Richardson Electronics [RELL] Conference call transcript for 2021 q3
2021-10-07 13:32:06
Fiscal: 2022 q1
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Operator: 00:03 Good day and thank you for standing by, and welcome to the Richardson Electronics Earning Call for the First Quarter of Fiscal Year twenty twenty two. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. After the speakers’ presentation, there will be a question-and-answer session. 00:32 I will now like to hand the conference over to Ed Richardson, CEO. Please go ahead.
Ed Richardson: 00:47 Good morning and welcome to Richardson Electronics conference call for the first quarter of fiscal year twenty twenty two. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power and Microwave Technologies Group; and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. 01:19 I'd 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. 01:38 Net sales for the first quarter of fiscal twenty twenty two were fifty three point seven million, thirty eight point four percent higher than last year's first quarter. We are excited about the strong start to fiscal twenty twenty two as we achieved the highest level of quarterly sales in eleven years, and the best quarterly earnings per share in nine years. Sales were higher than prior year across all three business units. 02:08 Our strong first quarter performance is a result of growth initiatives that are starting to take hold and the ongoing strength of the semiconductor wafer fab market. Our legacy tube but display businesses also bounced back after struggling earlier last year due to COVID-19 pandemic. While we continue to face unprecedented global supply chain and logistics challenges, the team has done an excellent job serving our customers. 02:39 The first quarter ended with record backlogs for the ULTRA3000 ultracapacitor modules for GE wind turbines. Microwave products and Canvys display is putting us in an excellent position for continued growth 02:54 I'll now turn the call over to Bob Pen, Chief Financial Officer, to review our first quarter financial performance in more detail. Then Greg, Wendy, and Jens will update our successes in new programs as well as our challenges in each business unit.
Robert Ben: 03:13 Thank you Ed, and good morning. I will review our financial results for our first quarter of fiscal year twenty twenty two followed by a review of our cash position. Net sales for the first quarter of fiscal twenty twenty two increased to fifty three point seven million or were up thirty eight point four percent compared to net sales of thirty eight point eight million in the prior year's first quarter, due to higher net sales across all three business units. 03:41 PMT sales increased by twelve point eight million or forty two point two percent from last year's first quarter, driven by higher sales of power conversion in RF and microwave components as well as semiconductor wafer fab equipment specialty products. In addition, sales across most of the Electron Tube product lines increased from the first quarter of fiscal twenty twenty one. 04:06 Canvys sales increased by one point seven million or twenty five point eight percent due to strong customer demand in Europe. Richardson healthcare sales increased zero point four million or twenty two point zero percent year over year, primarily due to an increase in demand for ALTA750 tubes, partially offset by lower sales of parts and pr-owned CT scanners in Latin America. 04:34 Gross margin for the quarter was thirty point three percent of net sales compared to thirty one point eight percent of net sales in last year's first quarter. PMT margin decreased to thirty point one percent from thirty three point zero percent due to a higher percentage of lower margin PMG sales. 04:54 Canvys margin as a percent of net sales decreased to thirty three point four percent from thirty four point zero percent because of higher freight costs driven by the COVID-nineteen pandemic. Healthcare margin improved as a percent of net sales to twenty four point three percent in the first quarter of fiscal twenty twenty two compared to five point six percent in the prior year's first quarter, primarily due to improved product mix and manufacturing absorption from increased production of the ALTA750 Tube. 05:26 Operating expenses were thirteen point five million for the first quarter of fiscal twenty twenty two compared to thirteen point zero million in the first quarter of fiscal twenty twenty one. The increase in operating expenses resulted from our normal employee compensation expenses including incentives and annual merit increases, as well as higher travel expenses. 05:48 While there were some additions to staff during the quarter, the majority of the increase in our employee count was in manufacturing positions and included in cost of goods sold. These increases were partially offset by lower legal expenses. 06:06 The company reported an operating income of two point eight million for the first quarter of fiscal twenty twenty two as compared to an operating loss of zero point six million in the first quarter of last year. Other expense for the first quarter fiscal twenty twenty two including interest income and foreign exchange was less than zero point one million, compared to other expense of zero point four million in the first quarter of fiscal twenty twenty one. 06:34 The income tax provision of zero point two million for the quarter reflected a provision for foreign income taxes, which was higher than in the prior year's first quarter, and the offset of a U.S. Tax provision against the valuation allowance. 06:50 Net income was two point six million for the first quarter of fiscal twenty twenty two as compared to a net loss of one point one million in the first quarter of fiscal twenty twenty one. Earnings per common share on a diluted basis in the first quarter of fiscal twenty twenty two were zero point two zero dollars compared to a net loss per share at a diluted basis of zero point zero nine dollars in the prior year's first quarter. 07:17 Turning to a review of our cash position, cash and investments at the end of the first quarter of fiscal twenty twenty two were thirty six point four million, compared to forty three point three million at the end of fiscal twenty twenty one; and forty two point five million at the end of the first quarter of fiscal twenty twenty one. 07:37 Cash use in the first quarter of fiscal year twenty twenty two resulted primarily from an increase in working capital that was necessary to support the significant year over year sales growth we experienced across our three business units. 07:51 A large portion of the inventory growth relates to components needed to fulfill orders on hand for the ULTRA3000 and other long time lead parts for PMG. 08:03 Capital expenditures were zero point eight in the first quarter fiscal twenty twenty two, compared to zero point seven million in the first quarter of fiscal year twenty twenty one. Approximately zero point three million related to investments in our healthcare business, zero point three million was for our IT System, and zero point two million was for other projects. 08:26 We paid zero point eight million in cash dividends in the first quarter fiscal twenty twenty two. In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of zero point zero six dollars per common share, which will be paid in the second quarter of fiscal twenty twenty two. 08:46 Finally, during the first quarter of fiscal twenty twenty two, we repatriated zero point seven million to the U.S. from China. Our U.S. domiciled cash and cash equivalents balance totaled eighteen point one million dollars as of August twenty eight, twenty twenty one. 09:00 Now, I will turn the call over to Greg, who will discuss the results for our Power and Microwave Technologies Group.
