Richardson Electronics(RELL) - 2024 Q3 - Quarterly Results

Executive Summary & Highlights Richardson Electronics reported strong sequential sales growth and improved Q3 FY2024 profitability, driven by diversification and inventory reduction efforts Key Financial Highlights Richardson Electronics reported an 18.7% sequential increase in sales for Q3 FY2024, alongside a $4.0 million sequential decrease in inventory, reflecting improved business conditions and a focus on working capital - Sales increased 18.7% sequentially, indicating improving business conditions[1] - Inventory decreased $4.0 million sequentially, reflecting a focus on improving working capital levels[2] - A quarterly cash dividend of $0.06 per share was declared[2] Management Commentary Management highlighted the encouraging sequential increase in sales and profitability, attributing it to diversification strategies and a focus on enhancing the balance sheet - Sequential increase in sales and profitability is encouraging, reflecting benefits of diversification strategies and focus on enhancing profitability and strengthening the balance sheet[3] - Sales to semiconductor wafer fab customers had an $11.5 million negative impact during the quarter, but GES business success demonstrates the importance of diversification[3] - Company focused on decreasing inventory levels throughout fiscal 2024, marking the first decline in over two years[4] - Anticipates sequential sales growth and further improvements in profitability in fiscal 2024 fourth quarter, driven by expected demand growth in semiconductor and GES markets[4] Third Quarter Fiscal 2024 Results Q3 FY2024 results show significant year-over-year declines in net sales, gross margin, and net income, primarily impacting PMT and Canvys Net Sales Performance (Q3 FY2024) Net sales for the third quarter of fiscal 2024 decreased by 25.6% year-over-year to $52.4 million, primarily due to lower sales in PMT and Canvys Q3 FY2024 Net Sales Overview | Metric | Q3 FY2024 (in thousands) | Q3 FY2023 (in thousands) | % Change YoY | | :----- | :----------------------- | :----------------------- | :----------- | | Net Sales | $52,375 | $70,364 | -25.6% | | PMT | $31,163 | $46,822 | -33.4% | | GES | $11,531 | $11,471 | 0.5% | | Canvys | $6,590 | $9,685 | -32.0% | | Healthcare | $3,091 | $2,386 | 29.5% | - PMT sales decreased $15.7 million primarily due to lower sales of manufactured products for semiconductor wafer fabrication equipment customers[5] - Canvys sales decreased by $3.1 million, primarily due to short-term customer pushouts in North America[5] Backlog (Q3 FY2024) Total backlog at the end of Q3 FY2024 was $147.7 million, a sequential decline from $150.7 million at the end of Q2 FY2024, primarily in PMT and Canvys Backlog Comparison | Metric | End of Q3 FY2024 (in millions) | End of Q2 FY2024 (in millions) | | :----- | :----------------------------- | :----------------------------- | | Total Backlog | $147.7 | $150.7 | | GES Backlog | $36.8 | $35.7 (implied, $1.1M increase) | - The sequential decline in total backlog was observed in PMT and Canvys[6] Gross Margin Analysis (Q3 FY2024) Consolidated gross margin decreased to 29.5% in Q3 FY2024 from 31.8% in the prior year, mainly due to product mix and manufacturing under absorption in PMT Q3 FY2024 Gross Margin by Segment | Segment | Q3 FY2024 Gross Margin | Q3 FY2023 Gross Margin | | :------ | :--------------------- | :--------------------- | | Consolidated | 29.5% | 31.8% | | PMT | 28.3% | 32.9% | | GES | 26.6% | 25.7% | | Canvys | 34.4% | 32.0% | | Healthcare | 41.6% | 39.8% | - PMT gross margin decreased due to product mix and $0.8 million of manufacturing under absorption[7] - GES, Healthcare, and Canvys segments experienced increased gross margins due to improved product mix[7] Operating Expenses & Income (Q3 FY2024) Operating expenses decreased slightly to $14.4 million in Q3 FY2024, driven by lower incentive expenses, partially offset by increased R&D, leading to a significant year-over-year decline in operating income Q3 FY2024 Operating Performance | Metric | Q3 FY2024 (in millions) | Q3 FY2023 (in millions) | | :----- | :---------------------- | :---------------------- | | Operating Expenses | $14.4 | $14.8 | | Operating Income | $1.0 | $7.6 | | Other Expense (Income) | < $0.1 | $0.4 (income) | - Decrease in operating expenses resulted from lower incentive expenses, partially offset by higher R&D expenses in support of growth initiatives[8] Net Income & EPS (Q3 FY2024) Net income for Q3 FY2024 was $0.8 million, or $0.05 per