Good day and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the Fourth Quarter of Fiscal Year 2022. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. .

I would now like to hand the conference over to your speaker today, Ed Richardson, Chief Executive Officer. Please go ahead..

Good morning and welcome to the Richardson Electronics conference call for the fourth quarter fiscal year 2022.

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 & Microwave Technologies Group; and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback.

I would also like to remind you that we will 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.

Fourth quarter sales were 61.6 million, the highest quarterly sales we have achieved since the sale of RFPD in 2011. Fourth quarter gross margin improved at 32.7% versus 31.8% in the third quarter. Total sales for FY’22 were $224.6 million, an increase of 26.9% over the prior year.

In addition, backlog roes again to $206.2 million, nearly doubled to where we ended FY’21. This supports the continued growth we expect to achieve in FY’23.

While power grid tubes are still a significant and growing part of our business, our expanded focus on designing and manufacturing products has driven sales to new levels and positioned us for continued growth in the phase of tougher economic conditions.

Today, more than 60% of our business comes from products who are either manufacturer or have manufactured exclusively for us. In addition, we continue to experience year-over-year growth across all three of our business units during the fourth quarter and full-year.

Power management solutions that support a green environment is an important growth opportunity and strategic focus. Demand for alternative energy in the face of unprecedented fuel prices is growing. We are benefiting from this trend.

From the ultracapacitor modules using GE wind turbines to future applications, such as production of green hydrogen using microwave generators. Our existing and new products are capturing attention and solving customer problems.

Demand for our 6KW magnetron, a product I was told back in the 80s would not be around in five years, continues to grow exponentially and more consumers choose manmade synthetic diamonds over traditional diamond mining. Diversification is an important component to our long-term success.

It is no longer just the semiconductor wafer fabrication market driving the upside in our revenues. Although this business is particularly strong for us in the Q4, 6.7% of our business in the quarter came from new products. We also saw growth in our EDP product lines to both existing and new customers.

Canvys continues to add blue chip customers to its list of new custom display product wins. Simply put, our business is firing on all cylinders and I believe we are just getting started.

Through a lot of hard work and dedication of our sales, engineering and manufacturing teams and the support of our experienced supply chain, finance and maintenance teams, we are taking the company to new heights. In fact, Q4 was the most profitable quarter the company has had since 2007, which was prior to the sale of two of our divisions.

Our challenge is growing our engineering and manufacturing capabilities quickly to take advantage of significant opportunities underway across many of our global markets. We are investing in people and our facilities to support the growth and backlog and to capitalize on new product opportunities that solidify our competitive position in the future.

I will now turn the call over to Bob Ben, Chief Financial Officer to review our fourth quarter and full-year financial performance in more detail. Then Greg, Wendy and Jens will provide more details on our fourth quarter performance as well as our new programs..

Thank you Ed and good morning, I will review our financial results for our fourth quarter and fiscal year 2022 followed by a review of our cash position.

Net sales for the fourth quarter of fiscal 2022 increased 22.1% to 61.6 million compared to net sales of 50.5 million in the prior year’s fourth quarter, due to higher net sales across all three business units.

DMT sales increased by 10.4 million, or 26.8% from last year’s fourth quarter driven by strong growth from our new power and microwave technology partners for various applications, including power management, green energy solutions and 5G infrastructure.

Sales for several Electron Tube product lines, as well as manufactured products for our semiconductor wafer fabrication equipment customers also increased from the fourth quarter of fiscal 2021. Canvas sales increased by 0.6 million or 7.1% due to strong customer demand in North America.

Richardson Healthcare sales increased 0.1 million, or 4.1%, primarily due to increases in parts sales and equipment sales, partially offset by lower sales of ALTA750 tubes.

In addition to higher revenues total company backlog increased to 206.2 million in the fourth quarter of fiscal 2022 from 175.6 million at the end of the third quarter of fiscal 2022 and 110.0 million at the end of the fourth quarter of fiscal 2021. This is the highest level our backlog has been since the sale of RFPD in 2011.

Gross margin for the fourth quarter was 32.7% in net sales compared to 32.4% of net sales in last year’s fourth quarter. PMTs margin increased to 34.4% from 32.0% due to product mix, including higher sales to the ULTRA3000 and improved manufacturing efficiencies.

Canvys gross margin decreased to 30.7% from 35.3% because of higher global freight costs and foreign exchange effects. Healthcare’s gross margin was 10.8% in the fourth quarter of fiscal 2022 compared to 29.4% in the prior year’s fourth quarter, due to a lower level of absorption and higher level of scrap expense.

Operating expenses were 15.2 million for the fourth quarter of fiscal 2022 compared to 14.0 million in the fourth quarter of fiscal 2021.

The increase in operating expenses resulted from higher employee compensation expenses, primarily due to increased incentive expense resulting from the highest level of profitability since the fourth quarter of fiscal 2007.

Operating expenses as a percentage of net sales improved to 24.6% during the fourth quarter of fiscal 2022 compared to 27.7% during the fourth quarter of fiscal 2021.

The company reported operating income of 5.0 million or 8.1% of net sales for the fourth quarter of fiscal 2022 versus operating income of 2.3 million or 4.6% of net sales in the fourth quarter of last year.

Other expenses for the fourth quarter of fiscal 2022 including interest income and foreign exchange were 0.2 million compared to other expenses of less than 0.1 million in the fourth quarter of fiscal 2021.

The noncash income tax benefit of 3.5 million for the fourth quarter of fiscal 2022 resulted from the 4.0 million partial reversal of the tax valuation allowance due to evidence of profitability for realizing a portion of the deferred tax assets in the future.

