Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the Fourth Quarter and Fiscal Year 2023 [Operator Instructions]. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Ed Richardson, please go ahead..
Good morning. And welcome to Richardson Electronics conference call for the fourth 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. Fiscal year 2023 was one of the best years in our 76 year history. Operating income increased year-over-year by nearly 57% on a 16.9% increase in net sales, reflecting the power of our financial model.
This growth demonstrates the success of our long term growth strategy, especially considering a fluid global economic environment, supply chain challenges and significant product and wage inflation.
Over the past three years, we pursued organic growth strategies focused on expanding our product lines and leveraging the deep relationships we have with 20,000 customers all over the world. We've also greatly enhanced our engineering and manufacturing resources and capabilities.
The success of these strategies has transformed our business by increasing our scale and significantly improving our profitability. Since fiscal 2020 annual sales have increased from $155.9 million to $262.7 million, representing a compound annual growth of 19%. We've also significantly enhanced the profitability of our business.
Our gross margin has remained stable. We've controlled expenses. SG&A as a percentage of annual revenue was 32.9% for the year ended May 30, 2020 compared to 22.4% at May 27, 2023 the year we just finished.
Positive operating leverage has transformed the profitability as we've grown from an operating loss of $1.7 million in fiscal 2020 to an operating income of nearly $25 million in fiscal 2023.
Most importantly, the growth we've achieved over the last three fiscal years and more recently in fiscal 2023 has been driven by new products and applications development, new customer growth and expanded relationships with our global customer base.
The launch of our Green Energy Solutions business this year is a notable example of our successful strategies as GES Sales in fiscal 2023 grew by 110%. Not only did this support our performance in fiscal 2023 but our GES segment has further diversified our business and its helping us insulate from the challenging semiconductor wafer fab market.
While we expect the semiconductor wafer fab market to remain challenging over the next several quarters, we're excited by the significant opportunities we're pursuing all over our business units. We continue to develop new products and expand our global customer base.
These products include power management systems for wind turbines, electric locomotives, hydrogen power, synthetic diamonds. We believe our continued growth of our GES business will help offset the expected 2024 decrease in the semiconductor wafer fab equipment business.
Today, nearly 60% of our revenue comes from products we manufacture or have manufactured exclusively for us. Ultra capacitors and lithium iron phosphate battery modules, magnetrons, CT tubes and many other tubes and related products are manufactured by us in LaFox, Illinois.
We engineer and manufacture custom display solutions for medical applications in Boston and Germany. To accommodate this growth, we continue to hire talented engineers with a focus on new product development. We're also adding manufacturing capacity through our LaFox facility renovation, which is expected to be completed this week.
Recently, we had key OEM customers joined by their end users visit our operations here in LaFox. Each walked away with a list of products and opportunities they want us to explore in addition to the products they purchased from us to date.
We're excited to show off our completely renovated building at our upcoming investor open house scheduled for August 22nd. Now, Greg, Wendy and Jens will provide more details on the quarter and fiscal year, including these key growth initiatives.
First, Bob Ben, our Chief Financial Officer, will review our fourth quarter and fiscal year 2023 financial performance in more detail..
Thank you, Ed, and good morning. I will review our financial results for our fourth quarter and fiscal year 2023 followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures.
I refer you to our fourth quarter fiscal year 2023 press release for a reconciliation of non-GAAP items to the comparable GAAP measures.
Net sales for the fourth quarter fiscal 2023 were down 4.5% to $58.8 million compared to net sales of $61.6 million in the prior year's fourth quarter due to lower net sales in our PMT, Canvys and Healthcare business units, partially offset by higher sales in our GES business unit.
Net sales for GES increased $5.8 million or 61.7% from last year's fourth quarter. GES combines our key technology partners and engineered solution capabilities to design and manufacture products for the fast growing green energy market and power management applications.
PMT sales decreased by $8.3 million or 20.8% from last year's fourth quarter, driven by primarily a decline from manufactured products for our semiconductor wafer fabrication equipment customers. Canvys sales decreased slightly by $0.3 million or 3.2% due to the timing of shipments in North America.
Richardson Healthcare sales also decreased slightly by $0.1 million or 2.7% due to decreases in parts and equipment sales, partially offset by higher CT tube sales. Total company backlog was $160.4 million at the end of the fourth quarter of fiscal 2023 versus $175.1 million at the end of the third quarter of fiscal 2023.
