Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the Second Quarter Fiscal Year 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Ed Richardson, CEO. Please go ahead..

Good morning, and Happy New Year. Welcome to Richardson Electronics conference call for the second quarter of fiscal year 2023.

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 our newest business unit, Green Energy Solutions; and Jens Ruppert, General Manager of Canvys.

As a reminder, this call is being recorded and will be available for playback. I would also like to remind you that we'll be making forward-looking statements. They're 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. We're extremely pleased with our strong financial performance in the second quarter.

Despite global economic challenges, rising interest rates, supply chain delays, and recession fears, sales in the second quarter of fiscal 2023 exceeded our expectations and were up 22.1% over Q2 of last year. There were times we had teams working in six and sometimes seven days a week to ensure we met customer demands.

Sales growth was particularly strong in Green Energy Solutions. Sales of our patented ULTRA3000 capacitor modules increased as the microwave tubes for a synthetic diamond manufacturing and Power Management Solutions for electric cars and locomotives. Sales were also strong for the semiconductor wafer fab market in Canvys displays.

There are many programs in the works to adapt to changing market conditions and continue this growth. Bob Ben, Chief Financial Officer, will first review our second quarter financial performance in more detail. Then Greg, Wendy and Jens will provide more detail on the quarter and key growth initiatives..

Thank you, Ed, and good morning. I will review our financial results for our second quarter and first six months of fiscal year 2023, followed by a review of our cash position.

Net sales for the second quarter of fiscal 2023 increased 22.1% to $65.9 million compared to net sales of $54.0 million in the prior year second quarter due to higher net sales and our Power & Microwave Technologies, or PMT, Green Energy Solutions, or GES, and Canvys business units, partially offset by slightly lower sales in our healthcare business unit.

PMT sales increased by $3.8 million or 10.2% from last year's second quarter, driven by growth from our manufactured products for our semiconductor wafer fabrication equipment customers and distributed products for RF and microwave applications.

Net sales for GES increased $7.4 million or 150.3% from last year's second quarter, GES combines our key technology partners and engineered solutions capabilities to design and manufacture products for fast-growing green energy market and power management applications.

Canvys sales increased by $0.9 million or 10.2% due to strong customer demand in North America. Richardson Healthcare sales decreased $0.2 million or 4.7% due to a decrease in parts sales, partially offset by increased equipment and CT tube sales.

Total company backlog was $192.6 million in the second quarter of fiscal 2023, up from $146.9 million at the end of the second quarter of fiscal 2022. Gross margin for the second quarter was 33.2% of net sales compared to 32.7% of net sales in last year's second quarter.

PMT's margin increased to 34.5% from 33.7%, and GES margin increased to 33.9% from 32.3% primarily due to product mix. Canvys' gross margin decreased to 29.7% from 31.8% because of product mix and foreign exchange effects.

Healthcare's gross margin was 23.2% in the second quarter of fiscal 2023 compared to 24.5% in the prior year second quarter due to product mix. Operating expenses were $14.7 million for the second quarter of fiscal 2023 compared to $13.1 million in the second quarter of fiscal 2022.

The increase in operating expenses resulted from higher employee compensation, including incentive expense from significantly higher operating income and higher travel costs. Operating expenses as a percentage of net sales decreased to 22.3% during the second quarter of fiscal 2023 compared to 24.3% during the second quarter of fiscal 2022.

The company reported operating income of $7.2 million or 10.9% of net sales for the second quarter of fiscal 2023 versus operating income of $4.5 million or 8.4% of net sales in the second quarter of last year.

Other expenses for the second quarter of fiscal 2023, including foreign exchange, partially offset by interest income were $0.1 million compared to other income of $0.2 million in the second quarter of fiscal 2022.

Income tax expense was $1.5 million for the second quarter of fiscal 2023 or a 21.5% effective tax rate versus $0.6 million in the prior year second quarter due to the use of federal NOLs in fiscal 2022.

Net income was $5.5 million or 8.4% of net sales for the second quarter of fiscal 2023 as compared to a net income of $4.1 million or 7.6% of net sales in the second quarter of fiscal 2022.

Earnings per common share on a diluted basis in the second quarter of fiscal 2023 were $0.39 compared to $0.30 per common share on a diluted basis in the prior year's second quarter. Turning to a review of the results for the first six months of fiscal year 2023.

Net sales for the first six months of fiscal year 2023 were $133.5 million, an increase of 23.9% from $107.7 million in the first six months of fiscal year 2022. Net sales increased by $8.7 million or 11.2% for PMT, $13.3 million or 177.9% for GES, $2.9 million or 16.5% for Canvys and $0.9 million or 16.5% for Richardson Healthcare.

Gross margin increased to 33.6% from 31.5%, primarily reflecting a favorable product mix in PMT and GES, decreased component scrap expenses and improved manufacturing absorption in healthcare, partially offset by unfavorable product mix and foreign currency effects for Canvys.

Operating expenses were $28.9 million for the first six months of the fiscal year, which represented an increase of $2.3 million from the first six months of the last fiscal year. The increase was due to higher employee compensation and travel expenses.

Operating income for the first six months of fiscal year 2023 was $16.0 million or 12.0% of net sales as compared to an operating income of $7.3 million or 6.8% of net sales for the first six months of fiscal year 2022.

Other expense for the first six months of fiscal 2023, including interest income and foreign exchange, was $0.5 million as compared to other income of $0.1 million for the first six months of fiscal 2022.

The income tax provision was $3.6 million during the first six months of fiscal 2023 or a 23.4% effective tax rate versus $0.7 million in the prior year's first six months due to the use of federal NOLs in fiscal 2022.

The company reported net income of $11.9 million or 8.9% of net sales for the first six months of fiscal year 2023 versus $6.8 million or 6.3% for the first six months of fiscal year 2022.

Earnings per common share on a diluted basis in the first six months of fiscal 2023 were $0.83 compared to $0.50 per common share on a diluted basis in the prior year's first six months. Moving to a review of our cash position.

Cash and investments at the end of the second quarter of fiscal 2023 were $31.1 million compared to $35.6 million at the end of the first quarter of fiscal 2023 and $40.5 million at the end of fiscal 2022. The company continued to invest in working capital to support its growth initiatives.

Inventory grew to $97.4 million from $89.1 million at the end of the first quarter of fiscal 2023 to support continued increases in sales. Accounts receivable increased to $34.9 million from $32.6 million at the end of the first quarter of fiscal 2023 due to the high sales growth. Our DSO was 38 days versus 39 days in the first quarter of fiscal 2023.

The company is working with its suppliers to better align payment terms with both our suppliers and customers.

Capital expenditures were $1.3 million in the second quarter of fiscal 2023 versus $0.8 million in the second quarter of fiscal year 2022, approximately $0.5 million related to investments in manufacturing, $0.3 million for our facilities, $0.3 million for our IT system and $0.2 million was for our healthcare business.