Greg Peloquin: 09:07 Thank you, Bob, and good morning, everyone. Sales for the Power and Microwave Technologies Group or PMT in the first quarter of fiscal year twenty twenty two grew forty two point two percent to forty three million versus thirty point three million in Q1 last year. In addition to an excellent sales quarter, PMT achieved a book to bill ratio of one point one three. 09:30 Our sales growth and strong bookings marked a solid launch to what is shaping up to be an excellent fiscal year twenty two. Our gross margin decreased in the quarter to thirty point one versus thirty three percent in the prior year, which was mainly due to product mix. 09:47 Looking into the PMT Group, we continue to have excellent growth in our Power and Microwave Group, or PMG. We have a growing line of new technology products targeting RF and wireless applications. This includes 5G infrastructure programs, as well as power management and energy storage applications that support numerous green initiatives. With respect to 5G wireless and power management revenues increased by double digits again in Q1. 10:16 Our Electron Device Group or EDG business unit produced strong sales and bookings in the quarter from our Engineering Solutions products to support the semiconductor wafer fab equipment market. Additionally, our legacy tube business also grew in the quarter, exceeding the first quarter of last year. We have increased backlog going into Q2 FY twenty two. This was achieved by continued growth in power management and wireless communications. 10:43 On the power management side, we saw growth in applications for wind, solar, electric vehicles, and energy storage. New products such as our patented ULTRA3000 pitch energy module, used in wind turbines, continue to gain tractions with increased bookings in the quarter. We are producing the ULTRA3000 with great results in the field and now millions of hours of accumulated operation. 11:08 Our production quantities in the quarter did not meet our forecast due to component lead times. However, in the quarter, we built a strong inventory position on these key products and we expect to increase shipments going forward throughout the balance of fiscal year twenty two. 11:24 Our RF and microwave business continues to benefit from positive trends associated with 5G, microwave communications, and SATCOM applications. As people continue to work for multiple remote locations, they must be able to send and receive large amounts of data. Our entire team has done an excellent job identifying niche technology partners who collaborate with us globally. 11:46 We continue to invest in and focus on resources to support these growth markets. These resources include design engineers, field engineers, and manufacturing capabilities. We also added several small niche suppliers to fill technology gaps. This strategy has been highly successful, and we will continue to use it to develop new products, customers, revenue, and profits by capitalizing on our demand creation infrastructure. 12:15 EDG also experienced an increase in both semiconductor wafer fab demand and large MRO tube business. We have also seen our legacy tube business come back strong during the last two quarters. The first quarter of FY 2022 continued to prove that the demand for our products and services did not go away with the pandemic, and we're even more excited about the trends in the coming quarter. 12:40 We continue to receive support from key partners such as Qorvo, MACOM, Anokiwave, UnitedSIC, LS Materials, and Fuji semiconductor. Key tube manufacturers in the industry such as CPI, Thales, NJRC and Photonis worked with us to manage customer requirements. 12:59 Our in house engineering and manufacturing teams did a great job supporting increased demand from our global semiconductor wafer fab customers. The team also supported product designs for key markets such as the ULTRA3000 with patented technology for power management in the wind turbine market. 13:17 Our engineers and partnership with Battery Street Energy also developed the ULTRAGEN3000, which we will be introducing in the second quarter for cellular base stations and critical facilities. I'm very pleased with the progress we are making. We will continue to identify, develop, and introduce products using ultracapacitor technology for power management application, and this portfolio of products will continue to grow throughout FY twenty two. 13:46 We remain challenged by longer semiconductor component lead times. This affects our component business and Engineered Solutions products, including the ULTRA3000 and ULTRAGEN3000. To compensate for this, we are taking an aggressive stance on inventory to fill the pipeline and ensure we can meet our customer’s needs we're working closely with our customers and suppliers to complete this. 14:07 I cannot stress enough, the way of Richardson Electronics model to our customers, and suppliers. Our unparalleled capability and go to market strategy are unique to the RF and microwave industries. We've developed a powerful business model including legacy products and new technology partners that fit well with our Engineered Solutions capability. 14:29 Through our steadfast and creative focus on customers we'll continue to excel by taking advantage of opportunities as they arise. We believe our customers and technology partners need Richardson’s products and support more than ever. 14:43 With that, I'll turn it over to Wendy Diddell and Richardson Healthcare.