Gross margin for the fourth quarter was 27.9% of net sales compared to 32.7% in last year's fourth quarter. PMT’s margin decreased to 29% from 35.2%, primarily due to product mix. GES’s margin decreased in the fourth quarter of fiscal 2023 to 23.4% from 31.1% in the prior year’s fourth quarter, also due to product mix.
Canvys gross margin increased in the fourth quarter of fiscal 2023 to 32.9% from 30.7% in the prior year’s fourth quarter, because of product mix and lower freight costs.
Healthcare’s gross margin increased to 23.7% in the fourth quarter of fiscal 2023 compared to 10.8% in the prior year’s fourth quarter due to improved manufacturing absorption, partially offset by increased scrap expense.
Operating expenses were $15 million for the fourth quarter of fiscal 2023 compared to $15.2 million in the fourth quarter of fiscal 2022.
The decrease in operating expenses resulted from tight expense control and lower incentive expenses from significantly lower operating income, partially offset by higher salaries expense, which included wage inflation.
The company reported operating income of $1.4 million or 2.4% of net sales for the fourth quarter of fiscal 2023 versus operating income of $5 million or 8.1% of net sales in the fourth quarter of last year.
Other income for the fourth quarter of fiscal 2023 including interest income and foreign exchange was $0.1 million compared to other expense of $0.2 million in the fourth quarter of fiscal 2022.
Income tax benefit was $2.6 million and non-GAAP income tax benefit was $0.2 million for the fourth quarter of fiscal 2023 versus an income tax benefit of $3.5 million and non-GAAP income tax expense of $0.5 million in prior year’s fourth quarter.
The fourth quarter of fiscal 2023 included $0.4 million for an R&D tax credit for the current fiscal year and a one time total credit of $0.6 million for fiscal year 2020 through 2022. In addition the fourth quarter of fiscal 2023 included a one time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance.
Net income for the fourth quarter of fiscal 2023 was $4.1 million and non-GAAP net income was $1.8 million compared to net income of $8.3 million and non-GAAP net income of $4.3 million in the fourth quarter of fiscal 2022.
Earnings per common share diluted were $0.27 and non-GAAP earnings per common share diluted were $0.11 in the fourth quarter of fiscal 2023 compared to earnings per common share diluted of $0.59 and non-GAAP earnings per common share diluted of $0.31 in the fourth quarter of fiscal 2022. Turning to a review of the results for fiscal year 2023.
Net sales for fiscal year 2023 were $262.7 million, an increase of 16.9% from $224.6 million in fiscal year 2022. Net sales increased by $8.9 million or 5.7% for PMT, $25 million or 110.5% for GES, $4.1 million or 11.8% for Canvys and $0.1 million or 0.5% for Richardson Healthcare.
Gross margin for fiscal 2023 was 31.9% of net sales, the same as during fiscal 2022. Operating expenses were $58.7 million for the fiscal year, which represented an increase of $3 million from last fiscal year.
The increase in operating expenses resulted from higher employee compensation and travel expenses, including additional incentives expense due to strong profitability. Operating expenses as a percentage of sales decreased to 22.4% during fiscal 2023 as compared to 24.8% during fiscal 2022.
Operating income for fiscal year 2023 was $25 million or 9.5% of net sales as compared to an operating income of $16 million or 7.1% of net sales for fiscal year 2022. Other income for fiscal 2023, including interest income and foreign exchange, was less than $0.1 million as compared to other expense of $0.2 million for fiscal 2022.
Income tax expense was $2.7 million and non-GAAP income tax expense was $5 million for fiscal 2023. The fourth quarter of fiscal 2023 included $0.4 million for an R&D tax credit for the current fiscal year and a one time total credit of $0.6 million for fiscal years 2020 through 2022.
In addition, the fourth quarter of fiscal 2023 included a one time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance.
The income tax benefit of $2.2 million for fiscal 2022 resulted from the $4 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. The non-GAAP income tax expense for fiscal 2022 was $1.8 million.
The company reported net income for fiscal 2023 of $22.3 million and non-GAAP net income of $20 million versus net income of $17.9 million and non-GAAP net income of $13.9 million during fiscal 2022.