Net income was 8.3 million or 13.4% of net sales for the fourth quarter of fiscal 2022 that is compared to a net income of 1.9 million or 3.7% of net sales in the fourth quarter of fiscal 2021. Without the 4.0 million tax valuation adjustment, net income for the fourth quarter of fiscal 2022 was 4.3 million or 6.9% of net sales.

Earnings per common share on a diluted basis in the fourth quarter fiscal 2022 were $0.59, compared to $0.14 per comment share on a diluted basis in the prior year’s fourth quarter. Excluding the tax valuation allowance adjustment, earnings per common share on a diluted basis were $0.31 for the fourth quarter of fiscal 2022.

Turning to a review of the results for fiscal year 2022. Net sales for fiscal year 2022 were 224.6 million, an increase of 26.9% from 176.9 million in fiscal year 2021. Net sales increased by 40.8 million or 29.7% for PMT, 5.9 million or 20.0% for Canvys and 1.0 million or 10.1% for Richardson Healthcare.

Gross margin decreased to 31.9% from 33.2%, primarily reflecting product mix in PMT, higher global freight costs and foreign exchange effects in Canvys and increased components scrap expenses for healthcare. Operating expenses were 55.7 million for the fiscal year, which represented a decrease of 0.2 million from the last fiscal year.

The decrease was due to the non-recurrence of a $1.6 million legal settlement in fiscal 2021 and lower legal fees. These decreases were mostly offset by higher employee compensation expenses, including additional incentive expense due to the strong profitability.

Operating expenses, as a percentage of net sales improved to 24.8% during fiscal 2022, as compared to 31.6% during fiscal 2021. Operating income for fiscal year 2022 was 16.0 million or 7.1% of net sales, as compared to an operating income of 2.9 million or 1.6% of net sales for fiscal year 2021.

Other expenses for fiscal 2022, including interest income and foreign exchange were 0.2 million, as compared to other expenses of 0.6 million for fiscal 2021. The income tax benefit of 2.2 million resulted from the 4.0 million partial reversal of the tax valuation allowance.

The company reported a net income of 17.9 million or 8.0% in that sales for fiscal year 2022, versus net income of 1.7 million or 0.9% in that sales for fiscal year 2021. Without the 4.0 million tax valuation adjustment, net income for fiscal 2022 was 13.9 million or 6.2% of net sales.

Earnings per common share on a diluted basis in fiscal 2022 were a $1.31, compared to $0.13 per comment share on a diluted basis in the prior year. Excluding the tax valuation allowance adjustment, earnings per common share on a diluted basis were $1.02 for fiscal 2022. Moving to a review of our cash position.

Cash and investments at the end of the fourth quarter of fiscal 2022 were 40.5 million, compared to 39.1 million at the end of the third quarter of fiscal 2022 and 43.3 million at the end of the fourth quarter of fiscal 2021. The company continues to invest in working capital to support its growth initiatives.

Inventory grew to 80.4 million from 73.7 million at the end of the third quarter of fiscal 2022 and 63.5 million at the end of fiscal 2021. The largest portion of the increase for both the fourth quarter and fiscal year 2022 was due to increases in components and work in process for our manufacturing business.

Also, accounts receivable increased to 29.9 million from 25.1 million at the end of fiscal 2021, primarily due to the high sales growth. Capital expenditures were 1.0 million in the fourth quarter of fiscal 2022 versus 0.8 million in the fourth quarter of fiscal year 2021.

Approximately 0.7 million related to the investments in our manufacturing business. 0.2 million was for our healthcare business, and 0.1 million was for our IT system. Total capital expenditures were 3.1 million in fiscal 2022 as compared to 2.6 million in fiscal 2021. We expect the higher level of capital expenditures in fiscal year 2023.

As we make additional investments in our manufacturing capabilities and facility. We paid 0.8 million in cash dividends in the fourth quarter and a total of 3.2 million in fiscal year 2022.

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 2023. Finally, during fiscal 2022, we repatriated 1.5 million to the U.S. from several foreign locations.

Our us domicile, cash and cash equivalents balance totaled 25.5 million as of May 28, 2022, the same balance at the end of fiscal 2021. Now, I will turn the call over to Greg, who will discuss the results for our Power & Microwave Technologies Group..

Thank you, Bob and good morning everyone. Sales of the Power & Microwave Technologies Group or PMT in the fourth quarter of fiscal year 2022 grew 26.8% to 49.3 million versus 38.9 million in Q4 last year. In addition to a strong sales quarter, PMT achieved excellent book-to-bill ratio of 1.69.

Our sales growth and strong bookings confirm another solid quarter to achieve up to be an excellent FY’22 with 29.7% growth over prior year.

Our gross margin also increased in the quarter to 34.4% versus 32% in the prior year, which was mainly due to continued success in our engineered solutions products for green energy applications and an extremely strong quarter for our semiconductor wafer fab equipment business.

Both business units in PMT supported the strong growth we achieved in bookings and billings in the fourth quarter.

Our Electron Device Group or EDG had an extremely robust quarter and bookings as we continue growing market share from our competition and finding new applications for legacy two products, specifically magnetrons used in the development of synthetic diamonds and other green solutions.

We also continue to experience excellent growth in our Power & Microwave Group, or PMG business unit. Over the years we have added new technology partners and new products targeting RF and power management applications.

This includes 5G infrastructure programs as well as programs dedicated to the consistently growing power management and energy storage applications that support green initiatives across our global markets.

