Richardson Electronics(RELL) - 2023 Q1 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the unaudited consolidated financial statements for Q1 FY2023, detailing significant year-over-year growth in revenue, net income, and assets Consolidated Balance Sheets Total assets increased to $187.6 million as of August 27, 2022, primarily due to higher inventories and accounts receivable Consolidated Balance Sheet Highlights (in thousands) | Account | August 27, 2022 | May 28, 2022 | | :--- | :--- | :--- | | Total Current Assets | $160,838 | $153,211 | | Inventories, net | $89,080 | $80,390 | | Total Assets | $187,586 | $179,819 | | Total Current Liabilities | $44,331 | $41,206 | | Total Liabilities | $46,922 | $43,972 | | Total Stockholders' Equity | $140,664 | $135,847 | Unaudited Consolidated Statements of Comprehensive Income For the three months ended August 27, 2022, net sales increased 25.8% to $67.6 million, with net income rising significantly to $6.3 million and diluted EPS reaching $0.45 Q1 FY2023 vs Q1 FY2022 Income Statement (in thousands, except per share data) | Metric | Three Months Ended Aug 27, 2022 | Three Months Ended Aug 28, 2021 | | :--- | :--- | :--- | | Net sales | $67,557 | $53,704 | | Gross profit | $23,027 | $16,297 | | Operating income | $8,779 | $2,828 | | Net income | $6,324 | $2,635 | | Common shares - Diluted EPS | $0.45 | $0.20 | Unaudited Consolidated Statements of Cash Flows Net cash used in operating activities was $3.2 million for Q1 FY2023, an improvement from the prior year, despite increased inventory and accounts receivable Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Aug 27, 2022 | Three Months Ended Aug 28, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,231) | $(4,873) | | Net cash used in investing activities | $(1,442) | $(837) | | Net cash provided by (used in) financing activities | $497 | $(779) | | Decrease in cash and cash equivalents | $(4,862) | $(6,898) | Unaudited Consolidated Statement of Stockholders' Equity Total stockholders' equity increased to $140.7 million as of August 27, 2022, driven by net income, partially offset by foreign currency translation loss and dividends - Key changes in stockholders' equity for the quarter included a net income of $6.3 million, a foreign currency translation loss of $2.3 million, and dividend payments totaling approximately $0.8 million[17] Notes to Unaudited Consolidated Financial Statements The notes detail business segments, accounting policies, and significant changes, including the creation of the Green Energy Solutions (GES) segment in Q1 FY2023 - In Q1 FY2023, the company changed its reporting structure to four segments: Power and Microwave Technologies (PMT), Green Energy Solutions (GES), Canvys, and Healthcare. The new GES segment was carved out of the existing PMT segment to focus on the green energy market[21][30][64] Net Sales by Segment (in thousands) | Segment | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | PMT | $45,354 | $40,435 | | GES | $8,511 | $2,574 | | Canvys | $10,413 | $8,441 | | Healthcare | $3,279 | $2,254 | - The effective income tax rate for Q1 FY2023 was 25.0%, a significant increase from 5.9% in Q1 FY2022. The change was attributed to adjustments in the valuation allowance, the absence of NOL utilization, and a shift in the geographical distribution of income[55] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 FY2023 financial performance, highlighting a 25.8% net sales increase to $67.6 million and a substantial rise in net income to $6.3 million across all segments Business Overview Richardson Electronics is a global manufacturer of engineered solutions, restructuring in Q1 FY2023 to create a new Green Energy Solutions (GES) segment for the growing green energy market - The company's strategy is to provide specialized technical expertise and "engineered solutions" based on its core engineering and manufacturing capabilities[84] - A new Green Energy Solutions (GES) segment was established in Q1 FY2023 by carving it out of the Power and Microwave Technologies (PMT) segment to enhance focus on the global green energy market[87] Results of Operations In Q1 FY2023, net sales increased 25.8% year-over-year to $67.6 million, driven by broad-based growth across all segments and improved gross margins Net Sales Growth by Segment (Q1 FY23 vs Q1 FY22) | Segment | % Change | | :--- | :--- | | PMT | 12.2% | | GES | 230.7% | | Canvys | 23.4% | | Healthcare | 45.5% | | Total | 25.8% | - The increase in GES sales was mainly due to growth in ULTRA3000 product sales for the wind turbine industry and to customers manufacturing synthetic diamonds[96][100] - Consolidated gross margin increased to 34.1% from 30.3% YoY, primarily due to better product mix, manufacturing efficiencies in PMT and GES, and improved manufacturing absorption in Healthcare[98] - SG&A expenses increased to $14.2 million but decreased as a percentage of net sales to 21.1% from 25.1% in the prior-year quarter[104] Liquidity, Financial Position and Capital Resources The company's liquidity is primarily funded by operations and cash on hand, with cash and equivalents totaling $35.6 million, impacted by cash used in operations for working capital - Cash, cash equivalents, and investments stood at $35.6 million as of August 27, 2022[110] - Operating activities used $3.2 million in cash during the quarter, largely due to a $10.5 million increase in inventory and a $3.5 million increase in accounts receivable to support sales growth[115] - Investing activities used $1.4 million for capital expenditures, primarily for IT systems and manufacturing facilities[118] Quantitative and Qualitative Disclosures About Market Risk The company identifies foreign currency exchange as its primary market risk due to global operations, managed through normal operating and financing activities without derivatives - The primary financial risk exposure for the company is foreign currency exchange, which is managed through normal operating and financing activities[123] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of August 27, 2022, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[126] - There were no changes in internal control over financial reporting during the first quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, these controls[127] Part II. Other Information Legal Proceedings This section indicates there are no material legal proceedings to report for the period Risk Factors The company states there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - No material changes to risk factors were reported since the filing of the last Annual Report on Form 10-K[129] Unregistered Sales of Equity Securities and Use of Proceeds This section indicates there were no unregistered sales of equity securities or use of proceeds to report for the period Other Information This section provides the results of the annual stockholders' meeting held on October 4, 2022, where directors were elected and auditor appointment ratified - The annual meeting of stockholders was held on October 4, 2022[130] - Stockholders elected all seven director nominees, ratified the selection of BDO USA, LLP as the independent registered public accounting firm, and approved the compensation of the company's named executive officers[130][131][132] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - The filing includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[134]