Earnings per common share diluted were $1.55 and non-GAAP earnings per common share diluted were $1.39 for fiscal 2023 compared to earnings per common share diluted of $1.31 and non-GAAP earnings per comment share diluted of $1.02 for fiscal 2022. Moving to a review of our cash position.
Cash and investments at the end of fiscal 2023 were $25 million compared to $24.6 million at the end of the third quarter of fiscal 2023 and $40.5 million at the end of fiscal 2022. Cash generated is $0.4 million in the fourth quarter of fiscal 2023, was primarily due to a decrease in accounts receivable, partially offset by an increase in inventory.
The use of cash during the fiscal year related to higher working capital to support significant sales growth. US cash and investments were $7.6 million at the end of fiscal 2023 versus $8.9 million at the end of the third quarter of fiscal 2023 and $25.5 million at the end of fiscal 2022.
Capital expenditures were $2.4 million in the fourth quarter of fiscal 2023 versus $1 million in the fourth quarter of fiscal 2022. Approximately $2.2 million related to investments in manufacturing, including facility expansion and including the renovation of our office space.
Total capital expenditures were $7.4 million in fiscal 2023 as compared to $3.1 million in fiscal 2022. We paid $0.8 million in cash dividends in the fourth quarter and a total of $3.3 million in fiscal year 2023.
In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of $0.06 per comment share, which will be paid in the first quarter of fiscal 2024. As of the end of fiscal 2023, the company had not made any draws on its $30 million revolving line of credit with PNC Bank.
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. In fiscal year 2023, Power and Microwave Technologies or PMT and Green Energy Solutions or GES performed well with excellent growth in all aspects of the business. PMT revenue grew 5.7% while GES revenue increased 110.5%.
The major highlight in the fourth quarter was our GES group as it continues to drive strong growth with addition of new products, new programs and new customers.
Our GES group had exceptional growth throughout the quarter as the demand for green energy applications, such as wind energy, electric locomotives, energy storage and power management greatly increased.
We continue to apply focus and resources to this extremely important strategic business unit and the growth opportunity it represents for Richardson Electronics. GES sales were up 61.7% in Q4 FY23 at $15.3 million versus $9.5 million last fiscal year. Our backlog is strong at $42.9 million.
Revenues in GES include numerous successful products, such as the ULTRA3000 EV locomotive battery modules, ULTRAGEN3000 and products used in synthetic diamond manufacturing and other green advancements, such as hydrogen production and electric vehicles. In addition, we have numerous products and design, prototype and beta testing.
In the quarter, we continued to sign global technology partners and announced new patents and programs. We continually evaluate technologies to ensure we offer our customers the best most up-to-date solutions for their applications. In Q4, we announced the ULTRAPEM multi-brand module for several non-GE wind turbine platforms.
We received a third patent on our ULTRA3000 and we announced that GE Vernova had selected the ULTRA3000 as the exclusive pitch energy module for the GE marketplace, increasing our served available market. We also announced the ULTRAUPS3000 used in wind turbines and other power management applications.
This strategy of developing niche products and technologies is key to our long term success. The growth of customers and products in GES continues as our design teams are in discussions with several major OEMs weekly regarding the development of energy storage products and other green energy applications.
PMT sales in the fourth quarter of fiscal year 2023 decreased 20.8%, reaching $31.5 million versus $39.8 million in Q4 of last fiscal year. This decline was mainly due to the major slowdown in our semiconductor wafer fabrication equipment business.
The team has been supporting this semiconductor wafer fabrication business and its customers for well over 25 years. This business has always been cyclical and we expected to see a slowdown in 2023. However, in talking to our customers, they expect the business to start recovering in the first half of calendar year 2024.
Our engineered solution strategy is led by our global technology partners, such as Cuervo, MACOM, Anokiwave, Ellis Materials, AMOGREENTECH, Navitas Semiconductor and Fuji Semiconductor. Key tube manufacturers and partners include CPI, Thales, Nisshinbo Micro Devices and Photonis.
Each of our global partners help us meet and manage customers’ requirements. Our team has done an excellent job identifying and cultivating these relationships. We will continue to add partners who fill technology gaps in our offering and support our growth. In Q4, we added ConductRF, a leader in RF cable assemblies.