We expect a higher level of capital expenditures in fiscal 2023 as we make additional investments in our manufacturing capabilities and facilities. We paid $0.8 million in cash dividends in the second quarter.

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 third quarter of fiscal 2023. Now I will turn the call over to Greg, who will discuss the results for our PMT and GES business groups..

Thank you, Bob, and good morning, everyone. Both of our strategic business units, Power & Microwave Technologies, or PMT, and Green Energy Solutions, or GES, drove strong growth in our second quarter.

Our GES Group had exceptional growth as the demand for green energy applications such as wind energy, electric vehicles and energy storage continues to grow. We continue to apply and focus on resources to this extremely important strategic business unit and growth opportunity for Richardson Electronics.

GES sales were up 150.3% in Q2 of FY '23 at $12.3 million versus $4.9 million last fiscal year, and our current backlog is $52.5 million. Gross margin also increased to 33.9% versus 32.3% in the same period last fiscal year.

As mentioned previously, this group houses numerous successful products such as the ULTRA3000, electric locomotive battery modules, the ULTRAGEN3000 and products using synthetic diamond manufacturing. In addition, we've had numerous products in design, prototype and beta testing.

This strategy, developing niche products and technologies, is key to our long-term success. The growth of customers and products in GES continues as several major OEMs are in weekly discussions with our engineering team in the development of energy storage products and other green energy applications.

We plan to announce several new products in the first half of calendar 2023. Sales for the Power & Microwave Technologies Group in the second quarter of fiscal 2023 increased 10.2% to $40.6 million versus $36.8 million in Q2 last fiscal year.

Our gross margin also increased in the quarter to 34.5% versus 33.7% in Q2 last fiscal year, which was mainly due to continued success in our RF and wireless infrastructure business and a very strong quarter for our semiconductor wafer fabrication equipment business.

Our Engineered Solutions strategy is led by our global technology partners such as Qorvo, MACOM, Anokiwave, LS Materials, Amogreentech and Fuji Semiconductor. Key tube manufacturers and partners include CPI, Thales, the Nisshinbo Micro Devices, previously known as NJRC, and Photonis.

Each of our global partners helps us meet and manage customer requirements. Our team has done an excellent job identifying and cultivating these relationships. We will continue to review and add partners that fill technology gaps in our offering and support our growth.

Often through these partnerships, we're able to identify opportunities for new products that we design and manufacture in-house, increasing the value we provide to customers and allowing us to capture more revenue. We continue to invest in our infrastructure to support our growth.

We are bringing talented design engineers, field engineers and making investments to enhance our manufacturing capabilities through our organization. Our growing in-house design, engineering and manufacturing teams are doing a great job supporting the increased demand for current products and new product designs.

The team also supported product designs for key growth markets, focusing on GES such as the ULTRA3000, ULTRAGEN3000 and a power management module for electric locomotives. I am 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.

Our growth strategy has proven to be 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 creation infrastructure.

While we're excited about the future, we remain challenged by longer lead times and constraints on the overall supply chain. This affects both our component business and Engineered Solutions products.

We are strategically investing in inventory that should position us to fill the pipeline and ensure we can meet our customers' needs, while we collaborate closely with both our customers and suppliers. We are also experiencing some headwinds and some markets are showing a slowdown from the highs we hit in 2022.

However, we continue to grow both our top and bottom lines by gaining market share, introducing new products and technology partners and expanding the value we provide our customers. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers.

Our unparalleled capability and global go-to-market strategy are unique to the power and RF microwave industries. We have developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions capability.

Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities when they arise. The combined backlog of PMT and GES is strong at $141.4 million, and the execution of our strategy has never been better.

There is no question that our customers and technology partners need Richardson's products and capabilities and support more than ever. With that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare..

Thanks, Greg. Good morning, everyone. Second quarter sales for healthcare were $2.9 million, a slight decrease of 4.7% versus Q2 of FY '22. In the final week of the quarter, two ALTA tubes were held up due to a canceled flight, and we were not able to recognize the revenue. On the bright side, these sales are a nice start to Q3.

Had these shifts as planned, Q2 revenue would have been above the prior year period, and we would be discussing a record sales quarter for the number of CT tube units sold. CT tube sales were helped by strong demand in China for the ALTA750 D&G as well as Straton Z tubes sold as betas in the Americas.

Sales in the quarter were also higher for CT systems when compared to Q2 last year. Gross margin in the second quarter declined to 23.2% versus 24.5% in Q2 last year, primarily reflecting a lower percentage of higher-margin part sales.

While CT tubes remained in production throughout the quarter, we did experience a significant equipment issue, which prevented us from making our CT tube production goals. This resulted in a small negative manufacturing variance. We've resolved the issue and are back in full production.

We are making steady progress on the Siemens repaired tube program. This is a series of four tube types, including the Straton Z, MX, MXP and MXP46. The Siemens installed base is considerably larger than Canons and there are no third-party replacement options for these tube types. The Straton is currently in beta site testing.

-- and we remain on track to fully release the repaired tube pending submission of FDA paperwork. We anticipate the Siemens MX series will follow in the first half of calendar year 2023.

As noted in prior calls, the Siemens program is a critical element for our healthcare business unit to reach its goal of providing positive operating contribution to the company by Q4 of FY '24. In addition to our Siemens program, we are evaluating several new programs that will further improve CT tube sales and factory utilization.

These programs include reloading tubes in Brazil, a market where we currently have no tube sales, and partnering with an international company to reload and sell several other tube types in the Americas. These programs may have a positive impact on our revenue in FY '24, depending on how quickly we can validate and achieve regulatory approvals.

We remain cautiously optimistic about our ability to break even or provide positive operating contribution by the fourth quarter of FY '24. We continue to monitor our progress, and we will make the necessary adjustments to achieve this goal. I will now turn the call over to Jens Ruppert to discuss the results for Canvys..

Thanks, Wendy, and good morning, everyone. Canvys, engineers, manufactures and sells custom displays to original equipment manufacturers in industrial and medical markets throughout the world. Canvys delivered an outstanding performance with sales of $10.1 million for the second quarter of fiscal 2023.

We Strong customer demand, primarily in North America, drove the 10.2% increase in sales over the same period last year. Gross margin as a percentage of net sales was 29.7% during the second quarter of fiscal 2023 compared to 31.8% during the second quarter of fiscal 2022.

The decrease in gross margin was primarily related to the product mix and foreign currency effects. Our backlog remains very healthy, which we expect to support strong sales throughout fiscal 2023 and into fiscal 2024. Given the number of projects currently in the engineering stage, we are well positioned for continued growth.

Our expectations assume no impact from current supply chain obstacles and demand is not negatively impacted by recessionary pressure. We continue to deal with extended lead times for selected components from our Asian suppliers. To compensate for this, our inventory on hand increased during the quarter.

