Edward Richardson - President, CEO, COO Kathy Dvorak - EVP, CFO and CSO Greg Peloquin - EVP and GM, EDG Pat Fitzgerald - EVP and GM, Richardson Healthcare Wendy Diddell - EVP, Corporate Development.

Mark Zinski - 21st Century Equity Research Andrew Tuttle - Crow Point Partners Steve Bush - Southpaw Investments Ed Calkins - Great Lakes Advisors.

Good day ladies and gentlemen, and welcome to the FY15 Fourth Quarter Earnings for Richardson Electronics. My name is Natasha and I'll be your coordinator for today. At this time all participants are in a listen only mode. [Operator Instructions] I would now like to turn the call over to Mr. Edward Richardson CEO. Please proceed..

Thank you. Good morning and welcome to our fourth quarter 2015 conference call.

Joining me today are Kathy Dvorak, Chief Financial Officer, Wendy Diddell, Executive Vice President of Corporate Development and Greg Peloquin, Executive Vice President and General Manager of EDG; and Pat Fitzgerald, Executive Vice President and General Manager of Richardson Healthcare.

As a reminder, this call is being recorded and will be available for audio playback on our Web site. I would like to remind you that we will be making forward-looking statements and they are based on current expectations and involve risks and uncertainties. Therefore, our actual results could differ materially.

Please refer to our press release and SEC filings for an explanation of our risk factors. Effective June 1, 2015 we launched the Power & Microwave Technologies Group or PMT. PMT includes our existing Electronic Device Group, EDG but also encompasses the new technologies and the Engineered Solution products for the RF, power and microwave markets.

Under the leadership of Greg Peloquin, Executive Vice President while adding new suppliers and reorganizing the sales and marketing teams we take advantage of these high growth markets. We will capitalize on Richardson Electronics’ ability to manufacture, sell and support Engineered Solutions on a global basis.

The launch of PMT supports our goal to leverage Richardson's global infrastructure including sales, marketing, engineering and logistics. PMT positions us well with our employees, suppliers and shareholders as a profitable, long-term, high growth company.

This gets us three strategic business units, the Power & Microwave Technologies Group, Richardson Healthcare which we launched in November 2014 and Canvys. We're attacking three high growth markets related to technologies.

Our intent is to double our sales over the next three to five years, this requires investment in people and equipment that will increase our expenses in the near-term but position us well for improved profitability in the longer term. On March 1st of this calendar year we implemented our new IT system Microsoft Dynamics XRM and Great Plains.

The implementation continues to go well and we're able to service our customers into players in our typical high level fashion. The amount of work involved in this implementation has been incredible.

Many people continue to work tirelessly seven days a week to ensure that system functions as intended and contributes to the growth and success for the business. We continue to encourage significant incremental expense in support of the implementation and ongoing development efforts.

We anticipate this expense will begin to decline throughout the new fiscal year as we automate more functions and make improvements to workflow. Net sales in fiscal 2015 were $137 million down slightly from net sales of 138 million in fiscal 2014.

EDG engineered solutions business increased year-over-year which was offset by declines in Canvys and healthcare displays due market conditions, price pressure and the weakening euro. Gross profit improved to 30% in fiscal 2015 from 29.7% in fiscal year 2014. Greg, Pat and Wendy will share our operating performance details with you later in the call.

Before we provide details about business unit performance in the fourth quarter of fiscal year 2015 I'll turn the call over to Kathy Dvorak to present the financial details..

Thank you, Ed and good morning. Clearly fiscal 2015 was a year of repositioning for Richardson Electronics. As I mentioned on our last call we went live on our new IT platform in March. In addition we focused on creating the foundation for growth in fiscal 2016.

We invested in building the Power & Microwave Technologies group and building out our capabilities in healthcare and will keep my comments brief as the focus of this call must be on the future. Sales for the fourth quarter of fiscal 2015 were 35 million down 1.2%, gross margin was up slightly at 29.2% from 28.7%.

Operating expenses were 12.9 million for the quarter this includes 1.3 million to fund our growth initiatives as well as 1.1 million for employee termination cost and 900,000 related to IT investments in training and deployment. With these additional expenses our operating loss for the fourth quarter of fiscal 2015 was 2.6 million.