These key technology partners not only fill technology gaps in our component and engineered solutions offering but they also give us continued source of supply of new technologies to support all these new opportunities.
Often through these partnerships, we identify opportunities for new products that we design to manufacture in house, increasing the value we provide customers and allowing us to capture more market share and revenue. We also continue to invest in our infrastructure to support our growth.
We are bringing on talented design and field engineers and making investments to enhance our manufacturing capabilities. Our growing in-house design, engineering and manufacturing teams are doing a great job supporting increased demand for current products and new product designs. I'm pleased with the progress we are making.
With this team, we will continue to identify, develop and introduce new products and technologies for green energy and other power management applications.
Our growth strategy has been proven successful over the years and we'll continue to develop new products as well as increase our customer base, revenue and profits by capitalizing on our existing demand creation infrastructure.
Our belief in our future based on customer forecast and inputs requires us to strategically invest in inventory that positions us in order to fill the pipeline and ensure we can meet our customers needs through close collaboration with both our customers and suppliers. There are always headwinds but we carefully manage these.
We are prudently aligning with the business for a slowdown in the semiconductor wafer fab market over the near term, while maintaining our core competencies to support our wafer fab customers for the market expected to recover in calendar year 2024.
Much of the green energy business is project based and rollouts are dependent on our customers as well as their customers’ CapEx requirements. For example, we shipped over $18 million in products in FY23 to our Electric Locomotive customers, which they're using to build their prototypes.
These trains will be finished and shipped to their customers in Q2 FY24. New production orders are [indiscernible] expected until Q4 FY24. Also finding enough design and field engineering talent to support this growth continues to be a challenge.
However, with Richardson's unique global model, continued growth and with our technology partners and a focused strategy, we'll subsidize the project based business with products we engineer and manufacture to a very diverse customer base to have a more consistent, improved profitability with top line annual growth.
We also continue to grow by gaining market share, introducing new products and technology partners and expanding the value we provide to our customers worldwide. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers.
Our unparalleled capability and global go-to-market strategy are unique to the power and energy, RF and microwave and green energy markets. We have developed a strong business model, including legacy products and new technology partners that fit with our engineered solutions capabilities.
Through our steadfast and creative focus on customers, we'll continue to excel by taking advantage of opportunities when they arise. The execution of this strategy has never been better. There's no question our customers and technology partners need Richardson's products and support more than ever.
We continue to be very excited about the future as opportunities and our market share for PMT and GES continue to grow. And with that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare..
Thanks, Greg. Good morning, everyone. Fourth quarter sales for Healthcare were $2.8 million, slightly lower than fourth quarter sales last year of $2.9 million. CT tube sales were higher in the quarter versus the same quarter last year. Parts and system sales were both down.
On a full year basis, Healthcare sales were $11.4 million, just slightly above the prior year. System sales exceeded the prior year while part sales were down. CT tube sales were down less than 5% compared to last year.
Gross margin in the fourth quarter improved significantly to 23.7% versus 10.8% in Q4 of last year, primarily reflecting better factory utilization. Last year, we were forced to stop production for a period due to supplier quality issues. On a full year basis, gross margin was 30.7%, a meaningful improvement over 21.2% last year.
Much of the growth in gross margin was again due to positive production variances in FY23 stemming from enhanced operations. Scrap, while still high for the year, also decreased over prior year. We are pleased with the improvement in gross margin as an indicator that we've ironed out many of the production challenges we've had in the past.
We also want to point out that Healthcare's SG&A for the year was significantly below prior year. These savings, combined with the improved margin, resulted in reduced operating loss for healthcare compared to both our planned loss and our performance last year. We continue to make excellent 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’ install base is considerably larger than Canon’s and there are no third-party replacement options for these tube types. The repaired Straton Z is now in full production and performing well in the field.
We expect sales to rise gradually in the coming quarters based on early discussions with key customers. We are making excellent progress as well on the repaired Siemens MX series with a high degree of confidence that these will launch in the 2023 calendar year. We know demand is strong based on discussions we've had with our customers.
As noted in prior calls, the Siemens program is a critical element for our Healthcare business unit to reach its goal of providing a positive operating contribution to the company by Q4 of FY24. Several new programs that will further improve CT tube sales and factory utilization are still underway. These programs include reloading tubes in Brazil.