diluted share, a substantial decrease from $6.3 million, or $0.44 per diluted share, in the prior year's third quarter Q3 FY2024 Net Income and EPS | Metric | Q3 FY2024 | Q3 FY2023 | | :----- | :-------- | :-------- | | Net Income | $0.8 million | $6.3 million | | Diluted EPS | $0.05 | $0.44 | | Income Tax Provision | $0.2 million | $1.7 million | | Effective Tax Rate | 23.4% | 20.7% | Cash and Investments (Q3 FY2024) Cash and investments decreased to $18.9 million as of March 2, 2024, from $22.8 million at December 2, 2023, primarily due to increased accounts receivable and decreased accounts payable Cash and Investments Snapshot | Metric | March 2, 2024 (in millions) | December 2, 2023 (in millions) | | :----- | :-------------------------- | :----------------------------- | | Cash and Investments | $18.9 | $22.8 | - Primary uses of cash during Q3 FY2024 included a $5.3 million increase in accounts receivable, a $4.1 million decrease in accounts payable, and $0.4 million in capital expenditures[11] - Cash usage was partially offset by a $4.0 million decrease in inventory[11] Nine Months Fiscal 2024 Financial Summary Nine months FY2024 results show substantial year-over-year declines in net sales, gross profit, operating income, and net income Net Sales Performance (Nine Months FY2024) Net sales for the first nine months of fiscal 2024 significantly decreased by 26.9% to $149.1 million compared to the prior year, with all strategic business units experiencing declines Nine Months FY2024 Net Sales Overview | Metric | 9M FY2024 (in millions) | 9M FY2023 (in millions) | % Change YoY | | :----- | :---------------------- | :---------------------- | :----------- | | Net Sales | $149.1 | $203.8 | -26.9% | | PMT | $98.2 | $132.8 | -26.0% | | GES | $18.5 | $32.3 | -42.6% | | Canvys | $23.8 | $30.2 | -21.2% | | Healthcare | $8.6 | $8.6 | -0.3% | Gross Profit & Margin (Nine Months FY2024) Gross profit for the first nine months of fiscal 2024 decreased to $45.2 million, with the gross margin falling to 30.3% from 33.0% in the prior year, primarily due to product mix and manufacturing under absorption Nine Months FY2024 Gross Profit and Margin | Metric | 9M FY2024 (in millions) | 9M FY2023 (in millions) | % of Net Sales (9M FY24) | % of Net Sales (9M FY23) | | :----- | :---------------------- | :---------------------- | :----------------------- | :----------------------- | | Gross Profit | $45.2 | $67.3 | 30.3% | 33.0% | | PMT Gross Profit | $29.2 | $45.0 | 29.8% | 33.9% | | GES Gross Profit | $5.4 | $10.1 | 29.2% | 31.4% | | Canvys Gross Profit | $8.1 | $9.4 | 34.0% | 31.0% | | Healthcare Gross Profit | $2.5 | $2.8 | 29.5% | 32.9% | - Gross margin decrease primarily due to product mix and manufacturing under absorption in PMT, product mix in GES, and increased scrap expense and manufacturing under absorption in Healthcare[16] - Partially offset by a favorable product mix and lower freight costs in Canvys[16] Operating Expenses & Income (Nine Months FY2024) Operating expenses for the first nine months of fiscal 2024 increased by 2.3% to $44.7 million, mainly due to higher salaries and R&D expenses, resulting in a substantial drop in operating income Nine Months FY2024 Operating Performance | Metric | 9M FY2024 (in millions) | 9M FY2023 (in millions) | % Change YoY | | :----- | :---------------------- | :---------------------- | :----------- | | Operating Expenses | $44.7 | $43.7 | 2.3% | | Operating Income | $0.5 | $23.6 | -97.9% | | Other Expense | $0.2 | $0.1 | 100.0% | - Increase in operating expenses resulted from higher salaries and R&D expenses, partially offset by lower incentive expense[16] Net Income & EPS (Nine Months FY2024) Net income for the first nine months of fiscal 2024 plummeted to $0.2 million, or $0.01 per diluted share, a significant decline from $18.2 million, or $1.27 per diluted share, in the prior year Nine Months FY2024 Net Income and EPS | Metric | 9M FY2024 | 9M FY2023 | | :----- | :-------- | :-------- | | Net Income | $0.2 million | $18.2 million | | Diluted EPS | $0.01 | $1.27 | | Income Tax Provision | $0.1 million | $5.3 million | | Effective Tax Rate | 39.2% | 22.5% | Corporate Actions & Information This section covers quarterly dividends, Q3 conference call details, forward-looking statement disclaimers, and Richardson Electronics' business overview Quarterly Cash Dividend Richardson Electronics' Board of Directors declared a quarterly cash dividend of $0.06 per share for common stock and $0.054 per share for Class B common stock, payable on May 29, 2024 - Declared a $0.06 