Interest income for the quarter was about 255,000, loss from continuing operations before tax was 2.6 million and bottom-line we had a net loss of 2.1 million. Cash and investments at quarter-end were 109.8 million and cash used by operating activities for the fourth quarter was 1.7 million.

Currency volatility has had a dramatic impact on our business this year. For fiscal 2015 currency translation has impacted the balance sheet translation by $6.5 million.

Capital spending in the quarter was 1.5 million, approximately 700,000 related to our investments in healthcare and 160,000 related to machinery and equipment which supports our growth initiative. And 640,000 related to IT. Depreciation and amortization were 480,000 for the quarter.

Now I will turn the call over to Greg who will discuss the plans for our new Power & Microwave Technologies Group..

Thanks, Kathy and good morning everyone. Looking at the quarter EDG billings were down 4.1% after three straight quarters of growth this fiscal year. However gross margins improved to 31.1% versus 29.5% in the prior year.

For the fiscal year EDG grew 2.1% or 105.4 million from 103.3 million in the fiscal year 2014 and margin improved 31% versus 30.6% in the prior year.

We did have a number of regions that showed strong growth in the quarter within North America, China and Korea, power led by continued strong sales of our Engineered Solutions products and market share growth in electronic devices.

Europe and Latin America partially offset the gains in these countries mainly due to the devaluation of the euro, and challenging market conditions in Brazil. We also had several large Engineered Solution orders that were scheduled to ship in the quarter. These orders were delayed due to a customer requested engineering change.

The good news is that Q1 started off strong with these shipments. While the demand for tubes continued to decline in some markets like the broadcast market others like the laser market, the marine market and microwave market continued to be healthy.

We've been able to maintain revenues with strong vendor partnerships which relies heavily on our global salesforce of trained engineers and present in more than 40 countries.

Given that more than 80% of our customers are end-users our ability to be the importer of record and deliver products anywhere in the world in one to three days is critical for both the MRO business and new product and technology development at the OEMs.

During the year, we gained market share, and the overall demand for electronic device products continued to decline at a rate of approximately 6% per year. Sales growth has also come in from our continued investment in engineering and design capabilities and our demand creation activities.

In Q4 for example we shipped nearly $1 million in microwave generators which were engineered and assembled in-house.

We continue to invest in our engineering and manufacturing capabilities throughout fiscal year 2015 to deliver on a mix of tubes, mini trams, weight guides and highly customized solutions for our customers as this business does continue to grow.

We continue to focus on developing our own intellectual property to set us apart from the competition and improve our financial performance. It's important to note that the markets and applications our price address are showing strong growth.

Our objective is to protect our strong position in these markets by offering our customers new technologies and ever increasing level of global through engineering support. Within the last month we've announced the new XEU, the Power & Microwave Technologies Group or PMT.

And that is the same thing with historical EDG business plus new solutions for the RF power energy and microwave market. These markets are very large, building billions and the niche markets and applications that we address are in the hundreds of millions.

We're specifically focusing on suppliers and technologies that offer disruptive technology in these high growth markets. We'll take advantage of our global infrastructure and customer base. This strategy will efficiently maximize our associated selling opportunities and future market share at our customer base.

Hopefully you've seen a number of press releases in the past few weeks announcing new agreements with suppliers for new technology such as ultra capacitors, gallium nitrate and silicon germanium. There are technology advances that are being introduced today that did not exist three or four years ago.

We've indentified these technologies and these suppliers and we'll be introducing nearly a dozen new partnerships over the next two to three months. These suppliers recognize that Richardson Electronics is the best organizational structure to launch new technologies to increase demand on a global basis.

We have a proven track-record of doing this and we are fine tuning our organization to do this even better than ever. We are very excited about FY15 as we launched the Power & Microwave Technologies Group. We have a very strong position in the electronic device market with incredible market share.

The customers we address for electronic devices are 100s of support and new technologies to help them to be. We just take a limited amount of new resources and investments and some design in time but this will allow well to maintain a large market share of mix products and mixed application.

