Richardson Electronics, Ltd. — Form 10-Q Summary
Reporting period: The filing covers the fiscal quarter ended February 25, 2017 (fiscal 2017 Q3), and the nine months ended that date. The request metadata says “2016 Q3,” but the filing identifies the period as fiscal 2017 Q3. Comparative periods ended February 27, 2016; each nine-month period comprised 39 weeks.
Business context
Richardson Electronics supplies engineered solutions and products across power and microwave technologies (PMT), customized displays (Canvys), and healthcare replacement parts and services. Its markets include healthcare, industrial, communications, aviation, and semiconductor applications.
Financial performance
| Metric | Three months ended Feb. 25, 2017 | Three months ended Feb. 27, 2016 | Nine months ended Feb. 25, 2017 | Nine months ended Feb. 27, 2016 |
|---|---|---|---|---|
| Net sales | $32.3 million | $31.3 million | $99.5 million | $102.4 million |
| Gross profit / margin | $10.7 million / 33.1% | $9.8 million / 31.2% | $31.9 million / 32.1% | $31.4 million / 30.7% |
| SG&A | $12.0 million | $12.5 million | $37.7 million | $37.9 million |
| Operating loss | $1.3 million | $2.7 million | $5.8 million | $6.2 million |
| Net loss | $1.4 million | $2.9 million | $6.8 million | $6.6 million |
| Basic/diluted loss per common share | $0.11 | $0.23 | $0.54 | $0.51 |
Class B basic/diluted loss per share was $0.10 for the quarter and $0.48 for the nine months, versus $0.21 and $0.46, respectively, in the prior-year periods.
Financial position, liquidity, and cash flow
- At February 25, 2017, cash and cash equivalents were $51.4 million; investments were approximately $8.8 million, including $6.4 million current and $2.4 million non-current. Cash plus investments totaled approximately $60.2 million.
- Current assets were $124.6 million and current liabilities $21.1 million. Total liabilities were $22.0 million; the balance sheet reports no borrowings or debt.
- For the nine months, operating activities used $3.2 million, investing activities used $2.6 million, and financing activities used $2.2 million. Cash declined $9.1 million to $51.4 million.
- Capital expenditures were $4.1 million for the nine months. Dividends paid were $2.3 million; quarterly dividends per share were $0.060 for common stock and $0.054 for Class B.
- Management said existing liquidity should cover known capital requirements and working-capital needs for the next 12 months.
Material changes and management commentary
- Quarterly sales increased 3.3%, led by PMT growth of 7.6%; Canvys sales fell 7.1% and Healthcare sales fell 11.9%. For the nine months, sales declined 2.9%; Canvys was down 16.3%, while PMT was essentially flat and Healthcare declined 0.6%.
- Quarterly gross margin improved primarily from product mix, Brive, France scrap-metal recoveries in PMT, and favorable Canvys mix and lower inventory reserves. Nine-month margin improvement had similar drivers; Healthcare’s nine-month gross margin fell to 41.8% from 45.3% on product mix.
- SG&A benefited from lower salaries, incentive compensation, and IT costs. A second-quarter workforce reduction generated $1.3 million of severance expense; the nine-month period included that charge.
- The company repatriated $11.3 million from its Chinese entity in fiscal Q1, comprising a $10.0 million return of capital and a $1.3 million dividend. It recorded and paid approximately $0.1 million of withholding tax.
- The nine-month net loss increased despite lower operating loss, reflecting higher tax expense and a shift from prior-year other income to current-year other expense. The U.S. continued to incur operating losses with a full valuation allowance; the valuation allowance on net deferred tax assets rose to $8.6 million.
Outlook, risks, and contingencies
No quantified earnings or revenue guidance is provided. Management cautioned that interim results are not necessarily indicative of full-year results. Principal disclosed exposures include foreign-currency movements; the company said it does not use derivatives to manage currency exposure. Tax examinations were ongoing in Germany, Thailand, and Illinois. Management said pending litigation was not expected to result in a material loss, and reported no material changes to previously disclosed risk factors. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether Canvys demand weakness and Healthcare display/detector declines persist, and whether PMT growth from new technology partners continues.
- How the $1.3 million workforce-reduction charge and related cost savings affect future operating expenses.
- Cash generation and the use of cash, including the $4.1 million nine-month capital spend and ongoing dividends.
- The recoverability of U.S. deferred tax assets, the full valuation allowance, and outcomes of the disclosed tax examinations.
- The filing’s stated 12-month liquidity assessment alongside continuing operating losses and foreign-exchange exposure.