quarterly cash dividend per share to holders of common stock[13] - Declared a $0.054 cash dividend per share to holders of Class B common stock[13] - Dividend payable on May 29, 2024, to common stockholders of record as of May 10, 2024[13] Conference Call Details The company will host a conference call on Thursday, April 11, 2024, at 9:00 a.m. Central Time, to discuss its third quarter fiscal 2024 results, with a replay available for seven days - Conference call to discuss Q3 FY2024 results scheduled for Thursday, April 11, 2024, at 9:00 a.m. Central Time[14] - A replay of the call will be available for seven days starting at 1:00 p.m. Central Time on April 11, 2024[15] Forward-Looking Statements This section serves as a disclaimer regarding forward-looking statements, noting that they involve risks and uncertainties that could cause actual results to differ - Release includes 'forward-looking' statements that involve risks and uncertainties[17] - Readers are directed to Item 1A, 'Risk Factors' in the Company's Annual Report on Form 10-K for a discussion of such risks[17] - The Company assumes no responsibility to update forward-looking statements[17] About Richardson Electronics, Ltd. Richardson Electronics, Ltd. is a global manufacturer specializing in engineered solutions, green energy products, power grid and microwave tubes, power conversion components, high-value replacement parts for diagnostic imaging, and customized display solutions - Richardson Electronics is a leading global manufacturer of engineered solutions, green energy products, power grid and microwave tubes, power conversion and RF/microwave components, high-value replacement parts for diagnostic imaging equipment, and customized display solutions[18] - The company serves customers in alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets[18] - Strategy is to provide specialized technical expertise and 'engineered solutions' through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair[18] Consolidated Financial Statements This section presents the company's consolidated balance sheets, comprehensive income, and cash flow statements for the periods ended March 2, 2024 Consolidated Balance Sheets The consolidated balance sheets present the company's financial position as of March 2, 2024, and May 27, 2023, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Metric | March 2, 2024 | May 27, 2023 | | :-------------------------- | :------------ | :----------- | | Cash and cash equivalents | $18,880 | $24,981 | | Accounts receivable, net | $29,131 | $30,067 | | Inventories, net | $112,635 | $110,402 | | Total current assets | $163,387 | $168,083 | | Total assets | $193,605 | $198,048 | | Accounts payable | $18,393 | $23,535 | | Total current liabilities | $32,287 | $36,589 | | Total liabilities | $34,984 | $38,728 | | Total stockholders' equity | $158,621 | $159,320 | Consolidated Statements of Comprehensive Income The consolidated statements of comprehensive income provide a detailed breakdown of revenues, costs, and profits for the three and nine months ended March 2, 2024, and February 25, 2023 Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Three Months Ended March 2, 2024 | Three Months Ended Feb 25, 2023 | Nine Months Ended March 2, 2024 | Nine Months Ended Feb 25, 2023 | | :-------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | | Net sales | $52,375 | $70,364 | $149,086 | $203,826 | | Gross profit | $15,436 | $22,405 | $45,242 | $67,283 | | Operating income | $1,006 | $7,613 | $462 | $23,591 | | Income before income taxes | $979 | $7,995 | $296 | $23,494 | | Net income | $750 | $6,340 | $180 | $18,213 | | Diluted EPS (Common) | $0.05 | $0.44 | $0.01 | $1.27 | Consolidated Statements of Cash Flows The consolidated statements of cash flows illustrate the cash movements from operating, investing, and financing activities for the three and nine months ended March 2, 2024, and February 25, 2023 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 2, 2024 | Three Months Ended Feb 25, 2023 | Nine Months Ended March 2, 2024 | Nine Months Ended Feb 25, 2023 | | :---------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $(2,531) | $(4,260) | $(716) | $(11,413) | | Net cash (used in) provided by investing activities | $(401) | $2,770 | $(3,057) | $220 | | Net cash (used in) provided by financing activities | $(844) | $(323) | $(2,309) | $860 | | Decrease in cash and cash equivalents | $(3,889) | $(1,461) | $(6,101) | $(10,850) | | Cash and cash equivalents at end of period | $18,880 | $24,645 | $18,880 | $24,645 |