Richardson Electronics, Ltd. — Q1 Fiscal 2016 Form 10-Q
Reporting period: Three months ended August 29, 2015 (13 weeks); comparable period ended August 30, 2014. The company supplies engineered solutions, electronic components and tubes, display solutions, and diagnostic-imaging replacement parts. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and position
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $37.1 | $34.7 |
| Gross profit / margin | $11.3 / 30.4% | $10.7 / 30.7% |
| SG&A | $12.3 | $11.2 |
| Operating loss | $(1.0) | $(0.5) |
| Net loss | $(1.4) | $(0.1) |
| Diluted loss per share | $(0.10) | $(0.01) |
| Cash used in operating activities | $(6.5) | $(0.3) |
- Sales increased 6.8% year over year, while gross margin declined 0.3 percentage points. SG&A rose to 33.1% of sales from 32.2%.
- At August 29, cash and cash equivalents were $68.4 million; time deposits and certificates of deposit totaled approximately $16.3 million, and equity securities were about $0.5 million. Current assets were $143.4 million and current liabilities $23.6 million.
- Total liabilities were $25.8 million. The balance sheet presents no borrowings or other debt balance.
- Operating cash outflow reflected the net loss and working-capital uses, particularly higher receivables ($2.5 million), lower accounts payable ($1.5 million), higher inventory ($0.6 million), and lower accrued liabilities ($0.8 million).
- Investing activities provided $5.2 million, including $18.4 million of investment maturities, offset by the $12.2 million IMES acquisition and $1.0 million of capital expenditures. Financing activities used $4.1 million, including $3.3 million for share repurchases and $0.8 million in dividends.
Material changes and business developments
- Segment performance: PMT sales were $27.2 million, down 0.9%, and gross profit was $8.1 million, down 6.3%. Canvys sales rose 11.9% to $6.7 million and gross profit rose 3.2% to $1.7 million. Healthcare sales rose 147.1% to $3.2 million and gross profit was $1.4 million; the increase primarily reflected the IMES acquisition.
- PMT gross margin declined to 29.9% from 31.7%, which management attributed to unabsorbed manufacturing costs, product mix, and currency movements. Canvys gross margin declined to 25.6% from 27.7%, amid price pressure and currency movements. Healthcare margin increased to 44.3% from 24.4%, reflecting product mix and higher-margin IMES products.
- On June 15, 2015, Richardson acquired certain IMES assets for $12.2 million in cash. Preliminary purchase accounting included $3.7 million of goodwill and $5.8 million of intangible assets; the company said valuations could change materially during the measurement period.
- SG&A increased by $1.1 million, including IMES-related expenses and investment to support Healthcare growth. The company also launched the Power and Microwave Technologies Group in July 2015.
- Cash and cash equivalents fell from $74.5 million at May 30 to $68.4 million at August 29. Total cash and investments were also affected by acquisition spending, repurchases, dividends, operating cash use, and foreign-exchange movements.
Outlook, risks, contingencies, and unusual items
- No quantified earnings or revenue guidance is provided. Management stated that existing liquidity, including current cash, should be sufficient for known capital requirements and working-capital needs for fiscal 2016; interim results are not necessarily indicative of full-year results.
- The quarter recorded a $0.4 million income-tax provision despite a $1.0 million pretax loss. Management cited geographic income mix, valuation allowances against U.S. deferred tax assets, and uncertain tax positions. A $5.5 million valuation allowance was established; German and Thai tax examinations were ongoing.
- Foreign currency is identified as the principal financial market risk. The company said it does not use derivatives to manage foreign-exchange exposure; Q1 included $0.2 million of foreign-exchange loss.
- Cash dividends were $0.06 per common share and $0.054 per Class B share in the quarter. Future dividends remain at the board’s discretion. The company repurchased 567,213 shares for approximately $3.3 million.
- The company disclosed a five-year lease for the IMES facility with an entity partly owned by IMES’s executive vice president. Future minimum payments are approximately $0.7 million. Management reported no pending litigation expected to result in a material loss and no material changes to previously disclosed risk factors.
- Disclosure controls were assessed as effective at quarter-end, and the filing reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether IMES delivers the expected growth and margins, and how final purchase-price valuations affect goodwill, amortization, and earnings.
- Whether operating cash use and working-capital demands persist, and how cash, investment maturities, repurchases, capital spending, and dividends evolve.
- The causes and durability of PMT and Canvys margin pressure, and the extent of foreign-exchange exposure.
- Potential effects of tax examinations, uncertain tax positions, and the U.S. deferred-tax valuation allowance.
- The cover page marks “No” for having filed all required reports during the preceding 12 months; investors may wish to confirm the filing-status context.