, I'll call it, that's my background, is in the RF base station market, but it's a very similar to the wind turbine market. We made a very strategic decision to buy product, so we could support this growth because we, again, as I mentioned before, customers are increasing, new products are increasing. And that's why we were able to have pretty strong bookings in shipments in the quarter, and we expect to see that in FY '25 as the business grows. But yes, we just made a strategic decision, brought that product in, and now we're seeing sales increase. And so that will have a direct effect on lowering our inventory.

What will impact that, Anja is, we still have one significant vendor that is doing last time builds for us because they're going to be exiting manufacturing. So that'll offset, but the team will continue to focus on -- and strongly focus on inventory reduction as we go forward to help offset that other vendors' product line growth. Does that make sense for you?

Yes. Thank you for reminding me of that. That was all for me.

Thanks, Anja.

Our next question comes from P Taylor with ARS Investment Partners. Your line is open.

Hi, Ross.

Thank you. The curse of a first initial. Congratulations, first of all, on converting inventory to cash, that was a very impressive performance in the last quarter, also on beginning the strategic alternative exploration for the medical imaging side. And just generally, how you guys manage the business through what's been a pretty difficult period? If we were to see in the calendar year 2025, a return to and a peak level demand out of your semi-cap equipment company, how much would we expect to see the revenues there drop? It's kind of an inverted question in the sense of how much did revenues drop in that area in 20 -- year fiscal '24 over '23? And given that you carry, I think, high-40s or even 50% kind of operating margins in that space that would I think be a very major driver of what both free cash flow and earnings will be going forward. So what kind of numbers are we looking at being able to get back to as this industry recovers?

Yeah. You're exactly right. The revenue with the largest customer was down $25 million in FY '24 versus FY '23. That was very hard to make up, and that's a strong margin business, because we do manufacture that ourselves and engineering involved. Based on, again, what the customers are saying, they are saying, they expect to get back to FY '23 levels in FY '25. So from there, it's just math, and that has a huge impact on both revenue and profits going forward, I don't know if Bob has a breakdown of what that would mean, but that's kind of what we're looking at for calendar year FY '25.

Calendar year...

Yes, calendar year.

Yeah. Just to clarify, that's calendar year 2025 [indiscernible].

Yeah. So -- and you said the largest customer was $25 million hit. You do have other customers in the space. What do you think the semi cap equipment space as a whole after that's a drag in this last year on the revenue side?

Last year was $40 million, and this year is down in the low what $12 million, $14 million...

$14 million.

Yes, $14 million. So you can see the decline. And they're telling us that by the end of calendar '25, that it's going to be a higher growth rate than it was in '23. So if it exceeds $40 million and the margins are very strong, you can get an idea of what the impact is on our company.

That's hugely powerful. You're looking at it measurable on dollars per share. So looking -- and looking at that, how much did the CT tube business loot or cost us in '24? You were able to see a nice recovery at the end of the year, but still not get back to breakeven. So what was the drag there?

Yeah. We're still right at that $3 million, just right under $3 million.

Okay. So what we're looking at is calendar year '25 could see both a resolution to the CT tube business, either you get back to breakeven and start making money out of it or perhaps it moves to a new home and a significant recovery in the semi cap business, where you're looking at perhaps a mid-$20 million plus increase in revenues at high margins. So really calendar year '25 is setting up to be a pretty exciting year, isn't it?

We think so, for sure.

Yeah. And Ross, you didn't even really factor in all of the programs that Greg mentioned on green energy. Go ahead.

Yeah. One thing I mentioned the number of programs and new products, but let's remember also within the Green Energy Group, about $22 million in that repeat. And we hit every schedule that the end customer asked us, the products that worked great. However, they're still not delivering the actual full electric locomotives until September to their end customer. And then that customer will test it throughout the next six months. And so there's a chance that in FY '26 or the second half of calendar year FY '25, the electric locomotive business that we experienced in that record year in FY '23 will also start coming back, and that's big numbers too. So yes, it's -- there's a lot of things juggling a lot of things and a lot of things have to do with things kind of unfortunately outside of our control. But as a company, we've kept pedal to the metal and got ourselves in a position with new products, new technology partners and have not lost any market share on these products. So when it does come back, we'll be able to support it all.

And one quick question. There's a lot of negative press on offshore wind, but the industry is primarily onshore. Is it not?

