Richardson Electronics, Ltd. — Form 10-K Summary
Reporting period: Fiscal year ended May 30, 2020 (52 weeks), filed August 3, 2020. Although the request metadata refers to “2019 Q4,” this filing reports fiscal 2020, including fiscal 2020’s fourth quarter. Richardson Electronics supplies engineered electronics solutions and products through PMT, Canvys, and Healthcare; approximately 59% of fiscal 2020 sales were outside the U.S.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $155.9 million | $166.7 million |
| Gross profit / margin | $49.7 million / 31.9% | $51.7 million / 31.0% |
| SG&A | $51.3 million (32.9% of sales) | $52.2 million (31.3% of sales) |
| Operating loss | $1.7 million | $6.8 million, including $6.3 million goodwill impairment |
| Net loss | $1.8 million | $7.3 million |
| Operating cash flow | $1.9 million provided | $2.6 million used |
| Cash, cash equivalents and investments | $46.5 million | $50.0 million |
Fiscal 2020 diluted loss per common share was $0.14. Cash and cash equivalents were $30.5 million, with $16.0 million in current investments. Total assets were $150.7 million and stockholders’ equity was $118.7 million. Total liabilities were $32.1 million; these included $3.4 million of lease liabilities. The filing reports no conventional borrowings in the presented balance sheet. The company said existing liquidity should meet known capital and working-capital needs for the next 12 months, while noting that COVID-19 could affect cash flows and liquidity.
Investing activities used $9.8 million, including $1.8 million of capital expenditures and net investment purchases. Financing activities used $3.2 million, primarily for $3.1 million of dividends. Dividends were $0.24 per common share and $0.22 per Class B share for the year; future dividends remain at the Board’s discretion.
Changes versus the prior year
- Sales fell 6.5%. PMT sales declined 8.1% to $118.5 million, Healthcare fell 13.2% to $8.5 million, while Canvys grew 3.4% to $28.9 million.
- Gross margin increased to 31.9%, mainly from improved PMT product mix and manufacturing efficiencies, even as gross profit declined with lower sales.
- Operating loss narrowed substantially from fiscal 2019, chiefly because fiscal 2019 included the $6.3 million non-cash goodwill impairment. Excluding that charge, fiscal 2019 operating loss was $0.5 million.
- Operating cash flow improved to $1.9 million provided from $2.6 million used. Inventory increased $5.5 million and was the main operating cash use; lower receivables partly offset it.
- Cash and investments declined $3.5 million year over year. Stockholders’ equity declined to $118.7 million from $123.8 million.
Outlook, commentary and risks
- COVID-19: Operations continued as an essential supplier, with remote work where practical. The company reported shipment delays and longer lead times, but no major supply-chain interruption. Management attributed part of PMT’s sales decline and the Healthcare decline to the pandemic and could not estimate the effects on fiscal 2021.
- Business drivers: PMT weakness reflected a slower maintenance-and-replacement tube market and pandemic-related declines, partly offset by growth in 5G and other RF and power markets. Canvys benefited from new customers and programs; Healthcare sales were affected by COVID-19.
- Inventory and tariffs: Inventory rose to $57.5 million from $53.2 million, with a $5.4 million reserve. Management cited demand uncertainty and obsolescence risk. Certain products made in China faced U.S. tariffs; inability to pass on those costs could pressure demand and margins.
- Other key exposures: Foreign currency movements (the company does not use derivatives), reliance on a limited supplier base (one supplier represented 16% of fiscal 2020 cost of sales), international operations, customer credit, competition, and possible disruption to logistics or vendors.
- Legal and accounting items: Varex Imaging’s patent suit over the ALTA750 product remained unresolved; the court denied Varex’s preliminary-injunction motion, and Richardson said a loss was not probable or estimable. The company recorded no goodwill impairment in fiscal 2020, but identified a COVID-related impairment trigger for IMES and concluded its tested intangible and other long-lived assets were not impaired. The fiscal 2019 full goodwill write-off related to IMES.
- Taxes: The company recorded a $12.3 million valuation allowance against deferred tax assets, citing cumulative U.S. losses and limited forecast U.S. income. It deferred $0.2 million of employer Social Security taxes under the CARES Act and did not anticipate a material change from the Act’s effects.
- No formal fiscal 2021 sales or earnings guidance was provided. Management’s outlook remains subject to substantial pandemic uncertainty.
Important facts for investors to verify
- Whether sales stabilize and margins hold, particularly in PMT and Healthcare, as COVID-19 and end-market demand evolve.
- Whether the $57.5 million inventory balance converts to sales without materially higher obsolescence provisions.
- How cash, investments, and operating cash flow change, including the availability and location of foreign-held funds.
- Developments in the Varex patent litigation and any potential financial or product impact.
- Whether the company can sustain its dividend while reporting losses and funding operations and strategic initiatives.
- Potential foreign-exchange, tariff, supplier-concentration, and deferred-tax-asset effects.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting as of May 30, 2020.