With respect to 5G and power management, revenues increased by high double-digits again in the fourth quarter with a very strong book-to-bill ratio. PMG experienced exceptional growth in demand for green energy applications, such as wind energy, electric locomotives and energy storage.

Our recently introduced products such as the patented ULTRA3000 Pitch Energy Module using wind turbines continue to gain traction and increase sales and bookings in the quarter. We are producing the ULTRA3000 with remarkable results in the field and millions of accumulated hours of operation, shipping over 22,000 units in FY’22.

We also saw a major increase in bookings with the Enel, Inver Energy, Evans and numerous other owner operators of GE wind turbines. We are in discussions with a major wind turbine OEM for private label development of numerous products which we hope to announce in the second half of FY’23.

During the fourth quarter, we also received an $18 million order for our power management module used in electric locomotives.

This module along with products like our ULTRA3000 and ULTRAGEN3000 extend our leadership position by further supporting innovative power management solutions using various technologies to replace lead-acid batteries across numerous markets and applications.

Our patent pending ULTRAGEN3000 design for generators and cellular base stations in critical facilities had great success in the Alpha Product Trials. We anticipate beta testing should be completed by the end of the calendar year.

As I mentioned, we continue to add new products to our portfolio and we are unscheduled to introduce new products and technology partners throughout FY’23. Our RF and microwave components business also part of PMG continues to benefit from the high demand associated with 5G, (Ph) communications and SATCOM applications.

The use of these applications is driven by people working from remote locations, requiring the capability to send large amounts of data. Our entire team has done a great job identifying niche technology partners who collaborate with us globally and we added more small innovative suppliers in the fourth quarter.

We also continue to invest in and focus on resources to support our growth, we are adding design engineers, field engineers and manufacturing capabilities across our organization.

Our growth strategy has been highly successful over the years, and we will continue to develop new products as well as increase our customer base, revenue and profits by capitalizing on our existing demand increase and infrastructure.

We are excited to see that over the past fiscal year our legacy tube business had a strong return in both bookings and billings. The fourth quarter of FY’22 continued to prove that the demand for our products and services did not go away with the pandemic.

And we are even more excited about the trends and bookings that will support strong revenue growth in the coming fiscal year. We continue to receive support from our key partners such as Qorvo, MACOM, Nokia Wave, LS Materials, Amogreentech and Fuji Semiconductor.

Key tube manufacturers in industry such as CPI, Thales, NJRC and Photonis work with us to manage our customer requirements. Our growing in-house engineering and manufacturing teams did a great job supporting increased demand for current products and new product designs.

The team also supported product designs for key growth markets focusing on green energy solutions as the patented ULTRA3000 and patent pending ULTRAGEN3000 and power management modules for electric locomotives. I’m pleased with the progress we are making.

We will continue to identify, develop and introduce new products and technologies for green energy and other power management applications. We remain challenged by longer semiconductor lead times and the overall supply chain. This affects both our component business and engineering solutions products.

We are aggressively investing in inventory that should position us to fill the pipeline and ensure we can meet our customers’ needs while we collaborate closely with our customers and suppliers. Starting in Q1 FY’23 earnings release in October. We will be announcing the new Green Energy Solutions Group.

This group is formed out of PMT and will be managed by PMT, as we continue to focus on power management applications that support the green energy markets globally. 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 & Microwave market industries. 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 as they arise. Our backlog has never been stronger and the execution of our strategy has never been better. There is no question our customers and technology partners need Richardson products and support more than ever.

And with that, I will turn over to Wendy Diddell to discuss Richardson Healthcare..

Thanks, Greg. Good morning, everyone. Fourth quarter sales for the Healthcare Group were 2.9 million, an increase a 4.1% over Q4 of FY’21. This sales were lower than our prior quarter and prior year due mainly to lower sales in China and Ukraine, while sales from replacement parts and systems were strong.

Unfortunately, we had a significant supplier issue in the quarter, forcing us to scrap a number of targets as well as five tubes before we temporarily suspended production. As a result gross margin in the fourth quarter was 10.8% versus 29.4% in Q4 last year.

While we are disappointed by this issue, we were able to determine root cause and are now back in full production. Healthcare’s full-year sales were 11.4 million in FY’22, 10% above FY’21 sales of 10.3 million, both tubes and part sales increased. System sales were flat, due to limited supply.

In May, we completed our second ALTA750 G beta and were able to do a soft launch of the tube. We are still waiting to receive CE approval, which is required to sell the GE-Tube in Europe and Canada. This is the second tube in the Canon series and it works on newer Canon CT scanner models.

Sales growth will be gradual as we get the ALTA750 G into the market and Canon CT scanners come off of OEM service contracts. We anticipate sales of our ALTA750 D will also improve as more scanners become available.

And because we recently received our MD SAP certification and Canadian Device License, allowing our ALTA750 D CT-Tube to be sold in Canada. We continue to make good progress on the Siemens Repaired Tube program. This is a series of four tube types, including the Stratton Z, MX, MXP and MX P46.

The Siemens install base is considerably larger than Canon and there are no third-party replacement options for these tube types. We are on-track to release the repaired Stratton Z later in calendar year 2022. The MX and MXP series will follow in 2023.

The Siemens program is a critical element to achieving our goal of providing a positive operating contribution to the company by Q4 of FY ‘24. I will now turn the call over to Jens Ruppert to discuss the results for Canvys..