It is important to note that all our monitors are customer and our inventory is allocated for specific customer orders. So we believe there is a minimal risk to carrying slightly higher inventory levels. During the quarter, we received several new orders from both existing and first-time medical OEM customers.

Some of these applications include cell analyzer, cardiac pulsed field ablation, super pulse laser systems used in lithotripsy, robotic-assisted surgery, medical device control, monitors for dental treatment chair, prostate biopsy systems, surgical navigation to track instruments throughout the procedure, laser systems that treat corneal arterial disease and monitors used in radiation therapy.

In the nonmedical space, our products are used in a variety of commercial and industrial applications. This includes control room monitors for the public transportation space, human machine interfaces, HMI, for packaging machines in the food industry, for radiation measurement systems and for process automation.

I am very proud of our teams around the world, and I'm extremely pleased with the exceptional operating performance. Our strong and growing customer relationships, along with the backlog position us for future growth.

From the variety of customers and applications as well as the value of orders from existing and new customers, it is clear we offer our global customers outstanding products and localized 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' profitability is an ongoing priority. We continue to work closely with our partners to meet the demands of our customers, particularly with the challenges brought on by industry-wide supply chain delays. I will now turn the call back over to Ed..

Congratulations again Jens on another great quarter. As you've heard from the business unit managers, there are many programs fueling our growth. This product market and geographic diversity provides a natural hedge against economic challenges and global political tensions.

Many of you are aware of the recent CHIPS Act and its impact on the semiconductor industry. This act prevents U.S. semiconductor wafer fab equipment manufacturers from shipping certain advanced technology equipment to China.

While we know this will have an impact on our business in calendar 2023, we're confident that our financial performance will be -- remain strong for the balance of our fiscal year. All our manufacturing employees are cross-trained and can be moved to different areas to meet significant growth and demand for our green energy solutions.

By reallocating resources, we can meet demand while maintaining our core competencies in the semi market and cost controls. We remain firmly committed to our employees who have helped shape our path to success and to our partners and our shareholders.

With our focus on customer-driven solutions that help improve the environment, we expect strong year-over-year revenue and earnings growth throughout the remainder of fiscal 2023. At this time, we'll be happy to answer your questions..

[Operator Instructions] And our first question comes from [Karthik Rajajay] from Bloomberg. Your line is open..

Hello..

Yes. Go ahead. Your line is open. Our next question comes from Anja Soderstrom with Sidoti. Your line is open..

Hi, Wendy and Richard and everyone else. Congratulations on the great quarter again I'm just curious, I mean, you touched on the semiconductor.

So -- what kind of visibility do you have there for the rest of the year? And sort of when do you think you will have visibility into next year in terms of the demand for semiconductor?.

So we have good visibility for the rest of our fiscal year. So Q3 and Q4, we feel very strong about, including opportunities with the semi market, but that's about as far as we're able to see right now..

Okay. And I understand you're sort of -- you have a very strong demand in the GES that might make up for any softness in the semiconductor.

Can you just talk about maybe some opportunities in the GES that is a little bit further out that you might not have talked as much about?.

Yes. So the GES program, as I mentioned, has introduced a number of products that are getting huge traction.

We also have a number of products in the pipeline -- and if we look at the introduction, the SAM for those products and when these beta site testing will be completed and go into production orders, we're very confident that any gross margin dollar reduction that we'll get from Lam or the semiconductor wafer fab market will more than make up with current products that are getting traction with other customers, but also some new products we're introducing in Q3..

Okay. Thank you. And I think in your remarks, you talked about some slowdown from highs.

Was that related to semiconductor or was that related to something else? Or can you sort of elaborate on that?.

Yes, mainly in reference to the semiconductor wafer fab market. As you know, we had record quarters for the past four quarters with our semiconductor wafer fab market. So we're looking at, based on information from them that there could be a slowdown in FY '24..

Okay. Thank you.

And in terms of Canvys, I don't think you mentioned what the backlog stands at for Canvys right now at the end of the quarter?.

Jens, do you want to answer that about what?.

Yes. Yes, sure. Absolutely. So the backlog is actually up very much. It's the second highest backlog level we have since ever. It's $49.4 million. So pretty happy with that..

And that's up from about $40 million last quarter, right?.

Yes..

Nice increase..

Sorry, it was $47.1 million last quarter, sorry I guess..

Okay. I'm sorry. Okay. still a good increase. And Wendy in terms of the healthcare, it seems like you had some -- I mean the flights were also have those being shipped in this quarter instead, but also some issues with the production.

How much did that stall you and...?.

Yes, that's a good question. In the quarter -- the production -- the equipment that caused us some problems within the last month of the quarter. And overall, it cost us maybe 1% of margin. So it wasn't significant. We were really doing well through the first part of the quarter in terms of producing tubes. So it was a small blip.

But again, maybe a percentage point in the gross margin..

And then one last question, if I may.

So the OEM that you work with, are they single searching with you? Or are they also working with other partners?.

Regarding what business?.

The OEMs, in general, are they single sourcing with you? Or are they also working with other partners?.

On the GES side, on the products we have today, for example, the ULTRA3000, we're exclusive with the four top owner operators of GE wind turbines in North America. So almost all of our products since we are unique, it's a unique technology. We do have competitors, but the business we have today, we are a sole source..

Our next question comes from Denis Amato, he is a Shareholder. Your line is open..

Denis, can you hear us? We can't hear you. You might try back..

Hi, can you hear me now?.

Yes, here we go perfect..

Yes. No, I just wanted to congratulate you on the quarter as well. I'm sure you're disappointed as all of us are by the less than enthusiastic response that market has given you. But my question is for Bob Ben. I noticed of the $30 million in cash, $5 million shows up as being invested in short term.

Given the recent uptick in short-term rates around the world.

Is there any additional opportunities to invest some of the cash to provide return?.

Hi Denis, that's a good question. We do have an investment committee that looks at that each quarter. And we were able to get, as you were noting the increase in interest rates. We were able to get an increase in rates. But still, the markets have not moved up that substantially in rates. So -- but we're consistently looking at it.

And as you noted, we have $5 million of that invested. I might add, too, that -- we're -- as you know, we're a very global company, and we have many locations around the world. And so our cash is located in many different countries. And so most of it is here in the U.S., of course, where we have the $5 million invested.

But Other than that, I believe we have some invested in China, but the rest is used to operate the business..

So I mean, what prevents you from buying real short-term bills or whatever. I mean you could still keep it basically accessible and still earn something on it. Even the European money market rates are up to a couple percent. I mean....

Sure. And as I noted, we're consistently looking at that. But again, we do have -- we have many locations around the world, approximately 25 in many different countries so we need the cash on hand to operate and run the business. But when we can, we do invest it, but we can only do that for so long..