With these growth products, growth markets and existing possible end-user business PMC and Richardson Electronics is in the best position it has been in some years to produce increased profitability with top-line growth each and every quarter. With that I'll turn it over to Pat Fitzgerald to discuss Richardson Healthcare..

Thank you Greg and good morning everyone. Healthcare sales in the fourth quarter were 2.1 million up 12.9% over prior year sales of 1.9 million.

Capital budgets continue to be very tightly managed but at the same time we are beginning to see healthcare providers move on long delayed projects that are required to maintain compliance or which will increase operating efficiency.

Sales in the quarter consisted primarily of our Image Systems brand displays for Picture Archiving & Communication Systems or PACS and related accessories and equipment for operating rooms.

We also realized our first sales of the Thales Artpix EZ2GO wireless flat channel detector system which produces digital images in a fraction of the time required by legacy radiography captured systems.

Gross margin was 23.7% in the quarter compared to 23.8% in the same quarter last year reflecting continued price pressure and lower margins on accessory sales. On a full year basis sales were 6.6 million versus 6.8 million in fiscal year 2014. Gross margin was 24.1% versus 26.6% in the prior year.

During the year the Company made significant investment and people needed to increase sales as we bring our new products and services as well as experienced engineering resources required to support our CT X-ray tube manufacturing business.

We continue to make progress with our internal investment in CT and X-ray manufacturing and we expect to realize our first sales of certified pre-owned CT tubes during the first quarter of fiscal year '16. Healthcare providers today are under extreme pressure to reduce costs while gearing up to provide services to more patients.

Capital spending and maintenance budgets remained tight and price is increasingly one of the leading factors behind purchasing decisions. As a result there is a growing demand for an alternative storage for the OEMs for replacement parts and service on a global basis.

We estimate global market diagnostic imaging replacement parts and service to be between $7 billion and $8 billion annually. On June 15th we completed our acquisition of the International Medical Equipment & Service or IMES of Fort Mill South Carolina.

IMES is focused on providing CT and MRI replacement parts training and technical support to end-user customers who want to maintain their own equipment as well as the third-party service organizations.

After reviewing many companies in the CT and MRI replacement parts and service market we felt the IMES team and business model most closely aligned with our growth strategy. IMES sales in 2014 were roughly $10 million. We are in the process of integrating IMES and developing our strategic plan. IMES operations will remain in Fort Mill South Carolina.

We will leverage Richardson’s global distribution infrastructure to take advantage of the growing demand for alternative sources for replacement parts in Europe, Asia, the Middle East and parts of Latin America.

Between our pact and operating room displays wireless flat channel detector solutions and power grid tubes for MRI system we already have excellent relationships with hospitals and independent service organizations on a global basis.

This will provide the springboard and infrastructure to sell other higher value replacement part and related services like training which IMES offers. We continue to pursue partnerships with companies that have products that would be complementary to our healthcare portfolio and where we believe we can add value to Richardson distribution.

We also continue to explore acquisitions in this market and are focusing on companies with models that can be expanded internationally. I’ll now turn the call over to Wendy Diddell to discuss Canvys’ fourth quarter results..

Thanks, Pat and good morning everyone. And I am pleased to announce that Jens Ruppert has joined Canvys as its Executive Vice President and General Manager. Jens started his career as an engineer and worked his way up through sales, marketing and general management within the medical display and operating room equipment market.

Jens was recently employed as General Manager for NDS Surgical Imaging in San Jose, California. He brings a high level of talent customer relationships and credibility that will help Canvys achieve new level of sales and operational success.

Sales for the division were 6.5 million during the fourth quarter of fiscal 2015, up from 6.2 million in the third quarter and up from 6.1 million in the fourth quarter of last year. Gross margin in the quarter was 23.4% versus 25.3% during the fourth quarter of fiscal 2014.

Gross margin improved in North American market but was negatively impacted in Europe by outside engineering charges and the devaluation of the euro. Freight costs also increased during the quarter.

Canvys ended the year with 24.6 million in sales versus 27.9 million in FY14, the loss of several key customers during the year primarily as a result of finding a lower cost of supply impacted sales. The devaluation of the euro also had a negative impact on sales. We were able to close several new projects to offset some of the loss.

