Richardson Electronics, Ltd. — Q2 Fiscal 2022 Form 10-Q
Reporting period: Second quarter ended November 27, 2021 (13 weeks); six-month period ended the same date. Comparisons are with the corresponding fiscal 2021 periods. Richardson Electronics supplies engineered solutions and electronic components through its PMT, Canvys, and Healthcare segments.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $54.0 million | $42.4 million | $107.7 million | $81.2 million |
| Gross profit / margin | $17.7 million / 32.7% | $14.3 million / 33.8% | $34.0 million / 31.5% | $26.7 million / 32.9% |
| Operating income | $4.5 million | $0.9 million | $7.3 million | $0.2 million |
| Net income (loss) | $4.1 million | $0.7 million | $6.8 million | $(0.5) million |
| Diluted EPS, common / Class B | $0.30 / $0.27 | $0.05 / $0.05 | $0.50 / $0.45 | $(0.04) / $(0.03) |
| Operating cash flow | $4.6 million | $4.4 million | $(0.2) million | $1.1 million |
Q2 sales rose 27.3%; six-month sales rose 32.6%. Sales increased across all segments. PMT led in dollars, with Q2 sales up 26.7%; Canvys sales rose 36.5%, and Healthcare sales rose 10.9%. For the six months, segment sales increased 34.1% at PMT, 31.1% at Canvys, and 15.3% at Healthcare.
Gross margin declined year over year in both periods. Management cited PMT product mix and higher freight costs at Canvys; Healthcare’s six-month margin improved on product mix, ALTA 750D tube production, and manufacturing efficiencies. SG&A was $13.1 million in Q2, down from $13.5 million; six-month SG&A was $26.6 million, approximately level with the prior year.
Financial position and liquidity
- At November 27, 2021, cash and cash equivalents were $39.7 million, versus $43.3 million at May 29, 2021. Current assets were $141.3 million and current liabilities were $35.5 million.
- Inventory increased to $70.7 million from $63.5 million at fiscal year-end. The company attributed much of the increase to supporting growth in LaFox manufacturing and RF and microwave components.
- Six-month operating cash use was $0.2 million, despite net income of $6.8 million, primarily reflecting a $9.2 million inventory increase and $3.1 million increase in receivables, partly offset by higher payables and accrued liabilities.
- Capital expenditures were $1.6 million. Financing activities used $0.9 million, including $1.6 million of dividends, partly offset by $0.7 million from stock issuance.
- No borrowings are shown on the balance sheet. Lease liabilities totaled approximately $3.6 million, including current and non-current amounts.
Outlook, risks, and notable items
- Management expects existing liquidity, including cash on hand, to meet known capital requirements and working-capital needs for the next 12 months. No specific revenue or earnings guidance is provided.
- Management says the financial impact of COVID-19 remains difficult to predict. It reported some component delays affecting new-product schedules but no major supply-chain interruption to date; future demand, supply, transport, and operating effects remain uncertain.
- Some China-manufactured products imported into the U.S. are subject to additional tariffs of up to 25%. Management is working with suppliers and customers to mitigate the impact; inability to pass costs through or resulting lower demand could hurt sales and margins.
- Foreign exchange is a principal market risk; the company does not use derivative instruments to manage currency exposure. Six-month foreign-currency translation reduced comprehensive income by $2.4 million.
- The company recorded a six-month income-tax provision of $0.7 million and maintained a $10.4 million valuation allowance against deferred tax assets. Tax examinations were ongoing in Thailand and Germany.
- A related-party lease for the IMES facility involves an entity in which an IMES executive has an ownership interest. Future minimum payments under the lease are approximately $0.6 million.
- The filing reports no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether sales growth in PMT and Canvys can persist while recovering gross margins from lower product mix and elevated freight costs.
- How inventory growth converts into sales and cash, and whether working-capital demands continue to weigh on operating cash flow.
- Whether COVID-related disruption, component availability, freight expense, and China tariffs affect demand, deliveries, or profitability.
- Whether the company’s stated 12-month liquidity outlook remains supported by cash generation and its cash balance.
- How foreign-exchange movements and deferred-tax-asset valuation allowances affect reported comprehensive income and future tax expense.