We continue to work our way through the local registration process. We are also partnering with an international company to reload and sell several other types in the Americas. We anticipate these programs may have a small yet positive impact on our revenue in FY24, depending on how quickly we can validate and achieve regulatory approvals.
I will now turn the call over to Jens Ruppert to discuss the results for Canvys..
ocular biometry, corneal cross-linking, refractive surgery, HMI to control medical devices within the operating theater, prostate biopsy, lithotripsy, dental treatment chairs, surgical navigation and laparoscopy. In the non-medical space, our products are used in a variety of commercial and industrial applications.
These include flight simulators, displays used in control rooms, human machine interfaces for ticketing machines and tailor prompting, talent monitors and clocks. I'm immensely 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 in fiscal 2024 and beyond. 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 organizations stay 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 and we continue to work closely with our partners to meet the demands of our customers. I will now turn the call back over to Ed..
Congratulations Jens you and your team on setting another new sales record for Canvys and our customs display solutions. You and your team have aggressively attacked the medical OEM market and provided them with solutions they can't find anywhere else. As you've heard from Bob Ben and the business unit leaders, FY23 was phenomenal.
While the semiconductor wafer fab cycle is expected to impact near term PMT sales, we believe we're well positioned to navigate the challenging market cycle.
We continue to pursue organic growth strategies that leverage our global customer and supplier relationships, provide our customers with more engineered solutions and expand our manufacturing resources and capabilities.
As a result, we're excited about the opportunities we have in front of us to significantly grow sales over the next three years and beyond. In addition, with our talented team and compelling products, I'm more confident about the direction we're headed than at any time as CEO of Richardson Electronics, which by the way has been 61 years.
We continue to manage expenses and carefully evaluate every dollar we spend to ensure we're protecting our cash and maximizing our return. Our intent in FY24 is to use our cash to fund our key growth initiatives, while taking advantage of the money we've deployed so far.
We firmly believe that developing solutions in a responsible manner alongside our suppliers and our customers is the key to our future success. We're scrutinizing inventory purchases. We review every capital expenditure and improve every add to staff.
We'll continue to explore and benefit from our favorable tax programs that support our green energy solutions. At this time, we'll be happy to answer some questions..
[Operator Instructions] Our first question comes from Michael Hughes with SGF Capital Management..
Ed, can you talk about the revenue generated from the semi cap equipment business in the just completed fiscal year, and what your expectation is for the coming year?.
Yes. It was approximately $40 million, which included Lam Research, Applied Materials, Tokyo Electron, MKS, Thales and a number of firms.
If you had heard the press release from Lam because of the CHIPS Act that Congress passed, they said their business would be down about 30% in the coming year, primarily because they couldn't ship high tech equipment to China.
Since that time, they've come out with a much more optimistic forecast saying that by the end of 2024 that their business will even be stronger than where it's been in the past. And they've even gone so far to tell their vendors we'll help support you financially to make sure you have the resources to supply our products when we need them..
So $40 million in the just completed year.
Do you have a ballpark number that we can think about for the coming year?.
Yes. We're forecasting about $20 million and that may improve, but right now that's what it looks like..
So that's about a $20 million headwind. And just my follow up, at a recent conference, I think you talked about a $290 million number potentially for the coming year, that's a pretty stout headwind that $20 million coupled with, it doesn't sound like there are going to be any rail orders, additional rail orders until fourth quarter.
Is that what Greg said? So just kind of maybe talk about the top line number for the coming year?.
We think that there's enough business and various projects that we're working on in Green Energy that will more than compensate for the loss of business in the semi fab area. Now we have projects going not only for wind turbines, it was originally GE wind turbines, now Siemens wind turbines.
We've been under approved source for GE for all of their customers. They tell us they have 800 on their electronic systems. In addition, we're making energy storage systems and we're working in the cellular field. As you know, we're working on the electric locomotives both for Progress Rail and Wabtec, which is the old General Electric facility.
Each one of the diesel locomotives has what's called a battery start and those are lead acid batteries like 50 times what you'd have in a car. And we've developed either an ultra capacitor module or a lithium iron phosphate battery pack to replace those that gives them from seven to 10 years life.