Thanks, Wendy and good morning, everyone. Canvys engineers manufacturers and sell custom displaced tools original equipment manufacturers in industrial and medical market throughout the world. Canvys delivered an outstanding performance and set a new quarterly record with sales up 9.5 million for the fourth quarter of fiscal 2022.

Strong custom demand on a global base drove to 7.1% increase in sales over the same period last year. Global sales grew by 20.0% to 35.2 million in fiscal 2022. The highest revenue since fiscal year 2013, due to an increase demand globally and the addition of new customers and programs.

This was a remarkable accomplishment considering the long-term business impact of COVID-19 pandemic. Gross margin as a percentage of net sales was 30.7% during the fourth quarter of fiscal 2022, down from 35.3% during the fourth quarter of fiscal 2021.

Our fiscal year 2022 gross margin as a percentage of sales decreased to 32.0% from 35.0% versus fiscal year 2021. The decrease in gross margin was related to higher component costs, increased freight costs and foreign currency effects, which impacted many companies around the globe like Canon.

Extended lead times on several key components remains an issue. However, our close relationship with customers and partners overseas enables us to procure long lead time components, which has helped us maintain our backlog at prior quarter’s record level of 52.4 million Canvys’ backlog increased by 52.3% on a year-over-year basis.

Our customers are ensuring product availability in advance and we have orders on the books that are scheduled to ship up to three years from now. It is important to understand that we serve a highly specialized customer base, for whom it is difficult and costly to change out components.

We are extremely proud to count many of the Top 10 medical device companies worldwide as our long-term customers. In fact, 76% of our fiscal year 2022 revenue came from medical OEM and all our products are custom designed to their needs.

It takes years getting the product to market, but when we are the supplier of choice we are designed in for many years to come. All customer orders are binding, and we won’t find ourselves in an overstock position.

While we expect the close in the backlog to level out in the near-term, we are optimistic that the high demand of our custom monitors, touchscreens and all-in-one systems will continue. We recently released our 32-inch 4K monitor platform and the level of interest is encouraging.

The product offers high brightness, a wide color gamut and a plastic housing to optimize the overall weight of the monitor. This platform is customizable with a 12G-SDI interface, PCAP touch and 3D polarizer options. This high end product meets medical requirements and is DICOM compliant.

We are targeting the robotic navigation and minimally invasive surgery space with this new platform and we are confident that our product strategy will result in new leads and business growth. During the quarter we received seven new orders from existing and first time OEM customers.

Some of these include cardiac pulse P ablation, femtosecond laser, intense pulse light and laser step therapy, colposcopy, surgical navigation, CRM, laser lithotripsy, medical device control and fully integrated operating rooms, robotic assisted surgery, surgical immediate documentation, atherectomy laser and endoscopy.

In the non-medical space our products are used in a variety of commercial industrial applications. This includes CT scanners for inspecting luggage at airports, passenger information systems on buses and trains, human machine interface for process automation, metal 3D printing and product dispenser for retail applications.

We are very pleased with our team’s performance. Our strong customer relationship together with the record backlog position as well for future growth. From the variety of customers applications as well as the value of orders from existing and new customers, it is clear we have our global customers outstanding products and local service.

While our sales organization stays focused on new opportunities, I stay focused on improving the operating performance of the division, maximizing cash flow and improving Canvys’ probability, there is an ongoing priority.

We continue to work closely with our partners to meet the demand of our customers, particularly with the challenges brought on by industrywide supply chain delays. I will now turn the call back over to Ed..

Thanks Jens. Another amazing quarter and year for Kansas. As you can see, there is a lot happening within Richardson Electronics and I’m encouraged by the positive momentum underway across our business.

From green energy to new uses for tubes such as magnetrons, from custom displays used by companies like Medtronic and Green, to very sophisticated CT tubes, our business is growing. We are carefully preserving our cash so we can invest in our employees and our facilities to accommodate the positive demand we are experiencing for Engineered Solutions.

As of now, we are not seeing the impact of the recession on demand for our products. But we are closely monitoring activity and backlog growth across our global markets and we will react quickly if needed. At the end of Q1, we will begin recording a fourth business unit for Green Energy Solutions.

This will highlight the growth in revenue generated from our new solutions as well as existing products using Green applications. Our product roadmap is solid, and we expect to grow sales from new customers new products and new applications. We look forward to sharing more details with you in the coming quarters.

At this time, we will be happy to answer some questions. Thank you..

Thank you. Our first question comes from Anja Soderstrom with Sidoti. Your line is now open..

Hi, and thank you for taking my questions and congratulations on an exceptional quarter. A lot of exciting things going on.

My first question is going to be around the health care and sort of - if you could just clarify what sort of put the weight on the margins there and what we can expect in the coming quarters in terms of that?.

Hi, Anja, it is Wendy Diddell.

So yes, so we were disappointed obviously in the quarter with the margin and that as I mentioned in the presentation was associated with a supply issue where a key part of the tube that we use, there was a change in the process to lose both targets and five tubes and so the margin as a result of the fourth quarter was down around 10%, that was also impacted because we had to stop production.

So we were considerably under absorbed. I will mention that when we closed production in the healthcare area. We were able to relocate a lot of the people to other areas of the company so we didn’t lose them completely.

We were able to take advantage of the skills that they have and have them work over in the LA Fox manufacturing area, working on the wind turbine program and our land program. So, that was a positive. But what we can expect going forward, we are back in production.

In the first quarter we have not had any supplier issues nor any significant equipment issues, so I would anticipate that, the gross margin will go back into the mid to upper 20s barring any unforeseen circumstances that could still happen in the next six weeks or so..