Yes. And all of our business is onshore. And yeah, we talk to them, the GEs, the Siemens of the world, and yes, that market or that application is not getting as many legs as they thought. So in the meantime, we have a lot of market share to grab a lot of sand to grab with all the stuff that we've been doing over the last couple of years.

Well, it does look like we're coming out of the jungle. And hopefully, things '25 -- calendar '25, particularly the second half of calendar '25, looks like it could be a real lighted up year. Thank you very much.

Thanks, Ross.

[Operator Instructions] Our next question comes from Chip Rewey with Rewey Asset Management. Your line is open.

Good morning. Thanks for taking my call.

Good morning, Chip.

Hey, guys. The prior question really set up my question really well, because I think the cyclical story in PMT is fairly easy to understand. And let's hope it comes through if it's a quarterly kind of in my mind, who cares. But maybe, Greg, on green energy, it seems to me all of your growth there potentially is into existing aftermarket, meaning you're not selling on an OEM basis. And if you think about the GE model, the aftermarket model, whether it's aerospace or healthcare, it's compelling. And I think one of the things to me that's compelling about it is, even if it's white space growth for you, it's growth into existing aftermarkets for both wind and rail. So I'm trying to get a better understanding of how quickly those sales could grow. The numbers on wind turbines out there are huge in existing locomotives where you could replace the lead acid batteries are huge. So maybe walk through what you think the eventual share of replacement could be? Do you think all of the lead acids will be replaced or some? And maybe why would an operator not replace with one of your solutions, if it seems to be much better on an operating basis? Is there something else that makes the trade-off not work? Again, to me, it seems it's a slam dunk. And if it comes through, it could come through fast. But maybe just talk through what you see '25, '26 on where these sales for the rail and the wind could really come in?

Yes. So the numbers -- you hit it on the head. If you look at the TAM, it's obviously huge with a number of wind turbines globally. However, we started this by -- in my many years of doing this, I always make -- look at the SAM (ph), that's where you can be successful. You have a product that either has a technological or a cost advantage, and we were able to take over that replacement business of lead acid batteries in existing wind turbines. However, each time, we still look at getting into the OEM side of it. And I should add, that is our first OEM business, meaning it's designed into new wind turbines will be with Suzlon. We've worked out with them. We've developed the software. They've got -- in India specifically, they've gotten government approval or financing to produce 1,000 turbines a year, which will have our product in it. So right now, yes, we look at the aftermarket, but there's another play that's come up that we're seeing more and more companies like Vestas or Siemens, who -- many of these companies buy wind turbine farms and they're servicing GE, Suzlon, Nordex and SSB wind turbines. And it's the whole repowered program. And so what they do is kind of like take your old car, when you're in college and just replace everything and get it running. They're making our part standard with that. So when they replace the blades and the UPS and the inverter, they're also at that time replacing our product. So what that told me was, is that, that increased the opportunity in terms of the number of wind turbines that will be either replaced through the aftermarket and then you add on this repowering program, which would include our product. So it's been hard to get what percent of the global wind turbine market, they'll do this, they're all telling us that over time, they want to replace them all, because of the lifetime of these ULTRACAPACITOR batteries will last for the duration of the turbine itself. So a wind turbine is not repowered for about 15 to 20 years. The lead acid batteries fail every 18 months, our product lasts 10 to 15 years. But the real thing that we noticed this year specifically was -- and we say pushouts and delays, it was really capital expenditures. So wind turbines, they have a lot of issues with different parts other than the lead acid batteries. So I don't think they have to borrow money to put in our product, but they definitely have to borrow money to do repowers and to replace and update and fix other products within that wind turbine. And at 8%-plus to borrow money, they've had to be very selective in what they needed to do. So there are some things they needed to fix to keep them going. Ours is a fixed from a profit point of view, meaning the cost of timing a turbine, putting in a lead acid battery, replacing them every 18 months with a highly paid technician, as opposed to going up one time and replacing with ours for the -- pretty much the life of the turbine, that has been kind of put on hold. But again, as we keep saying, we haven't lost any market share, while we're waiting, we're introducing new platforms. But that's kind of the progression of what we're seeing as we learn about this, and I'll call it wind turbine infrastructure rollout to support energy needs of a growing world. Does that answer your question? Or was it...