And we're in a prototype beta system on those and project that that could be very substantial in the future. There's something like 30 to 40 million diesel engines in use in the United States. So the replacement for those units is $3,000 to $5,000 a piece, you can just imagine what the potential is..
We should just clarify the thousand million, we wish there were 30 or 40 million….
Our next question comes from Anja Soderstrom with Sidoti..
Can you just talk about the gross margin opportunity and how we should think about that in the coming years?.
I think, overall our gross margin will run about 32% somewhere in that area, and that's a mix with all of our businesses.
Certainly the semi fab business, which is very profitable, reduces our margin but we pick it up on the Green Energy Solutions where the business, particularly for wind turbines and energy storage systems and also the battery starts, is quite profitable..
Just to add on to Anja. I think, in the FY24, as Ed mentioned, semiconductor market has always been very profitable for us. So we'd be looking at a gross margin more in the 30% range for the FY24 [Multiple Speakers] we expect it to recover back into the range that Ed was pointing out..
But since the GES is a little bit lumpy, right, that could pressure the margin in the near term as well, but as that revenue comes in that should help the margins, right?.
The issue is not a matter of if. It's obvious these programs are all in progress. It's a matter of when and how quickly they'll be rolled out..
And that will also help the gross margin….
That's right..
So it should be improving sequentially.
And then in terms of the inventory, is there any way you -- is there any risk to that inventory or can you get help from your customers in terms of financing that or?.
Well, we worked out programs with our suppliers. Greg, you might mention the one program you have where we have 180 day terms..
Yes. With all of our technology partners, we have zero liability. We have complete stock rotation of the product for the components. On the engineer solution side, we've developed great payment terms, because as we're all dealing with it's project based. And due to lead times, we're collecting inventory.
But there might be one or two parts that have to this day 30 week lead times. And so they've been very good in working with us, because we are designing disruptive technology for them. And so we've gotten good payment terms.
So even though inventory might be up in a certain situation, if it is, we usually have signed either special terms or some sort of stock rotation capability if the product does not move at a certain date..
Our next question comes from P. Ross Taylor with ARS Investment Partners..
Couple quick questions. One you talked about the idea of seeing semi cap equipment revenues drop from 40 to 20. We own in our larger cap products a number of the semi cap equipment companies, and pretty universally they see the quarter we're currently in as the trough revenue quarter.
So would you explain to me why we should see revenues dropping meaningfully over coming quarters when they actually see revenues or they're expecting revenues to ramp over the next three, four quarters pretty sequentially?.
Well, we based that on the first two quarters. And you're right, we've heard that they think the trough is in the next quarter or two. And if that happens then it'll turn up much faster. But we'd rather underpromise and overperform than to tell you that it's going to be 30 million, 40 million and it comes in at 20 million..
Yes. I think the street's a little nervous about that number, and I think it does make -- and part of what I want to highlight is that you have a pretty tight correlation between how [indiscernible] and Lam and the likes do historically, those have a pretty close tracking, and so that one would expect that they turn up.
But this is the nature of their performance that this quarter that we're in currently, should be the nature of yours. Away from that, can you talk to us about green energy? You saw a six, whether like a 60% plus, 62% rise in revenues, but only about a 22% increase in operating profit from that business it appears. That's a pretty wide margin spread.
Can you give us an idea of which margin -- is this a 30% plus margin business or is this a low mid 20s margin business?.
Yes, the products altogether in our green energy group is 30% plus margin overall. What you saw in the fourth quarter was large shipments of the battery management systems that we shipped to our largest electric locomotive customer.
And again, this is prototype build so this is prototype quantities, prototype products and that we shipped a little margin until we get to economies of scale when we get into the production.
And so what we do is in support of these large customers making us exclusive, we'll give them the production pricing for the -- in essence prototype shipments with a letter of intent.
So what we saw was huge shipments to our electric locomotive customers in the fourth quarter, which was a little more less margin than our overall margin [Technical Difficulty]..
So we should expect that margin then to tick back up into the low 30s as we push forward.
And you're seeing substantial growth overall in the GES space in the coming year as well, correct?.
Yes, correct. The balance of the business is in the mid 30s [Multiple Speakers] the product..
And that's -- so basically this is kind of at an aberration quarter.
So the hit we saw this current quarter is really kind of a confluence of events, but it should self-correct it going forward?.
We believe so, absolutely..