Wendy Diddell: 14:48 Thanks, Greg, and good morning, everyone. Sales for the healthcare group were two point three million, an increase of twenty two percent versus Q1 last year. After a strong year end finish, sales in June and July started off slow and then picked up in August. We believe the slow start to the quarter was due to increase in COVID-nineteen cases, and the impact this had on hospital’s priorities, as well as people pushing off elective surgeries. 15:14 We're pleased to see tube revenues increase ninety two point five percent over the prior year. Strong demand in Europe and the China reloading program continued to positively impact tube sales. Gross margin in the first quarter was twenty four point three percent versus five point six percent in Q1 last year. 015:33 We still have lingering supply chain issues related to COVID, as well as inconsistent component quality from our suppliers. This limited the number of tubes we made in the quarter and also resulted in higher scrap costs. We met customer demand, but we still have additional production capacity and initiatives are underway to improve parts in tube yields. 15:53 Getting the ALTA750G into full production, followed by the Siemens repair program, will also positively impact margins. Regarding the launch of the ALTA750G, we have had one tube in beta and it continues to perform well. We anticipated full rollout by early fall, but we are behind due to push-outs with our second beta tube site. We now anticipate launching the ALTA750G in November or December. 16:20 Sales growth will be gradual as we get the ALTA750G into the market and Canon CT scanners come off OEM service contracts. We are on track to ship our first repaired Siemens type, the Straton Z in small quantities between now and the end of the calendar year. Additional Siemens types, the MX, MXP, and MXP-46 will follow in calendar year 2022. 16:46 There are no third party replacement options for these Siemens types. Siemens CT market share is significantly larger than Canon, making this an attractive market. While this is a repair program, we follow the same development steps as a new tube to ensure our products exceed our customer’s expectations. 17:06 Having a broader range of tubes to offer our customers will increase our importance as a healthcare supplier and support our mission to help reduce healthcare costs. It will have a positive impact on sales and improve gross margin as we leverage our manufacturing operations. 17:20 We have also started the process of identifying our next tube program and are currently evaluating business plans to ensure sufficient demand. We also continue our efforts to expand the number of countries in which our tubes are registered. In the quarter, we shipped our first tube to Vietnam. We also registered our tube in India. We anticipate sales in India will be minimal due to the smaller Canon installed base. 17:45 Canadian registration, which is wholly dependent on the Canadian authorities, is still pending. 17:51 I will now turn the call over to Jens Ruppert to discuss the results for Canvys.
Jens Ruppert: 17:56 Thanks, Wendy, and good morning, everyone. Canvys, which includes the engineering, manufacturing and sale of custom displays to original equipment manufacturers in industrial and medical markets delivered outstanding performance with sales of eight point four million during the first quarter of fiscal twenty twenty two. A twenty five point eight percent increase over the same period last year. 18:20 Increased customer demand in Europe drove the growth where we experienced a nice pickup after the COVID-related slowdown in the previous year. Gross margin as a percentage of net sales was thirty three point four percent during the first quarter of fiscal twenty twenty two, down slightly from thirty four point zero percent during the first quarter of fiscal twenty twenty one. The decrease in gross margin was related to increased freight costs that is impacting many companies across the global supply chain. 18:52 Our backlog at Canvys is at an all time high. Customers continue to compensate for supply chain uncertainties. This is particularly true in the electronic components market. We are also dealing with ongoing extended lead times for selected components from our Asian suppliers. 19:14 The phenomenal bookings last quarter along with a number of projects that are currently in the engineering stage position us well for continued growth assuming no longer term impact related to the COVID-pandemic or worsening supply chain challenges. 19:31 I am pleased with the positive progress in our online awareness initiative. We are adding new application stories to our website publishing, press releases, and using social media to promote our new product platforms. We are confident that our online strategy will result in new leads and business growth in the future. 19:53 During the quarter, we received several new orders from both existing and first time medical OEM customers. Some of these applications include endoscopy, Pulsed Field Ablation systems, dental treatment centers, super pulse laser systems, robotic assisted surgery, microscopy, patient monitoring systems, and surgical navigation systems. 20:22 In the non-medical space, our products are used in a variety of commercial and industrial applications, including CT scanners for inspecting luggage at airports. We received orders from customers in the public transportation space, where our monitors are used on trains and buses for passenger information systems. 20:41 As driver monitors for security CCTV monitoring within the cabins and for control rooms. In addition, we secured new orders for monitors that are used for process automation, and for teleprompter and talent systems for well known news stations. 21:01 From the variety of customs and applications as well as the value of orders from existing and new customers, it is clearly of our global customers, outstanding products and local service. 21:17 While our sales organization stays focused on new opportunities, I will continue to review and adjust our business strategy to improve the operating performance of the division. Maximizing cash flow is an ongoing priority. 21:31 We continue to work with our partners to help reduce inventory, while being able to meet the demands of our customers, particularly during the pandemic and the challenges it brings to our supply chain. 21:44 I will now turn the call back over to Ed.