Thank you. And I think actually you mention something about Ukraine and China, in terms of the healthcare business.

What did you experienced there in the fourth quarter? And do you expect that to be sustained or what you did now?.

Okay. Good question. So, with respect to Ukraine, one of our significant customers was located there and they have started buying again. So, I would expect to see gradual sales coming back from them. They are temporary located in Poland and so they are still able to service CT equipment. And in China, that is a timing issue.

We already received and shipped a large order in the first quarter. So there is no question about the demand or any issue there. It is just a timing issue. So I think, we will see that come back in the first quarter..

Okay. So, that was just isolated to the fourth quarter, the issues with Ukraine and China..

No, Ukraine is variable. Obviously, we will have to wait and see how things go there..

Okay. And then, with the PMT business, you have been talking about the wind turbine business there, and you have their large order with NextEra.

When can you sort of anticipate a follow-up order from them and what to expect in terms of that?.

Yes.

Greg, you want to answer that?.

Sure. So we have weekly calls with NextEra. We are working on a number of other products for their wind turbines that we will be announcing here in the second half. We will be finishing up Phase I sometime at the end of the summer and we will probably receive the Phase II order, which will be similar in size if not bigger in our Q2.

And that was the status as of yesterday morning. So, it is a great partner. But the good news is that, we over the past 18-months have now nine different customers, owner operators of wind turbines that are purchasing this product. So we have definitely become the incumbent for this product in the industry, especially North America.

And we did received in the quarter, which amplified the strong bookings quarter, exclusive order and shipments to Inver Energy and Enel, which are three now with NextEra, three of the top owner operators of GE wind turbines in North America. So, it is really going fast..

Okay. And then in terms of the beta test for the power stations, when are those concluded - I wonder to anticipate some orders from there..

Yes. So we received an order for 12 cell towers from T-Mobile that current beta site testing is happening right now and there are facilities there in Phoenix, Arizona similar to the ULTRA3000 capacitor, it is about a six month process for them to do all the analysis and get the beta site testing.

So in terms of production orders, I would expect those in Q3 of our fiscal year starting with T Mobile..

Okay. And then that on the progress rails, it seems like you are also just scratching the surface there.

What can we expect there and are there other sort of use cases that you could also support them with?.

Well, a progress rail is owned by Caterpillar and what the benefit of that entire program is we continue to see other opportunities for other products for progress rail, and for Caterpillar. The program to-date is we booked in the quarter, as I mentioned, an $18 million order.

This product is the lithium module that we shipped to Brazil and they assemble it into the electric locomotive structure and then ship that to customers outside of North America.

In the meantime, over the past six months, we have developed a relationship where we are going to be the manufacturing arm and design arm for products being sold to North American customers, such as Union Pacific, Long Island Railroad.

We booked a $3.5 million order to build not only the lithium module, but what is called the superstructure, which really is the guts of the electric locomotive. Well, this ship that to progress rails will then ship it to their customers. We fully expect an add on order to that, in Q1, about the similar amount about 3.5 million.

In terms of content, the 3.5 million, our content is about 1.2 million for that per locomotive.

So any customer in North America is asking for, in some cases demanding that as much content, whether it is the build, assembly test support is in North America and with Richardson’s capabilities here, progress rail picked us in the fourth quarter to do this program with them.

So we are very excited about that and as you saw some press releases Union Pacific is placing orders for 20 locomotives this fiscal year..

And then there are potentially other use cases with Caterpillar as well?.

Yes, but for different products. Just to be a confirmed and agreement as a design and manufacturing arm for a company like Caterpillar that just gets you in a position where for example, with progress rail, we have a call every week and there is about 20 engineers on those calls.

And it is just amazing the opportunities as everybody tries to go green and we have this niche power management capabilities here at Richardson to take advantage of some of these I call niche applications. They are quite large for us, but to others are their kind of niche.

So I recommend that if I could have anyone on that call, because when you hear the 20 engineers talking, anybody who thinks we are tube distributor will realize real quick that we are back and so much more, so much more..

Okay. Well thank you for that color. And then in terms of Canvys, it has been very strong growth for you.

Is that more catch up from the pandemic or do you think that is going to be sustainable?.

Sure. Hey this is Jens. So I absolutely think that is sustainable. We will continue to grow. We have a lot of new opportunities in the pipeline. And as I mentioned in my script too, there is the go-to-market takes a long time. Sometimes we talk three, four or five years to the engineers to get everything going. So it is really not a short-term thing.

It is a mid to long-term thing. So we have definitely new opportunities working on so I anticipate this business further to grow..

Okay, thank you.

And then what kind of currency impact do you have? Can you just go over the puts and takes there and about how we should think about that impacting your results in the coming year?.

Bob, do you want to address that, please?.

Sure. Well, you saw there was more of an impact on the currency in the fourth quarter, mainly due to the draft up in the euro versus the dollar, and we expect that to continue. On the other hand, all the forecasts I have been reading, coming up in fiscal ‘23, could go the other direction with the dollar going down.

So you are going to see ups and downs. So I would expect in the first quarter, we will see probably a similar impact of what we had in the fourth quarter, but after that, I would expect improvement..

So euro are the largest currency or association?.

Yes. Our biggest exposure is the - correct yes that is correct..

Okay.

And then you also mentioned, I mean, you are representing your facilities here in the U.S., and you are expecting higher CapEx this year, can you quantify that?.

