Richardson Electronics, Ltd. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, ended September 2, 2023. The quarter contained 14 weeks, compared with 13 weeks in the prior-year quarter ended August 27, 2022. Richardson Electronics designs, manufactures and distributes engineered solutions, power and microwave products, customized displays, and diagnostic-imaging replacement parts and services.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Net sales | $52.6 million | $67.6 million |
| Gross profit / gross margin | $17.3 million / 32.8% | $23.0 million / 34.1% |
| SG&A | $15.8 million | $14.2 million |
| Operating income | $1.5 million | $8.8 million |
| Net income | $1.2 million | $6.3 million |
| Diluted EPS, common / Class B | $0.09 / $0.08 | $0.45 / $0.40 |
| Operating cash flow | $1.0 million provided | $3.2 million used |
| Capital expenditures | $1.1 million | $1.4 million |
Sales fell 22.2% year over year despite the extra reporting week. Gross margin declined 1.3 percentage points. SG&A rose 10.8% and increased to 30.0% of sales from 21.1%, reflecting higher employee compensation and lower sales leverage. The effective tax rate was 23.7%, versus 25.0%.
Segments and material changes
- Power and Microwave Technologies: Sales declined 21.2% to $35.7 million; gross margin fell to 32.2% from 34.3%. Management cited a cyclical downturn in semiconductor wafer-fabrication markets, unfavorable mix and manufacturing under-absorption.
- Green Energy Solutions: Sales declined 48.4% to $4.4 million, mainly from lower wind-turbine battery-module shipments; gross margin edged up to 36.0%.
- Canvys: Sales declined 5.0% to $9.9 million, while gross margin improved to 34.0%, primarily due to product mix and lower freight costs.
- Healthcare: Sales declined 22.1% to $2.6 million and gross margin fell to 31.6%, due mainly to lower parts and equipment sales, manufacturing under-absorption and higher component scrap expense.
Consolidated gross margin pressure was primarily attributed to unfavorable PMT product mix and manufacturing under-absorption, plus under-absorption and higher scrap costs in Healthcare. Canvys and GES provided partial offsets.
Liquidity, debt and financial position
Cash and cash equivalents were $24.1 million at quarter-end, down $0.9 million from May 27, 2023. Current assets were $165.6 million and current liabilities were $33.2 million, implying a current ratio of approximately 5.0. Inventory was $113.6 million, up $3.2 million from fiscal year-end; accounts receivable declined $4.5 million. Stockholders’ equity was $160.4 million.
The company reported no borrowings under its $30 million secured revolving credit facility, which matures March 20, 2026, and said it was in compliance with financial covenants. Lease liabilities totaled $2.3 million. Management believes available liquidity and expected operating cash flows are sufficient for known working-capital and capital needs for the next 12 months.
Operating cash flow was positive, principally reflecting net income and a $4.5 million decrease in receivables, partly offset by higher inventory and lower payables and accrued liabilities. Investing cash outflow was $1.1 million, primarily for IT systems and LaFox manufacturing and facility work. Dividends paid were $0.8 million.
Outlook, risks and notable disclosures
- The filing provides no quantified revenue, earnings or margin guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- Management described sales declines in PMT as cyclical and GES as project-related. It continues to monitor global economic conditions and lingering COVID-related effects, whose potential financial impact cannot be reasonably estimated and could be material.
- Other identified exposures include foreign-currency movements, geopolitical and economic disruption, and U.S. tariffs of up to 25% on certain China-manufactured imports. The company says inability to pass tariff costs through, or resulting lower demand, could hurt sales and margins; it does not use derivatives to manage foreign-currency exposure.
- Management reported no material changes to previously disclosed risk factors. Disclosure controls were deemed effective, with no material change in internal control over financial reporting identified.
Investor facts to verify
- Whether the semiconductor-market downturn and weaker GES shipments persist, and how quickly segment sales recover.
- Whether inventory levels convert to sales and cash without additional write-downs; inventory totaled $113.6 million.
- Whether lower sales, manufacturing under-absorption and elevated SG&A continue to pressure margins and earnings.
- Cash generation, foreign-currency exposure, tariff pass-through and continued compliance with the revolving-credit covenants.
- The effect of the extra reporting week when comparing quarterly results; fiscal Q1 FY2024 had 14 weeks versus 13 weeks in the prior-year quarter.