Gross margin for the year was 26.2% compared to 27.2% last year due primarily again to the devaluation of the euro and increased freight costs associated with expedited shipping. The division did a good job controlling cost and maintaining working capital efficiency.

During the quarter, the Canvys team made progress transferring programs from third-party manufacturing partners in Europe to the Marlborough facility. There is still much opportunity here. Under Jens leadership we are reviewing engineering resource requirements and are optimistic that we will be able to expedite additional transfers.

This will bring further profit improvement to the division. We also continued to focus on global account management structure and using platform products to improve purchasing power while reducing lead time to quote.

We expect to strengthening the initiatives along with the development of our own intellectual property as ways of bringing value to our customers we serve and differentiating ourselves from our competitors.

We won several new programs in the quarter including two new programs with a large medical equipment manufacturer, a transportation program for a touch integrated display that can accommodate high brightness and a 21-inch medically certified monitor using dental applications. Canvys ended fiscal year 2015 with a book-to-bill ratio 1.62.

Order backlog increased from 15.2 million at the end of the third quarter to 18.2% due to new program wins as well as the new blanket orders from existing customers. We expect the business to be relatively stable in the first quarter but we’ll have to closely monitor demand in the European market.

Jens will be spending time assessing Canvys’ strategy, resources, strength and weaknesses in the coming months and we look forward to reporting more on these findings and changes next quarter. I will now turn the call back over to Ed..

Thanks Wendy. We’re really excited about the changes we’re making to the Company. We’re optimistic about the future of PMT, Richardson Healthcare and Canvys.

Our strategy change on developing profitable technologies and products for high growth markets which are long-term in nature and take advantage of our global infrastructure, our new IT system will add a level of sophistication to our customer service and global supply chain and help us achieve our objectives.

With the addition of Pat Fitzgerald, Greg Peloquin and Jens Ruppert, we have an experienced senior management team to execute our strategies and drive the business growth. We’re confident that our investments in PMT and efforts to launch new technologies in the RF power conversion and microwave markets will lead to near-term revenue growth.

Our investment in new product development is improving our ability to engineer, manufacture and sell proprietary solutions. In FY15 these investments allowed us to win new business with several large companies in high growth markets such as semiconductor equipment manufacturing.

We also grew sales with our standard microwave generator capabilities by fulfilling unique requirements for heating and drying. We expect these trends to continue. Our investments in healthcare market position us well to diversify our revenue stream. We hope to reduce medical cost by becoming a global provider of diagnostic imaging parts and equipment.

We're very pleased with the acquisition of IMES. IMES is the first acquisition completed on behalf of Richardson Healthcare and it brings us extensive experience in diagnostic imaging replacement parts, training and support.

We look forward to working with Trey McIntyre and his team to bring cost effective replacement parts to Richardson's customers around the world and selling Richardson Healthcare range of products to IMES's traditional customer base. We will continue to use our cash to make strategic acquisitions and to invest in our growth strategy.

We've identified several additional acquisition candidates in the healthcare market and we hope to announce one or more purchase agreements in the near future. We'll also continue to repurchase stock and pay dividends. We spent $60.4 million on our stock buyback program which has reduced the number of shares outstanding to 13.7 million.

We believe fiscal 2016 sales will be in the range of $160 million to $170 million in revenue. First quarter sales are anticipated to be in the range of $35 million to $38 million. We anticipate sales will ramp-up throughout the year.

It’s an exciting time at Richardson Electronics and we look forward to discussing our progress after the close of the first quarter. At this point Kathy, Wendy, Greg, Pat and I will be happy to answer your questions. Natasha may we open up..

[Operator Instructions] Your first question comes from the line of Mark Zinski, please proceed..

Ed, I understand a lot of moving pieces here and you gave guidance on sales for 2016 but I was just wondering if we could just kind of speak generally about the expense side and how you envision it evolving through fiscal '16.

I guess first of all do you think gross margin is pretty much going to be in a narrow range, the same kind of range?.