Ed Richardson: 21:47 Thanks, Jens. It's great to see the display business in Europe coming back strong. Your team has done an excellent job managing COVID and supply chain challenges. Canvys’ record backlog is a testament to the team's efforts. 22:02 I remain very excited about the future of Richardson Electronics. We know that we must make everyday count as we continue to raise the bar on our performance. None of us are taking the growth for granted. We continually look to ways to capitalize on market opportunities while improving our day to day operating performance. 22:23 Within EDG, I'm happy to see our industrial tube business coming back strong, particularly in certain segments as Avionics and Marine. Further, there's a good mix between our legacy products, the products we manufacture for the semiconductor wafer fab industry, and the other products such as microwave tubes. 22:44 The healthcare team continues to stay focused on tube improvements and developments. It's a tough business that's come along much slower than we anticipated. With more tubes in production, we'll gain leverage from our state of the art facility in investments. 23:01 Our newest green initiative is ultracapacitor modules used to replace batteries in wind turbines and other critical applications. This technology offers considerable upside for the balance of FY twenty two. Our patented designs are unique to the industry. We continue to work around the clock to ramp up production and meet demand. We're investing in equipment and people that will give us more control over the supply chain and increased production levels. 23:31 supply continues to be a gating factor. Strong sales growth required more cash than we anticipated during the quarter to support the working capital needs. We remain focused on maintaining a strong cash position, while continuing to control expenses in improving our operating cash flow. 23:52 Rest assured, we're all working toward improving our income statement. I'm encouraged by the direction we're headed and the strong start to the fiscal year. 24:03 At this point, we'll be happy to answer a few questions.
Operator: 24:08 Thank you. And our first question comes from Howard Brous from Wellington Shield. Your line is now open.
Howard Brous: 24:29 Thank you. Ed, Wendy, and the group congratulations on what’s really is a great quarter.
Ed Richardson : 24:36 Thanks Howard.
Howard Brous: 24:38 Thank you. So I have a couple of questions. Let me first start with the inventory build-up over the last say six months, it's gone from under sixty million to sixty seven million. What part of that if you can comment is building an inventory for ULTRA3000? Because that's what you mentioned earlier?
Robert Ben: 25:00 There's about three million dollars worth additional inventory. We have a total number of ultracapacitors in-stock to build out the ten million dollars order plus other orders we anticipate. And as you know, we've been waiting for integrated circuits to finish the circuit board and we now have delivery on those. But obviously between additional inventory and the additional working capital needed for receivables, the cash has gone down, which we anticipate. That's why we're trying to conserve the cash and we always get asked about buying stock back, but we need to cash for the growth of the business.
Howard Brous: 25:46 No, absolutely agree with that. When you talk about other orders, we know about , what other orders have you booked, if you will for this fiscal year?
Robert Ben: 25:58 I'll let Greg address that one.
Greg Peloquin: 26:00 Yeah, Hi, Howard. In the first quarter, we booked as you know, we're directly involved with a lot of field testing with the fourth top owner operators of GE wind turbines in North America. And in the quarter from a bookings point of view, we were named the exclusive supplier to one of those and we received a very large booking and that product will be shipping in our fiscal year also. 26:25 So, it was a good quarter in terms of shipments. We were able to do some great things getting piece parts in to meet the customer's request. It was also a very good quarter in terms of bookings. And going forward, we expect to ship over the next three quarters twelve million dollars to fourteen million dollars of ultracapacitors modules or GE wind turbines.
Howard Brous: 26:51 Can you comment as to your current backlog for ULTRA3000?
Greg Peloquin: 26:56 You know, Howard, with allocations and everything going on, we talk daily to our suppliers and customers and because we're doing everything internally we can to support their needs. I don't want to give those numbers out because they can do the math themselves. And right now, I can – we'll tell you that there's nothing. I'm personally, every week with every single long lead time supplier, getting products in. We have calls every week with every up – each of those four large owner operators and we're working together. Suppliers, the customer and us to meet their needs in terms of them getting this rolled out into their wind turbines in our fiscal year.