Yes, we are probably going to spend $2 million or something like that. What we are doing with the COVID situation, more and more of our employees are working from home. So we have a lot of space, especially on the first floor that we are converting into manufacturing and moving all the private offices upstairs. The building was built in 1986.

And so this is the first time we have done a major renovation and it will take two or three years, but probably capital expenditure will be $3 million to $5 million over that period..

Okay. Thank you. That is all for me. Thank you so much..

Thanks Anja..

Our next question comes from (Ph). Your line is open. Our next question comes from (Ph) Shareholder. Your line is open..

Hi, thanks for taking the call. I want to add my congratulations. That is a super quarter. I just had two questions. One, sort of a general one, given the great quarter and given the really good backlog numbers.

Does anybody have any idea why the market reaction is so negative today?.

We don’t that is for sure. The company has never done better than it is doing now. I think in our 75 year history, by the way, this is our 75th year. And I have been around 60 years.

This is the most profitable year and quarter that we have ever had, and with a $206 million backlog, it looks like we will do 250 to 255 million next year without any problem. So I think we are on track to be a $500 million company here in the next five years and extremely profitable..

Yes. I just wondered if you heard anything from analysts or shareholders, which would indicate why anyone would have been disappointed with the results..

I think what is happening is that, we have some major shareholders that have been on Board for 10 years and they are finally able to take a profit on their holdings and you can’t blame them for that. And I think that is, what is happening, there is some of them bailing. But the good news is that, for every share that is sold, there is also a buyer..

Okay. My second question is for Bob Ben, it appears that in this quarter, you have segregated out for the first time cash and investments, rather than all cash and equivalence.

Can you comment on two things? What does the investment component consist of? And two, given the fact that we now have finally positive interest rates on short-term treasuries, et cetera? What do you see going forward as your ability to finally earn a decent return on all the cash that you have been holding?.

Yes. You just noted that, we did move some of our money into investments, specifically those are at the CD and as rates go up, we will continue to look at that.

I would expect that given some of the increases that we should expect this year by the end of the fiscal year, we should get some more investment income certainly that we have had in the recent past..

Okay. It seems like 90 day T-bills an hour at like two and a half actually better than CD rates and more liquidity.

Is there ability to put more of that the other money into short-term treasuries?.

Yes. There is that ability and we are always looking at that. We have an investment committee that reviews that every quarter. So, we will certainly be looking at that. But as I mentioned on my remarks, we have over 25 million in cash in the U.S. and 15 million approximately overseas.

So, we are constantly reviewing opportunities and we will do so going forward..

Okay. Those are my questions. Thanks..

Thanks very much..

Our next question comes from (Ph) Private Investor. Your line is now open..

Hi. Thanks for taking my call. Looking at the May quarter and the fiscal year in general. Just looking at cash flow from operations for the fiscal year total, it was, let’s say, a very small percentage of net income.

And I’m just wondering what factors might change that going forward so that the company sees more cash flow from operations just relative to net income?.

Bob, you want to address that please?.

Sure. Well, obviously with cash flow from operations there is quite a few things in there. The main drivers of course are net income, depreciation, accounts receivable, inventory and accounts payable.

And as we saw in FY’22, we had significant increases in accounts receivable and inventory specifically and those were, as I mentioned in my remarks, the accounts receivable increase was largely just due to the growth in sales. We did keep our DSO fairly cost in at approximately 39-days. So that was really a function of a sales increase.

Now on the inventories, we talked about that. Greg mentioned, in his area specifically that we are buying everything we can get in terms of components, so that we can stock up and ship our new products as quickly as possible.

In addition, our manufacturing business, as I mentioned, is doing similar things and has a lot of work in process, particularly in the semiconductor wafer fab area. So I expect that to continue, but maybe at a lesser growth rate in FY’23. And I certainly expect higher net income will help that.

So I think it is a combination of higher net income and managing our working capital as best as we can. But as we have noted, for reasons with the supply chain and a very high growth rate in the business, it is a bit challenging to keep that under. But we are certainly doing our best..

Yes at least how I calculate it your days inventory outstanding really, for the last. It is been pretty flat for the last five quarters, it does bounce around a little bit.

But I think to found out pretty much the same thing with the day sales outstanding and days payable outstanding cash conversion cycle, the way I calculate it was 153-days in the May quarter. Pretty steady for the last five quarters. So I guess if you describe it. Sorry..

No, I was just going to say do expect improvement, though, in FY’23 and cash flow from operations. So I don’t think I specifically said that, but definitely, I expect improvement..

Okay. Well that is a good news. And regarding the word Ukraine did come up in the call, once or twice and given the unfortunate situation there.

If we were to take a worst case scenario and just give it a zero going forward, how impel relevant would that be to the company?.

It is very small. It is a few hundred thousand dollars..

Okay. I just wanted to kind of get that out there. Alright that is all for me..

Thank you..

Our next question comes from Ross Taylor, ARS Investment Partners. Your line is now open..

I got to say, you beat my estimate to my expectations for the quarter. If I had to guess I would say I think you are seeing selling looks almost like a retail type thing where people were looking for something. They didn’t get it. And they are running out the door, because they don’t necessarily understand what they own. Away from that real quick.

You mentioned some things I thought were very interesting, and no one has followed up. You talked about a white label opportunity in the wind turbine space.

Is that a domestic or a foreign customer, you would be white labeling for?.

Greg, do you want to answer that?.

Sure. The private label thing we are talking about with a major wind turbine manufacturer, it would be a global agreement. The products are used in all their wind turbines. We already have beta sites confirmed. As I mentioned before, we are still in the design stage.