Yes, I mean what we look at '16 to continue to be an investment year we're doing a lot of the initiatives like healthcare on a Greenfield basis so there's lot of investments to be made. Margins should stay pretty much exactly where they are, pretty much consistent. .

And then on the SG&A line, you had several one-time expenses this quarter and obviously you've got the acquisition.

Do you see SG&A still being sort of pressured for a quarter or two and then improving in the second half of the year or how should we think about that?.

No, but you'll see SG&A go up all year long, we're adding people in the Power & Microwave Technology area, we're adding people in healthcare, we're adding engineers, we have 25-30 new people in manufacturing. It's certainly an investment mode for growth..

In terms of the two distribution agreements you announced, can you just kind of discuss some of your thinking behind those, are those new products that you think have great growth potential or were there certain verticals that you liked and will these new technologies potentially cannibalize any of your existing technologies?.

Yes, the two that we announced so far in the past couple of weeks are key, but it's technology that our current customer base is looking forward and using to develop new products.

The ultra capacitor market is a very fast growing market Ioxus is a world leader in that but in some of these suppliers you are going to see are having great technology with growth applications but they are engineering companies. And they need a way to bring those products to market.

So it is kind of a combination of those three things where we have an existing customer base that needs to get access to visit this technology, needs design support to create new products and then on the supplier side these companies that are great engineering companies have great technology they really need a way to bring it to market on a global basis..

And then so generally I think it's a good sort net improvement in technology sales it won’t supplant any of the existing sales here that you have?.

No in fact it is just -- to continue keeping our market share and win customer as these customers have the need to compete against their competitors and go to a solid state solution away from their tube solutions will be there we're already there support them with the technology and resources needed to do that conversion.

So they can gain market share so it is just a next generation of technology where you have two technologies from there we were success on the past with these power transistors technology and now we're getting into the gain and in silicon carbide technology support port and it's virtually the same customer base..

And then I guess last question would just be in terms of geography in other’s speculation China and slowing down a bit. And of course we get the problems in Europe.

So how are those two areas in particular impacting your business right now?.

With the launch of the products China and Europe will still be key areas. Europe really it is zero issues it's not a version there is a lot of new time going on now that we're very active.

And again for these new products we're just launching it June 1st I mean this is a very much of a startup but we're already seeing on a global basis in every region a lot of traction in terms of demand creation and design.

But the two businesses is the two businesses it's existing business MRO these customers will continue service their own agreements. So if the market closed down the actually two business is better supported in terms of lease keeping flat or even growing slow..

Your next question comes from the line of Andrew Tuttle. Please proceed..

I'd like to discuss the stock price which kind of unmitigated faster. You got $110 million in cash the market value currently you have the Class A shares you could buy every single share and have $20 million leftover.

How you feel the way the market is evaluating your company and what are you going to do to turn this thing around?.

No we obviously don’t agree with it basically we've made a decision we are trying to do some other large acquisitions which unfortunately weren’t so special and so we've made a decision to do a number of these strategic moves particularly in healthcare, Greenfield in we are internally investing and you know the market as well I.

They are very impatient they want to see growth and quite frankly it is going to take us several years to get traction on some of these investments and the stack is reflecting accordingly they will use it as an opportunity and we bought $16 million worth of stock over the past and if the stock continues to decline we will watch it and we will buy on an opportunistic basis..

Yes, but the 60 million that you’ve used in repurchases if I do the math right. The average cost of those shares is far-far higher than where the stock is trading now.

Why not immediately just tender for a million shares at $8 and any of the 700 whatever shareholders who want to get out and just validate and you still got the barely mix into your cash balance in sets of four for the holders of the stock to say just at least management is looking after the Class A shares?.

Well, I appreciate your thoughts on that, we continue to look at it. By the way we got the same advice on the stock with running at $12..

Sure, but I mean when you’re trading under the cash value it just seems that it’s providence in the face of enticement of you and the rest of the management team and you have an opportunity to set a floor in at something around the cash value and allow people to get out in a very efficient manner if they chose to sell it or not instead of picking away and what is obviously very thinly traded stock doesn’t really make a lot of sense to me?.