Howard Brous: 27:41 All right. So the twelve million to fourteen million is for Q2, three and four, is that a correct statement then?
Greg Peloquin: 27:47 Yes, that's approximately what we have and if you based on lead times and everything else that will be for the next three quarters.
Howard Brous: 27:56 That's bookings?
Greg Peloquin: 27:58 No, that's shipments.
Howard Brous: 28:00 That’s shipments?
Greg Peloquin: 28:01 Yes.
Howard Brous: 28:02 In terms of potential?
Greg Peloquin: 28:05 Bookings will be higher than that. We do, do a booking forecast with the team based on the feedback we're getting from a number of beta side testing, those production orders we feel will get maybe at the beginning or in this case December of twenty twenty one. But more than likely in our end of our third quarter, we'll get the production orders for a number of other owner operators. So, bookings will be higher than that overall. So, we'll have a positive book to bill in FY twenty two definitely.
Howard Brous: 28:42 Next gen, where are you in terms of starting production?
Greg Peloquin: 28:49 Yes, so next gen, we are finishing up the beta site product. It's being tested. Those will be delivered. We have a setup with a T-Mobile. They'll be doing the first beta site testing the last week of about October. The balance I know we have a beta site testing setup with AT&T and that will be the first week in November. 29:15 So those are the two largest test sites and testing that we'll do. So, I don't think there'll be a lot of changes to the product. It works very well, but we just need to get some, like the ULTRA3000 and field hours underneath it before we see some of the large production orders which we fully expect.
Howard Brous: 29:36 When you talk about large production orders, can you give all of us a sense of what you're talking about?
Greg Peloquin: 29:43 I think Phase one will be orders for example, the one that we're quoting is a roll up by T-Mobile in the Atlanta area and that's nine hundred hours. So, our bookings are expected this year between five million to ten million in bookings. The shipments, I don't have that number for you right now. So, I don’t know what that would be.
Howard Brous: 30:10 Alright. Fair enough. In terms of the tube business, we had had a conversation last quarter about a breakeven in two years. We're talking about a breakeven on a cash flow basis. Is that Wendy what you were referring to?
Wendy Diddell: 30:28 Right. So, what we said was that we expect the Healthcare Group to begin generating operating contribution towards the end of FY twenty four. So, we're in FY twenty two. So the two year estimate is right, and we're looking at exiting FY twenty four breakeven to positive operating contribution, and we are still doing everything possible to meet that date or pull it in.
Howard Brous: 30:58 All right. That's all I have right now. Thank you very much. Congrats.
Ed Richardson : 31:02 Thanks Howard.
Howard Brous: 31:03 Again congratulations to the whole group. Great job. Thank you.
Ed Richardson: 31:07 Thank you.
Operator: 31:09 Thank you. And the next question comes from Tony Chiarenza from Key Equity Investors. Your line is now open.
Tony Chiarenza: 31:17 Good morning and congratulations on a great quarter.
Ed Richardson: 31:20 Thanks Tony.
Wendy Diddell: 31:21 Thanks Tony.
Tony Chiarenza: 31:23 First question is, I was just comparing the fourth quarter of the last fiscal year to the current quarter and obviously PMT is up, but Canvys and Healthcare are both down a little bit, and can you comment on that? Is that kind of a cyclical slowdown in each of the business units or is there something going on that we should look at?
Ed Richardson: 31:48 Well, normally, the first quarter is the lowest quarter of the year and ironically it's the best quarter we've had in eleven years, so it’s even larger than the fourth quarter. But what we see particularly in Europe and Southern Europe in August, there are a lot of factories that close up. So normally business is down and that would impact Canvys, for sure. But overall, we are really pleased with the quarter. We've never had a quarter like that in the first quarter where we had a higher first quarter than the fourth quarter. The fourth quarter is usually our largest quarter in the year.
Tony Chiarenza: 32:31 So… I'm sorry, go ahead.
Wendy Diddell: 32:35 I was just going to add that with respect to the healthcare business, again, we did have a couple slow months in June and July, which we weren’t quite expecting and having talked to many people throughout the industry, we weren't alone in that regard. And one of the biggest things that impacted our revenues in the first quarter were lack of systems. 32:55 We've had virtually no system sales in the first quarter. And that's been a problem for us and we had said earlier on, it was going to continue to be a problem because hospitals throughout COVID were not upgrading their CT scanners. So, the number of scanners that were available to purchase and resell virtually dried up. And we're starting to see that improve now, but we did take a hit on that in the first quarter.
Tony Chiarenza: 33:23 Okay.
Jens Ruppert: 33:25 And can I add something for maybe just quick. I mean Q1 was up twenty five point eight percent year over year. So, we had almost one hundred percent growth in Europe alone in Q1. So business is up.