But it will be - actually to start out with North America, India and Spain will be the three sites that will be testing the product for them..

And I’m sure you can’t tell us who the customer is. But is the customer and domestic U.S.

player or European player?.

It is a global player, but mainly Europe..

Okay. well, great. That is actually really exciting. That is not what I started how I thought you. I didn’t think you would answer that question that way. Okay. So then looking at some other things. Obviously, you guys just commented on the fact that you have been building up inventories.

This is a very common thing I have seen in a lot of my companies, given the uncertainty and people who are looking at rapid ramp ups.

What do we need to see in your supply chain to get it so that you will be comfortable pulling those inventories down to more historic levels and thus converting them into caches next year?.

Well, I think that, we have a lot of issues on particularly on integrated circuits that we use in the ultra capacitor module. Delivery is like 48-weeks, and we are just sort of hand to mouth. So anytime we have chance to put inventory in we do.

And for instance, with the ultra capacitors, we bought all the ultra capacitors, as well in advance that we know that we have orders coming through for us. And we will continue that as long as there are shortages out there. We would much rather have inventory so that we can address our customers demand and as you know, we have $40 million in cash.

So that is been an issue..

No, and it is what you are doing is prudent. It is just it seems that at some point, eventually we will get to a more normalized supply chain.

And as that happens, we should expect to see, I would think cash conversion out of there that could be meaningful overall?.

No, I think that is correct. I think you will see this year where we sort of cash flow neutral, maybe spend a few million dollars and then in the years to come, we are going to be cash flow positive, and building a substantial amount of cash..

Cool. Now, you talked about a soft launch in the second Canon series tube.

What do you think, these tubes have always been a little bit of a holy grail out there that you have got a great product, you haven’t been able to really drag the top line across that you would hope to have drag Canon? Are you seeing any market reaction to what you are in? And what kind of top line leverage do you think we should be seeing as you bring the second tube on and perhaps additional tubes on over this fiscal year?.

So we do like that we do expect the growth to be gradual. We do, however, anticipate, a pretty nice level of growth in our fiscal year in that business segment. And that will be partially from the G the new two. Part of that will come from the additional details. Now that we have the G and the D, we can cover more of the Canon market.

And so people who might have been reluctant to take their systems off of the service contracts with Canon can now do that and know that they can get both the almost the majority of their systems covered by a third-party service company. So with that we would anticipate some growth in those sales.

But for us again, really the bigger driver of growth is going to be that Siemens program..

Okay.

And you did comment - yes, obviously, and what kind of time horizon are we looking at for Siemens do you think?.

Yes. So we are hoping to have the first one out which is the Stratton Z. We are hoping to have that out before the end of this calendar year. We have got a few that are ready right now that are going to go first to a let’s just call them a close friend, test in their location.

And then if they perform as we anticipate they will then we will look at they decide for them. And if they all goes well, again we will see those launch in next 3 to 6 months. The bigger part of the line is the MX series, there is three tubes in that, and that will be in calendar year 2023. We are still a little bit of ways on that..

And when they launched, you commented, you think you get mid to high 20s, operating margin on the recovery after what happened in the last quarter. Do you think that as you launched them that, operating margin should be able to stay the same? Do you think you grow it? That divisions operating below, some of the other areas in the company..

Definitely.

We are really counting on that Siemens program to help to improve - when you say operating margin, are you talking about gross margin?.

Yes..

Yes. We do anticipate that going up for the two reasons. One is that, when we sell them, it has nice margin. And then two, it takes up some of the excess capacity that we have on our plan. We have told you before that we have got the capacity to make up to a 1,000 tubes over three shifts, and we are still making less than 300.

So the more tubes we can get into production, the lower the cost per tube goes. So it is a win on the top-line and it is a win at the gross margin line..

Sounds fantastic. And can you - two other areas.

Can we talk about the market potential in the ramp up from T-Mobile and others in the wireless space?.

Greg, you want to address that?.

Sure. I think it is going to be similar. It will obviously start with North America. We do have Verizon and AT&T in line to do some beta site testing this fall. So the ramp up, again, like I kind of mentioned, I think production orders will start seeing our Q3 from T-Mobile.

And then we will be finishing up the beta side testing with Verizon and AT&T at the end of our fiscal year. I will add in addition to that we are in the process of a pretty large program with a critical facility, a hospital network, here in Illinois, that will also use this product for the same generator, same type of situation.

But that will be also something we would obviously mark to Q3 or Q4. But we continue to add customers, continue to do the beta site testing and again, as I mentioned before, similar to the ULTRA3000 where we had just absolutely excellent results in terms of the beta site testing and lack of failures we are seeing that with this too.

So, I think it is going to go from zero to a 100 like ULTRA3000 did, but I don’t think that is going to be until probably third, fourth quarter of this fiscal year..

Okay. But obviously it is a pretty exciting area.

Will you talk about or are you comfortable talking about per site revenue that you expect out of this?.

Well I’m not going to talk about numbers. But, for example, the ULTRA3000 there is 18 per turbine with this in terms of the cell tower. There is only one per cell tower. But obviously there is enough cell towers. So that is kind of the mix..

Okay. And let’s switch over to the rail engine, the electric rail engine. So basically what you are looking at is about 1.2 million to rail or per engine.

Is that what we are looking at right now?.

That is approximately our content. Now, as they build these out, these are what I will call commuter trains and those are used in either shipyards or going from the Fox to Chicago. What they are developing now, what we are doing on these calls is, obviously for long range trains, hauling products across the United States.