And can you talk about backlog? Has the drop in backlog been tied in heavily to semi cap equipment?.
Yes, we were running with a backlog in the semi equipment business over $40 million. And at the downturn, two things have happened. The Lam, for instance, they took everything they had on order everything we were manufacturing for them, so we filled their supply chain. And so now you get a [last] in that.
But as we did that our backlog went down and we don't have new orders to replace it..
But at the same time, they're indicating to you to be prepared to ship everything you can ship..
In the second six months..
The upside here should be explosive and quite honestly probably justifies better than a 12 PE.
And that you have cash needs outside the US, but I myself might argue that it would make sense to have a net zero cash position or something of that nature and use that as a chance to do a Dutch auction in this market and buyback a million, million and a half shares. I don't think you'd get it bluntly.
I just don't see -- I think once you highlight and people start to actually think about where you're going to be in 12 or 18 months on an earnings power basis, it seems that you should get back in track with where we thought you were going to be at the beginning of this year, which is -- should be enough even the 12 times earnings to make the stock 50%, 60% higher than it was, but at a higher than 12 multiple.
It seems that this is a great place to buy stock..
Well, every Board meeting we consider it. As a matter of fact, when we sold RFPD in 2011, we bought $65 million worth of stock back at about $8..
And this strikes me as another opportunity of that nature that you've got a total -- the market is punishing you, equity market’s punishing you for fund -- for things that are self-correcting. And the next two years should be a real home run for you guys. So I'll pass that thought to the board and I’ll….
What happens [Multiple Speakers] price of the stock, we'll see..
Well, today it's down. So when you have your Board meeting, you can….
Our next question comes from Barry Mendel with Mendel Money Management..
There was no mention of magnetron, and I know you guys are increasing capacity substantially of magnetron.
Can you talk a little bit about the capacity expansion and what you're seeing there?.
The demand for the YJ1600 for synthetic diamonds is far in excess of how many we can manufacture. We have approved our manufacturing process substantially in our yields are back up to the normal. And we think as we go along we can ship. I think we were still back order and done like 5,000 of those.
And of course that's all dependent upon the quality of the product, which we think we've improved and -- but the demand is certainly there..
Well, how much -- what's your backlog, do you have the dollar amount or what's in your backlog for that?.
I don't know.
Wendy, do you know the total backlog for magnetrons?.
I don't have that handy..
It used to run about $15 million to $20 million. I'm not sure where it is today, but the YJ1600 sales per average price is about $3,000 and there's roughly 5,000 of those in backlog..
And what kind of gross margin’s on that product?.
It runs about 35%..
So I would expect to see a substantial increase down in shipments this fiscal year is in the magnetron versus last year?.
That's correct, yes. As long as we don't lose the formula, there's a lot of black magic in tubes..
And I assume, and Wendy in Healthcare that you still expect breakeven by the fourth quarter?.
We see the path to that. We're really excited about the progress we're seeing with the repaired Siemens program, not only from our own internal development perspective, which is going very well but from the customer response.
We've talked to a large number of some of the larger companies that aren't even necessarily buying the cannon tubes from us because they don't serve as cannon equipment. And those can be obviously game changers for us. So lots of interest, making really good progress on the development of the repairs program.
So yes, we still feel good about Q4 at a breakeven level..
Our next question comes from David Schneider, who's a Private Investor..
Just a comment or two, then a question. Regarding semiconductor demand, there was a news release from Stellantis automotive OEM a day or two ago. They're scrambling to ensure supply of semiconductors globally for the next several years.
So just to put a little thought in people's heads is that as vehicles go from internal combustion engine to electric, the semiconductor content increases dramatically. So that's a tailwind for you, maybe not today but it's there.
And then on a potential buyback, because you do have a small dividend, when you buy back a share, obviously, you don't have to pay from after tax cash flow dividend on the buyback share. So I'm trying to give a little push for that.
And wondering on the move towards silicon carbide for automotive, for high voltage applications, if your -- what you do with semi cap equipment has anything special with that? And then on the Siemens wind turbines, it's common knowledge that they've been having some problems with a decent percentage of their installed base, because they have some real crappy parts in there.
So does that actually make them more interested and putting you in as, let's say, an OEM supplier as opposed to pulling out the lead acid batteries? That's about it for me..