Okay. Well, I mean I understood a while ago when the rates were so low, but as they've come up quite a bit, and I think you need to sharpen the pencil a little..

One moment. Our next question comes from [David Schneider]. Your line is open..

I have a few questions. What you're doing with electric trains when I would -- if I would take a train to Manhattan, there's electric lines above the train and people are not shoveling coal into an engine or burning wood for power. So can you maybe explain to everyone basically the electrification effort and what your role would be in it.

And then I have a couple of other questions..

Well, right now, our current program and products that we're working on is our partner's Progress Rail. They're in the process of designing and manufacturing electric vehicles, both for North America owner operators and their Brazil location for international.

We do everything from build the battery modules that will go into the train itself to the battery modules and the racks to the third part we're doing and that part we're doing here in LaFox is building the entire superstructure, which includes controlling circuitry, fire suppression, the whole thing.

They have -- or that market, if you will, has an edict by 2030 to decarbonize. I don't have the percent right with me today of their diesel locomotives. So we're also working on products, everything from starter modules that will be put into the diesel locomotives to get the percent of that product dream by 2030.

So for the electric locomotive market, we are designing and manufacturing, if you will, the battery modules that will replace the diesel engine. Right now, we've been awarded three different trains -- I'm sorry, four different trains through Progress Rail. And we continue to work with them on a weekly basis for the design and implementation for them.

But they are prototypes. Going forward, if you look at this, this is probably today on the books over $25 million of prototype orders. So you can kind of see the opportunity here once this becomes, as you mentioned, commonplace to convert all the diesel locomotives to electric.

On the electric vehicle, also, we have products that we have designed into VinSmart, which is in Vietnam, which is an electric car manufacturer. And we also have a number of programs and strong business going on with Triton, who is the largest North America manufacturer of charging stations. So that's kind of what we're playing now.

Obviously, that's a multibillion-dollar market. And one thing that Richardson has done a good job of, I think, is finding niche products and niche applications through our component suppliers, but also our internal engineering capabilities to offer true value as this market is launched. And we are right at the cusp of it. We are in the middle of it.

And so we're very excited, not only about FY '23, but the future of these type of products that will also expand in other applications as we learn the technology..

Yes. It's interesting when people think of moving aside from trains, when people think of automotive electrification, your name doesn't come up. So I think my guess is over the next few quarters sequentially, hopefully, you can discuss more of what you're doing in that area..

Yes. It's interesting. We're really not in the ultracapacitor battery business. We're in power management.

And so yes, this is probably a huge -- obviously, a huge opportunity, but there's other power management products that we're looking at for forklifts and other products like that because as things turn to green, the entire power management section, as you can see with the locomotive, needs to change.

And we have a unique ability, so much experience with battery technology. I mean we've been dealing with ultracapacitors for almost 20 years. And we have some key people on staff that are very knowledgeable.

And so really, we're not looking for standard products so much, but just niche products that are unique to the customer to help them win market share. In this case, Progress Rail is on that run rate..

Okay. It was a month or so ago, the company had a news release regarding becoming a global distributor for -- I don't have the press release in front of me, but for a company involved in gallium-based circuitry.

Can you maybe flush out what that could mean for the company?.

Yes. You've seen over the past probably six years, a number of press releases of technology partners we're signing to, as Bob had mentioned, we are a true global company. And these smaller companies that have a unique technology based on -- and also add that to our unique capability for niche products need somebody to take those products to market.

It's an engineering sale. It's very little distribution, if you will, where we design the components into customers. And I'll use the ULTRA3000 as a prime example. We are working with the customer on an ultracapacitor component. And out of that came their need for an ultracapacitor module. And so we have a very strong lineup of technology partners.

Gallium is a startup company. However, it's a group of engineers. I've been in this power RF business for going for 35-plus years. They got some real key people. Gallium nitride, which is their key technology is the technology of choice both for 5G and power management applications.

And one of the things we're seeing, all the products I've been talking about here for, specific the last three years, all are going to want remote monitoring. And that's the next step of our product.

We have the key RF and wireless component suppliers in the world that we work with on developing key products that will add to our portfolio where all these products that we have today that are going 300 feet up in a wind turbine or 20 miles out on a solar farm or some locomotive going across Wyoming, they'll be able to remotely monitor the battery, the power of the system itself.

And so it's just an iteration of our model. That's the model. It's -- we lead with technology partners and with a very unique capability internally for RF power and power management, we're able to come up with these niche products to support these applications..

Okay. Well, I think it was, well, at least three quarters ago during one of your conference calls, the stock was $11 in a fraction, and I said someone was not happy where the stock was, and I said that people like the stock more at $17 than $11. So I guess I'll do it again. I think people will like the stock more.

The stock is roughly $19.97 is the ask, I think I'll like it more at $29.97 than $19.97. And I'm willing to wait for that, no problem..

Our next question comes from [Brett Davidson with Investletter]. Your line is open..

Good morning. This is -- I'm enjoying the ride here. I got a couple of questions. The change in the backlog, I'm wondering if you can just give me an idea what that represents. Are you guys better able to keep up with the order flow where there are customers holding back until the end of the calendar year.

What does that small drop in the backlog represents?.

I'll add to it from a PMT and GES point of view. Most of our business, specifically on the green energy side is project-based. So we'll get large bookings one quarter and then three quarters from them when we get the components in, we'll have huge shipments. And that's just kind of the ride.

And if you just look at FY '22, the four quarters, we went from an $84 million backlog to $152 million backlog. Well, to get to 150% growth, we finally got the components we need it because I think I mentioned already that the lead times and supply chain issues, lease stuff we're looking at have not improved much.

And so it's really a project-based cyclical type thing. We're going to have huge bookings.

For example, in the fourth quarter of just in May of last year, we had $1.68 million, and this time around, we're a little over $1 million, So it's just kind of cyclical in terms of what we're able to get out of the factory to the customer in the quarter and based on their timing of bookings of the next session.

For example, we were awarded about $15 million of new business for electric locomotives in Q2. However, that does not show up in our bookings because we do not book that until we have scheduled delivery of the product. So if that was in there, our book-to-bill would be way over on our backlog, we'd actually be up quite a bit in the quarter.

So just the nature of the business..

So let me rephrase then things are just going to be kind of lumpy and you really can't read anything into it..

I wouldn't read a lot into it a fluctuation of 5% to 10% in our backlog, I wouldn't read anything into that based on the forecast that we're seeing and the traction we're getting. It's just that the way it's ordered our backlog will fluctuate, yes..

Got it. The green energy, the sales were up about 50% from the prior quarter.

Is that something we can expect to continue throughout most of this year? I mean is that the type of growth we're looking at here? Or that's kind of an anomaly and things are going to slow up a bit?.