Tony Chiarenza: 33:40 I understand. That's very helpful. And not to harp on it again on the cash, and I think you're absolutely right to use the cash for the growth of the business. Have you given any thought to increasing the dividend at all and given obviously the stock price has gone up a lot and the dividend yield has gone down, which is a good thing. Obviously, the business is going forward, but have you given some thought to maybe raising the dividend slightly?
Ed Richardson: 34:09 Well, we discussed at the Board meeting this week, but everyone is quite concerned that we have enough cash available to handle the growth of the company. We were all surprised that our cash used in the quarter was five million dollars plus and we'd love to have the business continue in this kind of growth, but we need the cash to support it. So, I think the answer is, we will maintain the dividend where it is until we see where we're going.
Tony Chiarenza: 34:40 Okay. I guess the answer would be more stability of earnings and cash flow and maybe lower cash usage is what you would look for?
Ed Richardson: 34:50 That's correct. And we anticipate that by the end of the year that we may be cash flow neutral. And certainly, if we can turn healthcare on we will start to be cash flow positive.
Tony Chiarenza: 35:02 Okay. In terms of market share, looking at the fab business or some of the – how would you consider as your market share remained stable, do you think you're gaining market share?
Ed Richardson: 35:15 Well, I think the products that we manufacture we're gaining market share. In the semiconductor wafer fab industry there two products, and one of them is deposition, which is the older technology that's used for replacement of tools in existing wafer fab and the new one is and the majority of our business, probably sixty percent of it is deposition. We've been manufacturing those products. So, since the early two thousands. 35:50 So although when you look at the industry, they talk about the industry growing fifty percent or forty percent next year, we don't anticipate that our growth would be that high because we have more of our products and the deposition side, but still it's good news. I mean, we did over twenty two million in the last fiscal year in that industry. 36:15 The bad news is the industry goes up and down like a roller coaster, right. And they're telling us that 5G is going to maintain the industry growth for the next two or three years and we hope they're right.
Tony Chiarenza: 36:28 Okay. It's very helpful. Good luck and congratulations again on an excellent quarter.
Ed Richardson: 36:35 Thanks, Tony.
Robert Ben: 36:36 Thank you.
Operator: 36:37 Thank you. And our next question comes from Brad Leonard from BML Capital Management. Your line is now open.
Brad Leonard: 36:56 Hello.
Ed Richardson: 36:58 Good morning.
Wendy Diddell: 36:59 Hey, Brad.
Brad Leonard: 37:00 Good morning. Congratulations on a nice quarter. I have a question on the ULTRA3000. Did you actually have sales in the quarter?
Greg Peloquin: 37:10 Yes, this is Greg. Yes, we were in full production. We had a strong shipping quarter. And we're going into the second and third and fourth quarters with a larger backlog than we started Q1 with.
Brad Leonard: 37:27 Okay. That's great. And is the – what are the margins like on that product? Are they similar to the group average?
Greg Peloquin: 37:37 Yes. They're accretive to the company's overall margins.
Brad Leonard: 37:42 Okay. That's great. And what do you think the ultimate size of this business is going to be on an annual basis?
Greg Peloquin: 37:52 Well, based on our market share, and again, right now that product is focused on owner operators that use GE turbines, over the next two to three years it could be forty million dollars to fifty million dollars.
Brad Leonard: 38:06 On an annual basis?
Greg Peloquin: 38:09 Yes.
Brad Leonard: 38:10 Okay. Good to hear. That's all I had. Thank you.
Ed Richardson: 38:15 Thanks, Brad.
Operator: 38:17 Thank you. And our next question comes from Mike Hughes from SGF Capital. Your line is now open.
Mike Hughes: 38:26 Good morning. Thanks for taking my questions. First, do you have a company-wide book to bill number?
Robert Ben: 38:34 Hi Mike. This is Bob Ben. Yes, it's one point four one at the end of the first quarter for the full company.
Mike Hughes: 38:41 Okay. And then on the electron tubes business, can you just talk about pricing if it's consistent with what you've seen in the past and then secondarily where the revenue for that business stands now versus pre-COVID?