David, I'll touch on the Siemens question. It has no effect on our discussions with them so far with their network of wind turbines. They also service various wind farms that have different platforms.
But we're full speed ahead with them on both the ultra UPS, the new product we announced in the fourth quarter and also the ULTRA3000 our variation of that for their turbines to replace what they currently have in there.
So their issues are the same issues as all the owner operators and wind turbine manufacturers have had in terms of replacement costs of batteries that fail every 18 months to two years, both in the PEM system and the UPS and that's what we're focused on.
And just today we shipped over 40,000 ULTRA3000s and those numbers will be similar as we roll out the UPS to those same customers..
And then the other question was on the silicon carbide.
Any special impact of that migration on your semiconductor equipment business?.
No. In terms of delivery and parts being available, our technology partners and as you know, we have numerous silicon carbide technology partners. We've been fine. We have a major win in the electric vehicle market with VinFast out of Vietnam for their electric car.
So we haven't seen, David, anything that would slowdown or subdue our opportunities or growth..
Our next question comes from Michael Hughes with SGF Capital Management..
Just, you don't get a lot of questions on the legacy two business, but I think it's roughly 40% of revenue.
So how did it perform in just completed fiscal year and what's the outlook for the coming fiscal year?.
Well, including the semiconductor wafer fab, which has tubes in it and wave guides and microwave devices, it went from a 100 million to about 120 million last year, so it was up substantially.
And the core tube business is very strong and they told me 25 years ago we wouldn't sell tubes in five years and it was up over 20% this year, and we own about half the commercial market. So we wish there were more businesses like the tube business. But we sell 20,000 customers all over the world, probably 80% of those products are in aftermarket.
So it's a very predictable business..
So the core business continues to perform well. And I think what's happened over time is maybe volume is in decline, but you take enough price each year to offset that.
Is that how it works?.
That's correct. That's right..
And then on the Green Energy Solutions business, Greg did you say that the backlog was $43 million? Is that correct?.
Yes. The backlog is 43 point something. Yes, correct..
Okay, I understand that business….
$43 million..
Okay, I understand that business is rich with opportunities, but that number was down from, I think $54 million in the prior quarter.
Is that just burning through some of the locomotive revenue, and should we expect a little bit of a pullback in the revenue for that division over the next couple of quarters and then a ramp in the back half?.
That's exactly what it was. Again, that business and including most of the engineered solutions products in the Green Energy Group is project based. So our bookings were through the roof as you remember in the first half of the year and then we designed and built it and shipped it.
And so we had huge shipments in Q4 to meet our customers’ requirements so they could build their full electric locomotive. So I don't think we'll see production orders, as I mentioned, till Q3, Q4 of next year, large production orders.
But we have some other products, I think, as Ed touched on with other electric locomotive manufacturers that should keep that top line growth going. But that's exactly, this is project based. You're going to have that, you’re going to have huge bookings one quarter and then huge shipments a few quarters after that and then wait for the production.
It's all part of the new product introduction process. And these are all, as you know, new products that didn't exist two years ago..
Do you think the backlog that this was a low point and it can grow from here, meaning the book to bill would be north of one over the next few quarters for that division?.
Yes, I think our bookings will be strong in Q1 and Q2 of this fiscal year. And then our top line, I think, will be stronger than any quarter we've seen in the last couple years in Q3 and Q4..
And then last housekeeping question for you.
Do you have the backlog for PMT and then Canvys?.
Canvys is about $40 million….
$47 million for Canvys, yes….
Yes, 47 for Canvys, PMT in total but that includes Green Energy Solutions was 111.9, so we don't have -- I don't have it broken out here on my sheet and Healthcare was 1.7….
Yes, actually I do have the backlog for PMT. It was $69 million and then $42.8 million for a total of both groups of $111 million..
Ladies and gentlemen, this does conclude the Q&A portion of today's conference. I'd like to turn the call back over to Ed for any closing remarks..
Thanks, Kevin. We appreciate your investment and interest in Richardson Electronics. And I'm really pleased with the performance of our team throughout the entire last year and remain confident we're on the right track for long term growth. We look forward to our ongoing discussions and sharing our fiscal 2024 first quarter with you in October.
Please don't hesitate to call us any time. We're always available to talk to you. Thank you..
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day..