Richardson Electronics, Ltd. — Q3 Fiscal 2022 Form 10-Q
Business and period: Richardson Electronics is a global manufacturer, distributor and service provider of engineered solutions, power and microwave products, customized displays, and diagnostic-imaging replacement parts. It reports three segments: Power and Microwave Technologies Group (PMT), Canvys and Healthcare. The quarter ended February 26, 2022, and comprised 13 weeks; the first nine months comprised 39 weeks. Comparisons below are with the corresponding fiscal 2021 periods. Dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $55.3 | $45.2 | $163.0 | $126.5 |
| Gross profit / margin | $17.6 / 31.8% | $15.8 / 34.9% | $51.5 / 31.6% | $42.5 / 33.6% |
| Operating income | $3.6 | $0.3 | $11.0 | $0.6 |
| Net income (loss) | $2.9 | $0.2 | $9.6 | ($0.2) |
| Diluted EPS, common / Class B | $0.21 / $0.19 | $0.02 / $0.02 | $0.71 / $0.64 | ($0.02) / ($0.02) |
| Operating cash flow | ($1.2) | $2.8 | ($1.5) | $3.9 |
- Q3 sales grew 22.3%; nine-month sales grew 28.9%. Growth spanned all segments. PMT was the largest contributor, with sales up 25.0% in the quarter and 30.8% year to date, supported by power-management and 5G applications, ULTRA3000 shipments, semiconductor customers and electron-device products.
- Canvys sales rose 15.0% in Q3 and 25.6% year to date, primarily on stronger European and North American demand. Healthcare sales rose 7.4% in Q3 and 12.2% year to date; quarterly gross margin weakened to 25.1% from 33.0% amid component scrap and freight costs.
- Consolidated gross margin fell 3.1 percentage points in Q3 and 2.0 points for the nine-month period. Management attributed the declines mainly to PMT product mix and higher freight costs; Q3 Healthcare also faced increased component scrap expense.
- SG&A was $13.9 million in Q3 and $40.6 million year to date, versus $15.5 million and $41.9 million. Prior-year comparisons included a $1.6 million Varex legal settlement, which did not recur; higher compensation costs partly offset lower legal fees.
Financial position, liquidity and cash flow
- At February 26, 2022, cash and equivalents were $39.1 million, down from $43.3 million at May 29, 2021. Current assets were $147.8 million and current liabilities $37.9 million; the current ratio was approximately 3.9.
- Accounts receivable increased to $31.6 million from $25.1 million and inventory to $73.7 million from $63.5 million. Management said the inventory build supported growth in LaFox manufacturing and the RF and microwave components business.
- Nine-month operating cash use of $1.5 million reflected working-capital investment, including $7.4 million in higher receivables and $12.3 million in higher inventory, partly offset by a $6.3 million increase in accounts payable and accrued liabilities. Capital expenditures were $2.2 million; dividends paid were $2.4 million.
- Total liabilities were $41.1 million. The filing reports lease liabilities of $3.3 million net; it does not report conventional borrowings. Financing activities included $2.6 million of proceeds from stock-option exercises.
- Management stated that existing liquidity was expected to cover known capital requirements and working-capital needs for the next 12 months. No specific revenue or earnings guidance was provided.
Outlook, risks and other matters
- Management said COVID-19-related component delays had affected some new-product development schedules but that the company had not experienced a major supply-chain interruption. It could not estimate the pandemic’s full effects on fiscal 2022 results, liquidity or operations.
- Forward-looking risks cited include the Russia-Ukraine conflict and related sanctions, currency fluctuations, supply-chain and transportation disruption, customer demand, and broader economic conditions. The company also warned that U.S. tariffs of up to 25% on certain China-made products could pressure sales and margins if costs cannot be passed through or higher prices reduce demand.
- Foreign exchange is a principal market risk; the company said it did not use derivatives to manage currency exposure. Q3 included a foreign-exchange loss.
- The company was under tax examinations in Thailand for fiscal 2008–2011 and Germany for fiscal 2015–2018. It reported a $0.1 million liability for uncertain tax positions and a $9.6 million valuation allowance against deferred tax assets.
- The filing reported no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was identified.
Important facts for investors to verify
- Whether revenue growth—particularly in PMT—continues and translates into improved gross margins after product-mix and freight pressures.
- Whether the elevated inventory and receivables convert to sales and cash, given negative operating cash flow despite higher reported earnings.
- Whether supply-chain, freight, tariff, geopolitical and foreign-exchange exposures affect costs, demand or delivery schedules.
- How the Thailand and Germany tax examinations, deferred-tax-asset valuation allowance and state tax limitations develop.
- Whether cash remains sufficient for working capital, planned investment and dividends; dividend payments remain at the board’s discretion.