Very helpful. And given what the power industry is saying about the need for power, probably compelling. Can you give us the same kind of overview on the electric battery and the starter modules for trains?

Yeah. So it's the same scenario where all these companies are trying by 2030 to reach a certain number of having their product, the less emissions. And so, part of that is these -- all these products like wind turbines and also electric trains. We talked a little bit, I think, in the past, maybe in one of the investor presentations of starter modules for refrigeration trucks. But anyway, the starter modules replace lead acid batteries in the electric and diesel locomotive. And those products were designed specifically with two of the largest diesel train manufacturers in North America, and kind of similar to how we started out in the ULTRA3000, if you will, from design to orders was about six months, and we have now between the two of them over $4 million in backlog, which we'll be shipping over FY '25. So that product was based on the ULTRAGEN product, which can be used with people like Kohler and Generac, and we've a lot of things going on. But specific to the starter modules, that has been a great success. And as I mentioned, I think earlier this morning, we have a contract for 1,000 trains for one of the largest train manufacturers in North America. So it's kind of taking the same technology and we have a very, very knowledgeable group on ULTRACAPACITOR technology and battery technology. And then we have a very strong design team that understands power management in all these applications. And all these new applications, all these current existing products have to change their power source or power management to meet either green energy needs or for them to introduce new products. And we're just in a great place in terms of technology partners, the components, for example, the starter modules that we're making have five different technology partners designed into them. So it's such a unique model in this industry, where we have better pricing and relationships and know what the next technology is kind of what they have in terms of new technology coming up before it's even introduced that we can design in, we have those agreements. Then we have an engineering team that can design, test and manufacture these. I call them niche products, but at these numbers, it's not so much niche to us. And then the ability, as I talked about, to bring these technologies globally to customers throughout the world. It's just a great model. And we're doing everything we can to continue that pipeline to support all three of those cells.

Thank you.

And our last question comes from Andrew Rem with Odinson Partners. Your line is open.

Good morning, Andrew.

Good morning. Wendy, I'm sorry. Can you maybe give some color on when exactly does the patent expire and you could kind of blue sky for your portfolio of tubes?

So the patents that you're questioning, Andrew already expired in June, and that was a patent on the window. So what that does is it allows us to repair more tubes in the MX series. So I think that's what you're referring to.

Yeah. So then when we think about the breakeven, so you said you lost $3 million on the year, how should we think about -- I mean, what's kind of the go, no-go decision? How much time do you give yourself? Because it sounds like basically, it just started or was the window just kind of opened? How long do you allow -- how much time do you need to kind of determine this is worth continuing to own or not?

Well, I think we've made it clear that we're exploring options while we work on the profitability element. So there is no defined time frame. I will tell you that during -- in our planning sessions, we definitely show a significant improvement in the operating performance of the healthcare group as we move forward with the Siemens repaired tube. So Andrew, that's I think all we're prepared to say right now.

Can you say what the annualized loss was just in the fourth quarter?

In the fourth quarter, it was about 600 or 700, but what I'll also -- well, I can't tell you anything else. That's it. Yes.

And then, Greg, can you just clarify the backlog in PMT specifically? So you gave the backlog in GES, but what was it in PMT?

Do you have the backlog number real quick, Bob, for PMT? And the backlog is made up mainly of engineered solutions will be Lam. And then the balance of that, the largest backlog of it is power and microwave components used for mainly base stations, SATCOM, and one of the biggest growing parts of the RF and wireless group is defense and radar applications. $102 million total. So about $54 million for PMT. Does that answer your question?

Yeah. I guess it doesn't quite add up, if it was $54 million, and you had $42 million roughly in GES and you're saying the total was $102 million.

Yeah. Then that would be $60 million. Yes.

What was it for PMT? [Indiscernible] Okay. Sorry, PMT was $60 million in backlog going into FY '25. Yeah.

Okay. Thank you.

Yeah.

Thanks, Andrew. Talk to you soon now.

I would now like to turn the call back over to Ed for closing remarks.

Thanks, Michelle. Well, thanks to all of you, again, who are joining us today, and we appreciate your investment and interest in Richardson Electronics. We look forward to our ongoing discussions and sharing our fiscal 2025 first quarter with you in October. Please don't hesitate to call us any time. We're happy to take your calls, and thank you very much.