Yes. One thing I know about forecast, they're going to be wrong, they're going to be high or low, but I can tell you in Q3 based on the backlog and scheduled shipments and the forecast builds, we'll see something very similar to that in Q3. That's about my visibility that I can give you right now..

All right. And then I got one more, and it goes back to the press release and my favorite line here, "We believe sales and profits will continue to significantly increase in fiscal 2023." I'm just looking for a little clarity on that.

Is that significantly increased quarter-over-quarter from the comparable quarter last year and what is significant?.

Yes. So I'll take that one first. So over prior year, yes, we believe we will see increases. And for us, I think we usually say in the 10% to 15% range increases, Q3 and Q4 are solid. And that's about as far as we're taking our forward-looking forecast right now, but it looks good..

Our next question comes from Eric Crown with Richie Capital. Your line is open..

Congratulations again on another great quarter. Just my first question I had is, I guess, can you kind of speak here kind of any updates just on the more near-term kind of innovations and opportunities within the ultracapacitors.

I'm kind of thinking more specifically the work you're doing with Siemens as well as some of the applications on cell towers, -- any kind of update on those?.

Sure. So, let's just start from the top in terms of both ultracapacitors, but also as you know some of the major programs lithium-ion phosphate but it's the same program. So on the ULTRA3000 was getting our calendar year 2023 forecast from our customers, and it looks like that business is going to be up in the 20% to 25% range in 2023.

Just to add to that, today the life of the program, we've shipped and have in the field over 30,000 ULTRA3000. So the second part product talk about look quick, if you could like the ULTRAGEN3000 that's used in three different applications.

One is T-Mobile continues to test that product company like T-Mobile is going to do a little bit longer testing, need a little bit of data. Before we implement that, we we're giving a proposal to a very large critical facility environment here in Illinois on the ULTRAGEN3000. But the big one is using the ULTRAGEN technology as in generators.

But as a starter module we are working with two of the larger electric vehicle manufacturers in the world, put together starter modules for them. And both sites in December have received the prototype product for that.

In addition to that, so we're introducing a couple new products in Q3, we do have beta site testing started with Siemens-on-Siemens ULTRA3000 modules for suppliers also such as Siemens, [indiscernible], Codex from European suppliers. That program is up and running very well.

And then also we'll be introducing the ULTRAUPS3000 says in the wind turbines for their power supply that they also currently use led acid batteries, which they're asking to replace. And finally an update on this program. It keeps getting traction.

Most of our businesses with owner operators that do not have contract with GE for services, we have been contacted and approved. GE is going to put our product in their portfolio products for all the GE Wind -- starting at the end of January. We're very excited about that on paper absolutely, but right now, we don't know, as we develop this program.

So you look at the ULTRA3000 still going strong as people through Phase 1, Phase 2, Phase three of the rollout with their sites. The ULTRAGEN3000 technology that we've developed and is patent pending, that's getting good traction in terms of beta sites and other products. The UPS and the multi-brand will be introduced in Q3.

And then finally the program we have with GE directly is also very exciting going forward. So that's kind of an overall summary of the current products that we're looking for short term, which means 2023, both revenue..

Fantastic. A lot of exciting things in motion. I guess the other question as you guys mentioned really kind of still full throttle in terms of production getting orders out, employees working six to seven days a week. And prior quarter, you mentioned you made a lot of kind of progress in bringing in more people and bringing you more labor.

I guess is that something you continue to be a focus? And how you're kind of thinking about that going into the year?.

So on the HR side, yes, we have continued to hire. But what we're doing now is making sure we've mentioned that there's going to be some slowdown in the semiconductor market.

So we've made sure everybody we've hired is cross-trained and they can now be moved from, for example, the semi production into green energy productions and even into healthcare production. So we'll continue to hire strategically, which is primarily engineering position with all of the programs Greg has mentioned.

We're constantly looking for different types of engineers to supplement the team. But from a production standpoint, we'll work within the confines of who we have right now..

Okay.

And do you have an updated number on the number of engineers?.

That we need or that we have?.

That we have..

Well, we have probably close to 100 all in now when you consider our field engineers and our application engineers and our development engineering..

That we've added. I mean total is 500..

He needs the number of engineers..

Okay..

And I guess the last question and you guys got us a lot, but just maybe a little bit different angle or a little bit of different aspects to it as within the semi wafer business, I mean, what are you kind of seeing from your customers? I mean, I know you said you have clarity through Q3, Q4 for your fiscal year, but what are you kind of hearing from your customers and from their business? Are they kind of information or insights you are getting from that?.

Yes. So they look at the overall market, and they're doing cash provide again a nice product to that market. And so it's hard for them to extrapolate what -- how that affects our business with them. So right now, the visibility we have is that we're going to be fine and strong for the balance of the fiscal year.

But going forward, they're seeing their end customers and also the China issue, Ed mentioned, there could be a slowdown, but they haven't been able to pass that exactly how that affects our numbers, and that's what Wendy was talking about some of visibility and the forecast for FY –.

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

How are you guys doing?.

That's very great numbers..

The market doesn't want to give you respect. You guys have the [Rodney Dangerfield] for a successful investment I want to couple things real quick. One, wind power last year was a tough year, wind power in Europe, winds changed direction, and they didn't deliver a lot of projects actually ended up not getting done or getting pushed out.

Are you seeing an improvement in the market this year in Europe with everything that's been going on and clean the winds returning to their normal courses?.

Yes. So right now 95% of our business is North America. The products I mentioned for Nordex, Senvion and Suvion, they're two of the three largest manufacturers of wind turbines in Europe, and they're pushing us very, very hard for this product.

So this product is, in essence, a replacement product that they need to get done to get those lead acid batteries out. So our market share is small enough that we feel that the market growth will be very strong for us, but the market itself is all based, to me, what I've seen and heard is on subsidies.

And there's a lot of push to get certain things done so they can collect their subsidies for 2022 at the end of the year, which was part of our large shipments and work in three shifts because we need to get those products to them in this fiscal year.

So rollouts of new wind turbines, I don't think it's accelerating much, but the upgrading or refurbishing, they call it, using our products, whether it be the ULTRA3000 or the UPS or our shunt, which is a product we've developed GE specifically, that seems to be continuing, based on their forecast, 2023 is going to be another strong year for us..

Okay. There seems to be a lot of misunderstanding. In fact, when you started to talk about the semi cap equipment space and the idea that there was uncertainty beyond the next two quarters, the market immediately sold your stock off pretty aggressively. Can you give people a better understanding of kind of the role that plays.

And as you said, everyone is cross-trained.

Do you actually think the issues in semi-cap equipment, if they do show up in the next fiscal year, will do anything to really slow your overall growth? Or will they simply allow you to take those people who aren't being utilized in semi-cap equipment or might not be utilized and push them over to these other faster-growing areas?.