No I understand and we’ll continue to watch it closely and in retrospect at $11 we should have been watching it go down before we invested in and so at this time we want to see what’s going to happen we realized it’s going to take us a couple of years to start to show traction with increased sales and earnings under our Greenfield initiatives and we’re going to see what happens in the meantime..

Your next question comes from the line of Steve Bush. Please proceed..

I guess I’d follow-up with the last caller and I would say my first question is, is there any stock splits since 1990?.

Not that I can remember..

Okay, so our stock is at the same price it was in the 1990, same price it was 1995 and in 2005 now we’re here in 2015. So to say the market is impatient well I mean it’s 25 years where we haven’t gained any traction except for small dividend.

And we’re promising growth again in three to five years, but if I look at your 2011 press releases of our sale to RFPT division our quote from that from you was we will now focus on realigning our cost structure to fit the remaining the business while we begin executing our growth strategy.

So our growth strategy since 2011 has not been particularly good and the only execution as the last caller pointed out has been our stock.

So, now again I will go to 2012 and ’13 statements and it is the same things we just said now from the 2012 year-end we said with the ongoing pricing economy we expect sales of EDG and Canvys in 2013 to be 36 million to 38 million and we remain optimistic our growth markets will achieve sales of 170 million and 175 million.

But we were about 141 million or 30 million shy of our forecast and below the 2012 year and then we said in fiscal 2014 we anticipate sales to be in the range of 155 million to 160 million, yet they were 138 million and 21 million shy of forecast and again below the prior year.

And then finally we said we believe sales for fiscal 2015 was presented will be in the range of 140 million or 150 million and it was 137 million. So our growth strategy that you guys have been predicting for years has not materialized in fact it is gone the wrong way.

And so what is the basis of this 160 million to 170 million 2016 plan and why should anyone have any faith that you’re even going to come close to that?.

Well, I think we just explained that we’ve reorganized now into SPUs two of them that are new in construction in this year are making very substantial investments in the business and growth areas we’re seeing traction in product development and manufacturing and we’ll start to see traction in healthcare but it’s going to take time..

Okay, but it’s been 25 years since and we’re still at the same price and it’s been five years since we sold off our big business and we supposedly had a growth strategy so now we’re starting over the clock again so in another three to five years and frankly I don’t think that’s a -- it sounds like a delusion more than a plan, it just sounds like we’re just going to keep saying the same things and hope for the best one day.

So my question is when does management take accountability for a complete lack of progress on any of the plans and I mean how do you even justify missing guidance by that much for years and then come out with a foolish guidance again?.

So I appreciate your position on it, you know, I don't think there's any one that has more to lose or gain than I do, and I'm still a major shareholder in the business so we just outlined in detail what we're doing to grow the business and….

So yes, you're a major shareholder and I would submit to you respectfully, you know, I like the company, I like the balance sheet, it is just that we don't seem to have any growth and I think one of the biggest problems as you know I feel is you got this product structure with no accountability so you've got, I mean it's just stupid.

So what's the plan of having, getting rid of a two class structure so that the Board and management is actually focused on the company and not focused on simply keeping control of something that seems to be dying on the volume?.

At this point there is no present plan..

Okay, well then I guess the Board needs to start executing its fiduciary duty because frankly I don't, it’s not anything personal but if my stock price where it was 25 years ago and I've missed every growth projection since 2011 you know it’s time for new management and maybe you need to consider for your own net worth sake to step aside and make management changes [Multiple Speakers]..

I think we just outlined a number of additional senior managers that have been added to the company this year..

I understand but why, we're paying a lot of excess, you're going to pay the million dollars a year to have a 25 year stock price.

So I don’t understand, as an outside shareholder that should imply and as a fiduciary duty of our Board of Directors I would think that they would start executing their duty on managing the company but that's my piece for now and like I said, I like the company, I like the concepts, I like the balance sheet but I think we're just stagnated because of this two class structure it’s just created a inability for people to actually act in a responsible manner, in my opinion..

Certainly I appreciate your opinion..

Your next question comes from the line of Ed Calkins, please proceed..

May be just to talk about some of the near-term revenue guidance, it's 160 million to 170 million over this year 2016.