Our content with that, obviously, you allege a lot more, because you are going to need a lot more lithium modules. But right now 1.2 million is approximately our content today..

So 1.2 million is kind of like what you think, as you said, as a commuter rail or switching type engine. So how much, I mean, obviously, the engines you are talking about the, I assume you are using the one sees when you are out west and the trains go for two miles or something.

That type of use, you are talking about?.

Two miles or farther. It is a long range. And that is, again, when I mentioned earlier in the call the access, if you will, do we have to these type of programs, I mean, we are talking about this program, and then the second half of the call is for new products. And that would be for what is called long range, electric locomotives.

And right now, the content there will be much higher than 1.2. It is amazing the number of cells are talking about right now to run that locomotive that far..

Would it be wrong to think it could be an order of magnitude?.

Yes, but I don’t know what the order of magnitude would be. I don’t know, if it is five times, six. Until I’m comfortable with what that will be, I will share that obviously, as we get closer to a program..

Okay. That is a hugely exciting opportunity that switching in the back, because it is obviously a huge market from the number of engines that are operating..

Well as you can say and they all have initiatives, whether internally or government to get their emissions down to certain levels by 2030 and 2050. So it is really one of those markets where, not a matter of when, I mean not a matter if, no matter when.

And so it is just, you hit it on the head, it is really exciting to be here in the fox, downtown the fox and be working with these types of programs. And then read press releases, where these huge railroads are announcing how many electric locomotives you are going to buy. And you know that you are going to get - over half of that.

Because today, the two main providers of those is GE Transportation and Progress Rail so. And we are in an amazing partnership with Progress Rail..

Okay and that, as I said, you guys really knocking the cover off the ball in here. As I said, I would agree, I don’t quite understand why the market is running away. Like they just seen a mouse, but I think that gives opportunity to, for those not in getting in, because I’m not just listening to you guys.

That your time by getting to 500 million, you should be able to retain or grow your operating margins as you push that direction, I would think?.

Absolutely..

Okay. Well, that becomes huge. Especially on a small share, count. Okay, I will pass it on to anyone else who wants to pick up..

Thanks very much..

Thank you. Take care..

Thank you. Our next question comes from Walter Schenker with MAZ Partners. Your line is now open..

Ed, you have indicated again, I think you said it the current fiscal year revenues. Could be my number, but you said it roughly 250 million range. At the year’s beginning the outlook is good. This was a 60 million plus dollar quarter. And so to get to 250, you need, on average for $60 plus million quarters.

This quarter you had some issues, positive and negative, increased freight, a tough quarter for medical. But the question is, if I look at how profitable you are this quarter with $60 plus million in revenues, is it reasonable to say this is how you would expect, and this is the level of profitability broadly, a lot of moving pieces.

You would expect in $60 million to $65 million quarters?.

Yes..

I’m backing you into making a forecast, which you don’t want to make. But I can ask questions which you might be able to answer..

Yes, I think the level of profitability will be sustained just about where it is now. And with a $206 million backlog going into the year, we are pretty certain we can make that 250, 255 number without too much trouble..

Okay. Not that it wasn’t great, but there were some moving pieces. Is there an ability to get either a surcharge or somewhat raise prices to offset you and everybody else is having freight cost issues.

Was a couple of percent on margins? Is there things you can do to recover some of that or not?.

Yes.

Jens, you want to address that, because most of their freight issues are in Canvys?.

Sure, thanks. Yes. So, we have of course, contracts with our customers, and as soon as they expire, we increase pricing, of course. We will pass on the freight cost increases from our partners and from the freight forwarders.

And we are very transparent there, our customers for example, say that they can do cheaper, we are not making money on freight, we are happy that they take care of the import.

But other than that, we have actually, I think pretty good Freightways in general, because we have containers going from Asia to Europe and to North America all the time, right. So we collected from suppliers and therefore we should have very fair freight rates even so, they are, like everyone, frankly.

The question, yes, we will see opportunities where we can pass it on to our customers. Absolutely..

Hey, clearly. The dog does not like the freight..

Well not from me..

No, the dog is because someone is working on my deck, and she hates it. Sorry about that. But last comment, it is not a question I know Ed and Wendy, every time we meet, I suggest that the Board consider at some point, to buyback. If the stock stays around these levels, which is a little over 11 times, maybe annualizing, the fourth quarter.

Again, I know in the past, you have wanted a way to get to cash flow neutral to positive, but during the course of this year, you should get there and I would again as a shareholder, suggests one use of cash is buying back at least some stock going forward. It is I keep saying and you keep smiling at me..

It is a topic of discussion at every Board Meeting. That is all I could tell you..

Okay, thanks a lot Ed and Wendy..

Thanks a lot..

Thanks Walter..

Our next question comes from (Ph). Your line is now open. Gokul, please check your mute button. Our next question comes from (Ph). Your line is now open. Marcus, please check your mute button. And I currently show no further questions at this time. I would like turn to call back over to Ed Richardson for closing remarks..

Thanks, (Ph). We appreciate your patience and support. It is been a long road, but we are really excited about the future. Reaching this level of performance has taken longer than we anticipated for sure, but we are very excited about what is going on and the tremendous backlog we have. We understand the story is complex.

So, anytime give us the call and we are happy to answer your questions. Well, better yet to come and see us it is easier to show you what we do than to tell you about it. We look forwarding our fiscal 2023 first quarter performance with you in October. Thanks very much..

This concludes today’s conference call. Thank you for participating. You may now disconnect..