Yes. I don't think it's going to slow our goals of 10% to 15% growth going forward, our internal numbers. The semiconductor wafer fab market historically, and I'm talking about the last 20 years that I've been involved in and also in this company always is it's always been cyclical.

It runs for about a year to 18 months of the upside and then it slows down quite a bit for like nine months to a year. It's just this last run has been close to 2.5 years. But I think the slowdown is going to go back to not 2.5 years, it will be nine months to a year.

But if we look at just internal projections about what it could be and then what we're have on the books with a strong backlog and new products, et cetera, in terms of profit dollars, gross margin dollars and top line, I don't think it's going to have much effect at all.

In fact, we'll more than overcome it based on the numbers that we've been talking about so far in this call..

Yes. I mean the call sounds exceptionally bullish the stock market reaction seems to be one I want to talk. I would say that it would help a lot of investors if they had someone who could tell them what they're supposed to think.

So if you guys could get some sell-side coverage, that would actually be nice because most people in my business can return to someone else to actually interpret results and prefer to act in the sort of thing, but that's only 40 years of experience working in the micro-cap.

I wanted to talk to you guys about the battery, the electric vehicle market, both from a car perspective, which is very interesting.

How big do you think that opportunity can become? How unique is your offering? And do you see that as an offering that will become -- have a broader appeal beyond the people you're currently working with?.

Yes. numerous electric transformations, whether it be locomotives or forklifts, and I think our niche is going to be these larger type of niche products. The electric vehicle power market, is this so saturated, everybody going after it? Obviously, it's a multibillion dollar market, and that's why everybody's going after it.

Our current capabilities are, again, similar to wind turbines or electric locomotives as we have a niche product, it's a charger module that we -- we sell VinSmart along with some other controlling circuitry. But that today is probably a $3 million to $4 million opportunity for us, and we have about $2.5 million backlog.

The charging stations are a little bit higher opportunity for us because we can develop unique products for charging stations specifically. But the electric car market, that's just -- it's like the handset market, which is the other part of my career. It's just saturated and lower margins and everybody wants at it.

We don't have a ton of value today on the electric car market other than our component designing capabilities, working with these customers to help them build systems. But our size is going to be on solar, wind, power management applications that are a little more high power, a little more niche..

And with the charging stations, what do you think the economic value you could you could have per charging station? I mean that's going to be a huge growth market going forward..

Right. And as we all know, the car market completely outweighs the infrastructure to get you charged up to be able to drive across North America or Europe.

So what it's going to be, I think, is similar to what we saw with the growth of these other products I've just talked about, where the customers are going to say, "Hey, you helped us design in all these components, can you build the module? Can you build -- in some cases, we did it at one time when it was in infancy, I actually build charging stations for the customer.

Like we do stuff for Lam, we do stuff for Caterpillar and Progress Rail. So our value will be anywhere from component designing to building and designing modules, to potentially building a larger portion of the actual charging station itself as more and more niche customers come out to try to support that market..

Okay. So that's an evolving niche market that could be potentially another leg to the stool..

Yes..

Can we talk about, with Progress Rail, one of the things a strike to obviously, you commented on how the industry -- the rail industry is looking at basically going kind of carbon neutral pushing forward.

You're working with progress, which is Cat and [indiscernible] their installed base that I can use that phrase here in the diesel use of electric locomotive business.

Do you know?.

I believe it's 25,000 in North America, 25,000 diesel locomotives. What portion of that is Progress Rail -- between them and Wabtec, I think it's probably going to be divided up 60-40.

But right now, the number that we heard from Progress Rail is about 25,000 diesel locomotives in North America that could convert over the next number of years between now and 2030..

Okay. And that's -- so that's obviously....

To add to that, their forecast to us was about 50 electric locomotives over the next three to five years was the conversion they were talking about.

And so what they would be seeing therefore is given the idea that they're talking about like a 10-year -- 7- to 10-year ramp, towards getting the 25,000, what you would expect to see is that 50 or so over the next few years and then almost you go parabolic after that?.

Yes, absolutely, yes. Yes.

In fact, like I mentioned before, for example, the program we have with Progress Rail out of Brazil, when that locomotive is done, which will be in their forecast, we're shipping now the guts of it, if you will, but they'll build the final train and introduce it to the customer in November of next year -- or this year, it will be the largest electric vehicle in the world.

And so to be involved with that capability and program on a weekly basis, and I think when that -- even that -- just that hits, we're going to see a big uptick. And then you're going to see, like you said, three to five years just booming as the acceptance of the product and subsidies and everything take place..

And so we're looking at, depending on the size and power of the locomotive and your role in it, $1 million to $3-plus million a copy?.

Exactly. Like I mentioned before, we build either the module itself with the ultracapacitors or lithium ion. We then build the structure, which is like putting them in racks, and then some controlling circuitry.

And then the third thing is the superstructure, which is literally the guts, the engine -- taking the diesel engine out and putting in a lithium-ion phosphate-based structure. And so yes, depending on that, it's anywhere from $1 million to $3 million per train..

And so when we're looking at the math, I mean this is one of the issues why I think it would be great to get some people telling my peers how to think you're looking at a market that literally as we go in the next four or five years, you're going to get meaningfully more revenue out of the electric locomotive business than you get as a company today.

And you're not going to lose anything else. You're not going to lose the wind tower, you're not going to lose any other aspects of the business..

Yes. That is the opportunity that we're looking at. And part of this business in terms of NPI, which again, this is new product, this is new disruptive technology that's going forward is you need to get whether you call it a beta site, a sponsor or a partner.

And if you just look at this, and I was talking to somebody yesterday about it, I had three phone calls on Monday, and one was with Siemens, one was a Caterpillar and one with NextEra. And they're they it.

I mean, to have them -- and not only is just beta site partners, I mean -- or beta site companies to test this product, I mean, we have calls every week. We're partners. And out of that -- so you got the upside of what we know.

But out of that, just think about all the other applications that a Caterpillar is going to look at or that a Siemens is going to look at. We're learning so much from them on what they need -- and again, we're a very unique company that has -- we're public. We're couple of $100 million.

But these programs that we're dealing with just could jump this company to huge numbers. And at one time, we were at what, yes, $600 million..

$700 million..

And like you mentioned already, it’s going to go from 0 to 100 here in the next months..

We think the electric locomotive business will be much larger than the land in a very short period of time..

Well, it’s actually it’s not just largely than Lam, but from going larger than Lam. If I do my math right, if you assume that it’s roughly 50-50, 60-40 split, so you’re talking about something in the to 10,000 to 15,000 progress rail diesel out there. They’re the incumbent.

You would think they’re likely to have a chance to what we what we saw with Union Pacific and some of their work, they went - they were Wabco and they went back to Wabco, it appears.

So if you’re looking at that and you say $1 million to $3 million on something that’s $10 million to $15 million, we’re talking about if you’re going to fill it in four or 5, let’s, say, six years, you’re talking about thousands of engines a year potentially.