At what growth rate has International Medical Equipment been growing at, the recent acquisition?.

It's been growing at about a 15% to 20% a year..

And you're anticipating that in fiscal year '16 guidance?.

Not really, we’ve guided it somewhat lower we are attempting to be conservative..

But still the implicit in that in those expectations are that you're expecting a, certainly a pretty reasonable uptick in core revenue growth outside of International Medical Equipment, that correct?.

It's correct, that's why we're investing in healthcare and PMT..

And to touch on previous callers' comments, you know why do you believe now that you can achieve that over the next 12 months?.

Well, we've outlined the new strategies that we've gotten into, we're extremely optimistic about the healthcare market for example, when Greg managed the RF and microwave group in the past he built it up to nearly $400 million, he's back in charge of PMT.

We've added other key managers, we spent a substantial amount of money investing in healthcare and that'll start to gain traction. Those are the initiatives that we’ve outlined..

Okay, in fiscal year '15 it looks like you had a little over 9 million in extraordinary cost, out of about 49 million of total OpEx.

How much of that is going to roll through to fiscal year '16 if any?.

Well there should be some reduction particularly in the IT costs, we had dual IT systems for the majority of FY15 we just went live on the IT system in March. So some of that's going away, we were paying about $2 million a year for the use of the [indiscernible] system which we're now come off of.

We're still spending money on additional functionality for the Microsoft Dynamic System but eventually those costs will start to go down. Certainly the amount of severance that's involved there will be reduced substantially.

Some of the investments that we're making in bringing on additional people are one-time expense but it takes time for those people to get up to speed and just start to produce sales and earnings..

In the context of your three to five year projection to double revenue is that based on your existing business and product set.

Or is that predicated on additional acquisitions in the pipeline?.

Some additional acquisitions but that will be small a bit more like the IMES type of acquisition. Most of that is internal growth from the strategies we've already put in place..

So then you should over this three to five -- well actually one other question. On the 160 and 170 in revenue run rate for '16.

Would you expect to be operating profitable under that scenario?.

No, we won't start to show profits until the fourth quarter of ’17..

And so is there I guess a revenue run rate that we should be thinking about where you will start to see the profits again?.

Yes, we can give you that I don’t know we really haven’t forecasted that far out. And we haven’t gone public with that forecast but in our plans we show going profitable in the fourth quarter of '17..

So, may be to touch on a few other comments that preceded mine. You’ve got net of this recent acquisition 98 million in cash. You are going to do in small bolt on acquisitions over the next three to five years. While you haven’t shared it publicly I have a pretty good idea is to when you will inflect to profitability.

So I would think from that as that you’ve got a pretty good guardrail all around what the balance sheet will look like over the next couple of years, is that correct?.

Yes..

Your stock is trading around cash it is trading at a meaningful discount to book value. It's trading where it was in 1990. And it is truly that full that you're not taking more aggressive and proactive action. As a CEO and alongside your Board to create value for a shareholders’ now I understand you hold all the cards with your B shares.

But we presented our thoughts to the Board. We presented our thoughts to you about being more aggressive with some sort of tender. Clearly other shareholders feel the same way.

What are you waiting for?.

Well at the moment we're trying to invest in the business and put a structure in place to get traction for our internal growth. And to answer your other question by the way for the company to go profitable the top-line revenue with the present margins is about 190 million..

Thank you. It's just perplexing whether it is no one stands to gain more from a higher stock price rather than you do right. And whether it's collapsing the existing share structure to create a more accountable governance structure I am certain the stock would go up.

If it's doing a tender auction and taking out some of the people that have been selling it I'm 100% certain the stocks would go up and you will benefit incidentally more from that than you will from the six tenths dividends that your Board rubber stamps every quarter for you.

Yes, yes and the matter of public record we strongly urge you not to just consider it but actually to put a plan in place. You’ve misguidance countless quarters in a row your stock is trading in an embarrassingly low valuation. If you want your legacy Ed to be that you’ve run a public company for 25 years and the stock hasn’t moved an inch so be it.

We can't do anything about that obviously because we don’t have the voting power for you. But I urge you to take a long hard look in the mirror on this because it's embarrassing whether it's a missed forecast or the in action to return value to shareholders it is just embarrassing..