Ed Richardson: 38:55 Sure. The prices, unfortunately in the tube business go up every year, and I'd say the pricing this year are up somewhere between five percent to ten percent. The units decline and the price increases sort of flattened the industry out, but what we saw is after COVID, during COVID, a lot of equipment is shut down and tubes don't like to be shut off. They like to run hot all the time. 39:29 So, we really had in the last few quarters, we had a large increase in the aftermarket for power tubes particularly that are used for instance in laser equipment for cutting steel parts and for dielectric heating, laminating plastics and plywood and heat treating steel parts things of that nature. 39:51 The other side the business is, we manufacture microwave tubes, magnetrons that are used in a lot of industries that are growing going into new equipment. These are applications like synthetic diamonds, for example, in all kinds of industries for turning carbon into building materials for example. And the newest industry is high powered nine fifteen megahertz magnetrons up to one hundred kilowatts are being used for producing hydrogen. 40:29 So they take methane gas and they hit it with really high power microwave and they come up with a settling and hydrogen. And it appears that hydrogen is going to be the fuel of the future. So that industry is on fire and frankly, we have more orders for magnetrons that we manufacture than we can deliver right now. 40:53 So, there's, you know we sell twenty thousand customers all over the world, so the tube business is really spread out and a lot of different applications. We sell magnetrons for Avionics and Marine applications and after COVID, all the pleasure boats being retrofitted again with new equipment. So, our business with companies like Garmin and Honeywell is through the roof. 41:20 So it's really a good time. We're so excited about the growth of the business, which we haven't seen in years.
Mike Hughes: 41:28 Okay. What portion of that – the PMT revenue stream is from the magnetrons?
Ed Richardson: 41:37 They are both CW magnetrons that are used for industrial heating applications and for generating diamonds and then there are magnetrons that are that are used in radar that we sell to companies like Garmin and Honeywell. Within JRC alone, we do about twelve million dollars a year. I'd say it's close to twenty million dollars right now.
Mike Hughes: 42:08 Okay. So the pickup in the hydrogen market, which is getting a lot of attention just on the ESG front right now, is it, do you think that that's material enough to move the needle for the company overall? Meaning could it add a few million dollars a quarter in revenue, or is it not that large?
Ed Richardson: 42:27 Yeah, absolutely. It's going to take time, but there are a number of companies that are addressing the production of hydrogen and we're in touch with all of them and they not only buy the tubes, they buy the complete generator and we manufacture the generators as well.
Mike Hughes: 42:46 Okay. So just – that business overall, the electron tube business, has it completely recovered from COVID at this point and from a revenue standpoint, or is there still more recovery ahead?
Ed Richardson: 43:01 Well, in the aftermarket business, the replacement business it’s recovered, but there's a tremendous amount of growth potential in the microwave variant.
Mike Hughes: 43:12 Okay. Okay. And then the semi-cap wafer business you touched on this that you yielded twenty two million dollars last year. On the last call, I think you indicated that business could be up ten percent to twenty percent this year. Is that still a good number to think about?
Ed Richardson: 43:29 Yes. I think that's right, probably twenty percent.
Mike Hughes: 43:33 Okay, good. And then the healthcare business, I think at the last year or so, you said that the operating loss for that business on an annualized basis is about five million dollars is that still ballpark?
Ed Richardson: 43:46 Yes, That's correct. Unfortunately.
Mike Hughes: 43:49 Okay. And then last question for you. Just the point of clarification, I think there was a discussion around sell side in Atlanta and the potential for five million dollars to ten million dollars in bookings, was that specifically for sell side business, is that what was being referred to?
Greg Peloquin: 44:10 Yeah, That's the next product based on the ultracapacitor project we are working on. So, it is a similar technology the product does that the ULTRA3000, which replaces these led asset batteries and wind turbines. Well, with every sell side there's a generator that's also using lead-acid batteries. So, this product would replace those at a sell side. And that's a new product design again, though based on ultracapacitor technology that we're able to get to market very fast, amazing design team here. 44:50 And we already have a letter of intent from T-Mobile and they'll be doing that beta site testing at sites in Atlanta at the end of this month. And so that was mainly in reference to the status of the new product, which is called the .
Mike Hughes: 45:09 Terrific. And I actually did have one last question for you. I think you said PMT has booked those one point one three. And then you said company-wide was one point four zero one. The PMT businesses, the majority of their revenues. So mathematically it's really hard to get to one point four one if seventy percent of your revenue has a book to bill of one point one three. So what's the disconnect there?
Robert Ben: 45:38 Hi, Mike. It's Bob Ben again. The Canvys business has a very high book to be the end of the first quarter, so that makes up the difference. Healthcare is also over one.
Mike Hughes: 45:50 Okay. So the Canvys business must have a book to bill north of two?
Robert Ben: 45:56 Around two.
Mike Hughes: 45:58 Okay. And just in the one point one three, are you including the ultracapacitor business in that metric?
Robert Ben: 46:07 In the bookings and billings actually, yes.
Mike Hughes: 46:11 Okay, all right. Thank you very much.
Ed Richardson: 46:13 Part of that, We have a backlog now one hundred and twenty six point five million. So you can see next year it looks pretty good.
Mike Hughes: 46:24 I'm sorry. What business was that for? What was the backlog number you just cited?
Ed Richardson: 46:28 The total backlog for the company right now is one hundred and twenty six point five million.
Mike Hughes: 46:34 Can you give us a little context like where it was last quarter a year ago?
Ed Richardson: 46:40 We ended the fourth quarter at about one hundred and twenty five and a year ago, Bob have you got a number?