I mean I was back in my own hedge fund days, I’d be talking to my private capital guys about showing up in your town and talking about taking this company private because.

I mean, this, to me, you’ve got a great business, makes you a ton of money it would be nice to get your cash flow positive in the U.S., so you can do some things whether it’s investing capacity or, quite honestly, buy your stock like a fool because of the way it’s priced.

But as I said, I do hope that we’re able to get some people out to help you [indiscernible] the story because this is the best story I hear..

Thank you..

Thank you very much. We think it is as well, and we’re really excited about the future. That’s for sure..

Yes. I mean this is – this rail business alone is – has the potential to be – take you guys on revenues to north of $1 billion, I would think..

We hope you’re right. We think we’ll get to $500 million in the next four or five years..

Yes. And then it goes from there yes. Keep up the good work, keep executing on the – all these things. It’s fascinating that you guys constantly find new areas and new niches to expand in while you have so much on the table already..

Our next question comes from Daniel Berner with Berner Family Fund. Your line is open..

Very interesting hearing from everyone in the Q&A thus far.

Can you maybe help those of us that are new to the story, understand what was it from a business standpoint that occurred in 2021 timeframe that enabled your inflection to profitability? I think maybe part of the frustration of people watching the stock price is folks are concerned whether this is a permanent inflection or a temporary inflection.

That's strictly a function of the cyclicality of the semi cap equipment market. So maybe if we could roll back four quarters and talk about what happened there? And maybe if you could, big picture, talk about whether that's, in your view, a sustainable inflection and how that's sustainable..

Happy to do that. First of all, as Greg mentioned, at one time, we were $700 million and 1,000 employees and losing money hand over fist. And so we ended up selling the security systems business to Honeywell, it's $75 million, and we sold the RFPD business to Arrow for $238 million.

And roll it back to $140 million company and then started to invest in trying to figure out what we wanted to be when we grow up. And it's really listening to our customers, what we call engineered solutions. And every time a customer comes to us and said, we need this module, we need this piece of equipment, we try to design it for them.

We have, as Wendy mentioned, nearly 100 engineers and all with a tremendous amount of experience in power management. It isn't rocket science. It's our customers telling us what they need, and that's where the ultracapacitor business has come from.

When turbine operators telling us they want to replace lead acid batteries and -- the now with cell towers in the same area.

Actually Progress Rail saw the patents that we have in the ultracapacitors that go into wind turbines, and they were building these electrical locomotives with lead acid batteries and wanted to know if we could provide something to replace the lead acid batteries.

Our engineers looked at it and said, well, it's a lower current, but you can use lithium iron phosphate batteries to replace it, and we designed a unit for them. and we've been selling them those products for battery compartment for about three years.

And ultimately, now they're bringing the production of those electric locomotives in the United States, and they asked us if we could build the entire battery compartment. And those battery compartments are over $1 million a piece. And it's one to 10 in each electric locomotive, every one of these opportunities came out of customer-driven demand.

And as we get into selling somebody like Caterpillar, they keep coming at us with more and more products that they want us to design and build for them. And that just hundreds of customers.

We have 20,000 customers all over the world, and customers are coming to us all the time about design this for us, design that for us, and that's what's made the success. So we went from 2011 at $140 million, adding these various products up to $160 million where we broke even. At $176 million, we made a profit.

And then the next year, we were up at, what, about $224 million. And you can see this year, we'll be over $260 million and the profits that the customers have taught us these products and the profits that are coming from it. So that's a long drawn-out speech, but that's it.

It's not rocket science, it's customers telling us what they want us to build and we have the engineering team and the experience to do it..

If you could be a little bit more specific, though, in 2021 specifically, I understand the evolution, but what was the catalyst in '21 that drove that inflection in net margin?.

The ultracapacitor business. We have been selling ultracapacitors for a company called Maxwell for about 15 years, and Maxwell was sold to Tesla. And Tesla took them out of the commercial industry and used their entire production for their automotive industry.

So we went looking -- we had about a $3 million business in ultracapacitors, and we went looking for another source and found a division of LG in Korea called LS Materials, and we wrote an exclusive with them for ultracapacitors.

And at the same time, NextEra, which is the largest wind turbine operator in the United States, also had been working with Maxwell to replace lead acid batteries, and they went to LS Materials and referred to us. And we spent two years working with them, designing the ultracapacitor modules to replace the 18 modules, the GE wind turbines.

And over a period of time, we've gotten two patents on that product. And as Greg said, we've shipped over 30,000 of those modules to date. And now all the wind turbine operators are buying from us. It's a little bit like a bridge club. You've got NextEra is the biggest one that has 10,000 or 11,000 wind turbines and service.

But right behind it, you have RWE, you have Enel, Invenergy and on and on. And so that builds -- business that's just built up from there.

And then the people and the cellular towers who also have these UPS, uninterrupted power supplies, they came to us and said, "Well, can you replace the lead acid batteries for us? and so it's just been from one customer telling another that's built this business -- and we're just the tip of the iceberg. The opportunity is incredible..

I think you can add to that, Ed, that when I look at the sales canvas also grew during that period, has got a strong margin. They grew -- they growing almost $5 million, which adds to the top line growth and more profitability..

What was lands grow I mean that to the roof..

Yes. That was a big part of it. I think all the business units in general are contributing to improved....

And Canvys is the same concept. These are medical OEMs coming to us and saying, "Can you build this custom display for us that goes into equipment like a linear accelerator for cancer treatment that we sell to Varian now owned by Siemens or laser-guided surgery equipment that we sell to Medtronics and so forth and so on.

So we have a reputation for being able to use our engineering capability to supply all of these requirements for the customers..

Do you guys have publicly traded competitors in the ultracapacitor space?.

Not the ones we're dealing with now Maxwell was, but currently, there's other ones are that make ultracapacitors are private, but they don't make the actual modules themselves. And that's another interesting topic is who used to be competitors of Maxwell have now contacted us for other projects using their ultracapacitors as an integrator.

And I think somebody mentioned on the call, we don't have a reputation right now being in the electric vehicle market, which is fine because I think the opportunity for power management applications is higher. But what we are getting is a reputation both from electric modules is to be an integrator of ultracapacitors into all kinds of products.

That's like you've seen, the UPS, the ULTRA3000, the ULTRAGEN, the locomotives, we're kind of a design and an integrator of ultracapacitors in niche products like Ed mentioned, that the customer needs for their system..

Okay. And last one for me, guys.

In terms of the Lam exposure and the semi cap exposure, is that confined to the Power & Microwave? Or is that across Power & Microwave GES Healthcare and Canvys?.

Only PMT..

Only PMT..

Our next question comes from Mike Schellinger with MicroCapClub. Your line is open..

Yes, in a previous call, you had mentioned an order you were expecting for ultracapacitors from -- for wind mills.

