Richardson Electronics(RELL) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 FY2019 were $41.3 million, a 5.7% increase from $39.1 million in Q2 FY2018 [11] - Gross margin decreased to 31.4% from 34.2% in the same quarter last year, primarily due to product mix and manufacturing variances [12] - Operating loss of $0.5 million reported for Q2 FY2019, compared to operating income of $0.8 million in Q2 FY2018 [15] - Overall net loss of $0.3 million for Q2 FY2019, compared to net income of $1.7 million in Q2 FY2018 [20] - For the first six months of FY2019, net sales were $85.5 million, a 12.3% increase from $76.1 million in the same period last year [20] Business Line Data and Key Metrics Changes - PMT sales increased to $32.3 million in Q2 FY2019 from $30.0 million in Q2 FY2018, reflecting a 7.5% growth [31] - Healthcare sales rose to $2.5 million in Q2 FY2019, up 7.6% from $2.3 million in Q2 FY2018, driven by strong CT tube sales [47] - Canvys sales were $6.5 million in Q2 FY2019, a decrease of 3.1% compared to the same period last year, but year-to-date sales are nearly 10% above the first half of FY2018 [62] Market Data and Key Metrics Changes - PMT experienced growth in key markets such as 5G wireless infrastructure, SATCOM, and defense communications [35] - Canvys received new orders from both medical and non-medical OEM customers, indicating strong demand in North America and Europe [65] Company Strategy and Development Direction - The company is focused on proving the quality of its ALTA750 CT tube to gain market share from OEMs [73] - P3 agreements are being utilized to alleviate customer concerns regarding alternative parts [50] - The company is exploring additional acquisitions and partnerships in the healthcare market to expand internationally [60] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the semiconductor wafer fab market but noted strong growth from new technology partners [82] - The company is optimistic about continued growth in PMT and Canvys, despite some headwinds in the semiconductor market [42][72] - Management highlighted the importance of training and support for customers transitioning from OEM services [74] Other Important Information - Cash and investments at the end of Q2 FY2019 were $53.2 million, down from $59.3 million at the end of Q2 FY2018 [28] - The board approved a share repurchase program allowing for the repurchase of up to $9 million in common stock [76] Q&A Session Summary Question: What are the largest drivers of the slowing growth rate? - Management indicated that the semiconductor wafer fab market has been the slowest growth area, but new technology partnerships have helped maintain overall growth [81][82] Question: Is there any impact from the U.S.-China trade situation? - Management reported no significant impact from tariffs, describing the situation as more of an administrative challenge rather than a business slowdown [114] Question: What is the outlook for free cash flow? - Management indicated that free cash flow usage for the year might be slightly higher than previously guided, estimating a negative cash flow of $4 million to $4.5 million in the second half [99] Question: How is the 5G rollout progressing in different regions? - Management noted that China is ahead in implementing 5G infrastructure compared to North America, with expectations for significant growth in the second half of 2019 [101][102]