Robert Ben: 46:48 Seventy six million at the end of the first quarter last year.
Ed Richardson: 46:51 It was seventy six million at the end of the first quarter last year.
Mike Hughes: 46:56 Okay. So the backlog went from one twenty five to one twenty six five sequentially in a quarter that's typically seasonally little bit softer right?
Ed Richardson: 47:07 Right.
Mike Hughes: 47:07 Okay. Super, thank you very much.
Ed Richardson: 47:11 Thanks. Mike.
Operator: 47:13 Thank you. And our next question comes from Eric Landry, BML Capital. Your line is now open.
Eric Landry: 47:21 Good morning.
Ed Richardson: 47:23 Good morning, Eric.
Eric Landry: 47:25 Hey, thanks. I appreciate you taking two questions from the same shop. But actually, I think Mike asked the two important ones that I was going to ask about the book to bill math and whatnot, so thank you for clearing that up. And then I guess related to that my other question was Jens, I wanted to know how materially increase was in backlog in Canvys, but I guess that was also answered. So let me ask this, I think you alluded to the fact that the is a little behind schedule, but I don't recall hearing whether or not the Siemens stuff is behind schedule?
Wendy Diddell: 48:08 No, the Siemens is not behind schedule. We are starting to ship in between now and the end of the calendar year in small quantities. We will be shipping one of the types, which is what we had intended to do and we're on schedule with the full release of all four types in calendar year twenty twenty two. But we feel forget about that.
Eric Landry: 48:31 Okay. I guess that's it then. Thank you very much.
Ed Richardson: 48:37 Thanks, Eric.
Wendy Diddell: 48:38 Thanks, Eric.
Operator: 48:41 And thank you. And I am showing no further questions. I would now like to turn the call back over to Ed Richardson, CEO for closing remarks. I apologize we do have one question coming from Michael , Private Investor.
Wendy Diddell: 49:01 Hey, Michael.
Unidentified Analyst: 49:03 Just wondering that your ULTRA3000 sounds like really groundbreaking products. And I was just wondering if there's any application for replacing lead-acid batteries in the auto industry at all. And if you could address that I’d appreciate it.
Ed Richardson: 49:25 Yes, the automotive industry is looking at using ultracapacitors in that industry. The ultracapacitors and the supplier we have are much higher voltage and power levels. So they be for more larger applications in like critical facilities in wind turbines etcetera. But we look at that market, and if we see an opportunity that our design team, our suppliers can come up with the product to support that market, which obviously a huge market. 50:00 We'll look at it. But right now, we have four products in the pipeline. We will be – like I mentioned, we'll be introducing the ULTRAGEN in Q2, then we have a UPS, the Universal Power Supply ultracapacitor system that we will be introducing in Q4, and then another product that we hope to introduce in Q1 next year. So, the main goal is to get as much market share as we can because you hit it on the head this product is the most proven most user friendly product in the industry. 50:37 So we just want to maximize that, but also have numerous products in the funnel, so we can have a portfolio of products supporting many of these green initiatives. And we just seemed to have found a niche. Both from a component point of view and a design point of view.
Unidentified Analyst: 50:54 Okay. One more technical question was since you're replacing the lead-acid batteries, are there any nasty metals in the capacitors that are not environmentally friendly?
Ed Richardson: 51:09 No. In fact, that's one of the listing of attributes and this is coming from couple of our customers just the cost that this in terms of downtime, etcetera or the cost of going and doing a remote replacement of lead-acid batteries in wind turbines going up three hundred feet and some remote yield, is huge cost to them. And this product last fifteen years, but one of the other large costs that they have is the amount of cost it takes them to dispose of lead-acid batteries because of the chemicals is huge. 51:50 I mean, there's huge graveyard that they have to take to meet environmental standards. The ultracapacitors technologies is electrical, and so it can just be you don't have all the environmental issues that you do with the lead-acid battery and getting rid of them is much less expensive than if you will these literally car batteries that are that are up there now.
Unidentified Analyst: 52:16 Okay. Thank you for the insight. Sounds exciting.
Ed Richardson: 52:22 It is. We are excited about it. Thank you.
Robert Ben: 52:24 Thanks .
Operator: 52:25 Thank you. And I'm showing no further questions. I'll turn the call back to Ed Richardson, CEO for closing remarks.
Ed Richardson: 52:32 Thanks, Justin. Well thanks to all you for your interest in Richardson Electronics. After achieving the highest quarter in sales in eleven years, we're really optimistic about our future and hope you are as well. If you like to discuss our results, please feel free to call us at any time, any one of us are available to talk to you. We're also going to be attending the LD Micro Main Event next week in Los Angeles, and we will also participate in the Sidoti Virtual Conference in December. We look forward discussing our second quarter performance with you in January. Thank you very much.
Operator: 53:14 Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