Is there an update that you can provide on that?.

Yes. We received the first order from a company called NextEra that we were just discussing. And they are the largest wind turbine operator in the United States. They have about 10,000 GE wind turbines in service, and they're adding about 1,000 a year.

And so we worked with them for two years and have two patents on the device that actually is unilaterally interchangeable with the GE module. So there's 18 modules in each wind turbine, and our device will actually replace one of those modules and work with the other 17 lead acid modules as necessary.

So after a couple of years working with them, they had them in beta sites for about a year. They gave us an order for $10 million. So it's basically $10,000 a wind turbine, if you will. And now, as I mentioned, the other wind turbine operators have come to us and they're buying from us as well. And that business just continues.

We probably did, what, $15 million in that business last year?.

Yes, thing like we shipped almost 16,000 units so far this fiscal year. But one thing to add to that, the order that I mentioned probably on the last call, we did receive that. It was a multimillion dollar order, which was Phase II for NextEra that was booked and shipped in the quarter.

As I mentioned earlier, they needed to get that into their wind turbines. So they did about a 30-day beta site testing on a kind of a version of the ULTRA3000 that was for a different turbine model. Our engineers were able to redesign it within weeks, get them the product. They tested it for 30 days and then we received the orders.

And going back to what Wendy said, we worked double and third shifts to make sure they got those products by the end of November. So I believe that was the order I mentioned that we were expecting in the quarter Q2 that we did get and we did ship it, which is part of the reason for the 150% growth..

We have a follow-up from David Schneider. Your line is open..

I think it was last night when I realized this is just my own opinion. The easy way to understand the Richardson Electronics story is that maybe four or five quarters from now, plus or minus, there's going to be a crossover when the GES segment, the green electric is going to be more than 50% of the operating income for the company.

And at that point, I think there would be a dramatic rerating of your stock as far as PE multiple other metrics. Obviously, right now, everybody, at least the way the stock is acting, is paranoid about the semiconductor, but it could be maybe four or five quarters from now, that won't even be in people's heads.

They're just going to be thinking about, does your company deserve a 20 or 30 PE multiple.

And based on the numbers that I was looking -- sorry?.

We think right yes. The green energy is certainly our future..

Okay. Well, I was looking at the only published research, I was looking at the last Sidoti piece, and I kind of ballpark for calendar '24, you may be close to doing $2 in earnings.

And even if I reduce that to $1.80, people are going to be thinking you're like green-energy company and 20x above $1.80 is a little bit higher than where your stock is now Anyway, that's really my only thought other than I'd like to purchase one of those machines that makes the diamonds because I have a few people that would like some diamonds..

We can get you on the diamond not the machinery..

No, we make the generator as well. If you want to buy one, we'll fix you up..

How much does the cost?.

The generator is about $20,000 a 6-kilowatt generator..

That's not our full system, David..

No, no. That's just the generator. The generator that tubes our 6-kilowatt tubes..

All right.

And is there a waiting list for the full system?.

You have to we should contact with some of our customers..

[indiscernible] All right. We'll work on that for Okay..

We have another follow-up from P. Taylor with ARS Investment Partners. Your line is open..

A couple of -- a call or two ago, you talked about the replacement tube business for medical imaging and the indication was it was losing $5 million or $6 million a year, which with 12 million shares out is something neighbored of $0.40, $0.50 a share.

You talked about the ability to bring that to breakeven or profitability over, say, the next four to eight quarters, where do we stand in shrinking that loss and pushing it towards profitability?.

yes. Good question. So while everybody was talking, I was looking at that exact same question. And in the current fiscal year -- last year, we lost a little over $5 million, almost $5.5 million. This year, we're trending better. And while we'll still have a loss in FY '23, it should be in $3 million to $3.5 million.

So that's $2 million improvement to the bottom line. And then we still are trending and believe we should be able to hit that breakeven point by the fourth quarter of FY '24. The Siemens program is coming along.

When that gets launched, and then I mentioned a couple of other things that we're looking at to kind of get a little breathing room, we feel that we'll be at that point by, again, fourth quarter of FY '24. We're not changing our anticipation there..

So this fiscal year, you're losing pretax about $0.25 a share. And by the end of next fiscal year, you'll be breakeven and have the ability to make profit? This has been kind of bugaboo for you guys. So getting this to where it's actually making -- generating good revenue and profit and becoming a profit center would be a huge shift..

You're absolutely right..

You are right. 100%..

And it puts, as I say, right now from this year, pretax puts into the next year gives you $0.15, $0.25 a share in pretax earnings power as in your pocket, which is a nice thing to have..

We also have a follow-up from Daniel Berner with Berner Family Fund. Your line is open..

On the GE turbine business, you mentioned -- you spoke a little bit briefly about the rollouts that you're going to be in every one of these GE turbines.

I guess, can you give us a little bit more color on what could potentially go wrong there? Is it delays coming from GE that might prevent some of these rollouts in the next few quarters? Or is it a substitution of a competitor module? I guess what's preventing you from being a little bit firmer on the guidance coming out of GE specifically?.

Well, two things. One, the only hiccup that we've seen, like I mentioned, we have over 30,000 units in the field with little to no RMAs. So the product technically is amazingly sound. Again, we have -- still have issues with piece parts.

And so the only thing that could slow that down would be a hiccup in our ability to get piece parts to build the product, but the backlog and the dates that we currently have, along with the forecast they've given us, there's no indication that I can see that would slow the program down other than our ability to make them fast enough to fill their needs.

And as I mentioned before, it's very project-based. So as I just mentioned, literally we got the orders in November and they wanted them shipped at the end of the month, a multimillion dollar order. So that's how it goes. So the other part of it is we really don't know the upside of the GE agreement.

Today, about half of the GE fleet has service contracts. That's part of the fleet that we couldn't address. So we virtually, with this program with GE, doubled our SAM, the market we can service. So from what I see right now, there's only upside in terms of demand and exclusivity.

As Ed mentioned, we have two patents on the product, which is one of the reasons GE has decided not to build their own or even look at building their own.

So yes, just at the end of the day, like we've been experiencing for the last couple of years, it's piece parts and the ability to get the supply chain to the point where we can meet the customers' demands as they request them..

There's no other questions in the queue. I'd like to turn the call back to Mr. Ed Richardson for closing remarks..

Thank you, Catherine. As we close out our 75th anniversary celebration, and this has been our 75th year. We're more excited than ever about the future, as you can tell by our conversation. Please give us a call and plan to visit if you have any questions that a heck of a lot easier to show you what we do and to tell you about it.

We'd love to show you our manufacturing and engineering facility, and you're welcome to visit us at any time. We look forward to our ongoing discussions and to sharing our fiscal 2023 third quarter performance with you in April. Thanks very much. If you have further questions, give us a call..

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