Well certainly appreciate your opinion..

The next question comes from the line of Robbie Fidel. Please proceed..

Hi it's Laura from London. I have a really specific question really about the cost of your inventory. So we've been hearing that you’ve acquired new technology in recognition to amount of your customers.

I would like to know what the anticipation will be or the implication will be for the inventory obsolescence and when we are likely to see the risk of that in current?.

I am not sure I understand the question, and so you’re seeing that because of the new technology that we’re investing in that we’re going to have inventory obsolescence?.

Yes, so according to your quote we can isolate inventory obsolescence and key risks that we need to begin to.

So I am actually looking into your inventory at the moment and trying to process in to what exactly is about your inventory that needs that it appreciate so much? And I would like to know the new technologies that you’re investing in whether the obsolescence of your inventory will be increased at all and whether we’ll see an increased risk at some point if that inventory not recognizing its value?.

Well, first of all a major portion of our inventory has to do with the electronic device group which is the historic tube business and we sell 20,000 customers all over the world and that same customer base will use some of these new technologies.

But there won’t be an impact on the tube inventory or the tube business 80% of that business today is for replacement sales and existing equipment primarily industrial equipment in all kinds of applications all over the world and that will continue the application so the new technologies are in OEM new equipment and it will be literally years before that has any impact on replacing the capital equipment just the tube to use them..

Can I ask a secondary question, which is basically a breakdown of your operating expenses can you tell me in terms of traction what traction of the expenses are wages, leases and administrative costs?.

I’ll turn it over to Kathy..

Percent are wages versus what?.

Wages as traction of being expenses, leases as traction of the expenses and administrative costs?.

The majority of the expense 70 plus percent is tied to people cost, and lease expense are relatively minor effects but..

Okay..

It is not to believe….

I think that concludes my question. I thank you for your time..

[Operator Instructions] We do have a follow-up question from the line of Steve Bush. Please proceed..

I guess just as a follow-up, what’s the status of this loan that you have shares placed against and is there any margin calls on that, do you have to pledge more shares and why is the Board convinced on a significant duty?.

The personal loan it has been there forever and onetime it was as high as $5 million and this year it’s down to about 1.6 million it’s fairly minor when you think in scope of things..

Well, but there are a lot of votes so it is, what is it 400,000 shares?.

That’s about right..

So, that’s 4 million votes, right.

So, is there any kind of margin call in that the stock goes to two, the stock goes to four, or it’s been many times in the last 20 years is that going to create a margin call where you got to pledge more shares?.

I am not prepared to discuss that it is the first time doesn’t have anything to do with the….

Well because if you have to pledge more shares it’s what were related I mean that’s what that, do you lose the public -- do you lose the private right of that kind of information when you pledge your corporate shares as CEO. So what point does the Board I mean your vote, you have the votes of the Class B shares there is no doubt about it.

But that doesn’t include the Board from what is inspiring me and then you can vote yourself back in the next selection.

So at some point the Board has to look at reality and you have to look at reality and say there is fiduciary duties to all shareholders and your vote won’t account during elections, it doesn’t count any more than anyone else at the Board meeting right, you can’t out Board out vote every other Board member on a hiring situation or acquiring situation.

So the Board doesn’t need your votes to exceed its authority, right, they might not get reelected when you put somebody else in there. But I think you’re going to end up with a lot of problems, and I think as I've told you in a letter, you know, I've seen it has happened a million times.

You're going to be much better off merging the two classes, because you'll at least get back probably to our net current asset which is 9.71 a share all right versus the current stock price plus you'll keep control.

You don't need that much and it's just killing the stock and I hope the Board really considers the fact that they don't need a vote to execute their authority, that's all I guess I'll say..

We have no further questions in the queue. I would now like to turn the call over for closing remarks..

Well, we thank you again for joining us and for your ongoing support of Richardson Electronics, we look forward to discussing our fiscal 2016 first quarter results with you in October. Thanks Natasha..

Thank you. And thank you for your participation in today's conference, this concludes the presentation and you may all now disconnect. Good day..