Richardson Electronics, Ltd. — Form 10-Q Summary
Reporting period: Third quarter of fiscal 2019 ended March 2, 2019; filed April 11, 2019. The quarter contained 13 weeks. The first nine months contained 39 weeks, compared with 40 weeks in the prior-year period. Richardson supplies engineered solutions, electronic components and tubes, diagnostic-imaging parts, and customized displays through its PMT, Canvys, and Healthcare segments.
Financial results
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Net sales | $39.0 million | $41.6 million | $124.5 million | $117.7 million |
| Gross profit / margin | $12.3 million / 31.5% | $14.1 million / 33.8% | $39.2 million / 31.5% | $39.6 million / 33.6% |
| Operating income (loss) | $(0.8) million | $1.0 million | $(0.4) million | $1.8 million |
| Net income (loss) | $(1.1) million | $0.5 million | $(1.0) million | $2.1 million |
| Diluted EPS, common stock | $(0.08) | $0.04 | $(0.07) | $0.17 |
- Cash flow: Operations used $5.2 million in the first nine months, versus $0.3 million used a year earlier. Investing used $18.7 million, mainly reflecting $17.8 million of CD purchases and $3.2 million of capital expenditures. Financing used $2.1 million, primarily dividends.
- Liquidity: At March 2, cash and equivalents were $33.9 million and short-term CDs were $15.5 million, totaling $49.4 million in cash and investments, down from $60.5 million in cash and no investments at June 2, 2018. Current assets were $128.9 million and current liabilities $25.3 million.
- Debt: The presented balance sheet reports no borrowings; total liabilities were $26.6 million. The filing does not separately discuss a debt facility in the supplied text.
- Dividends: Declared dividends were $0.06 per common share and $0.054 per Class B share for the quarter; nine-month payments totaled $2.3 million.
Changes and management commentary
- Q3 sales fell 6.3% year over year, while nine-month sales rose 5.7%. The longer-period comparison includes one fewer week in FY2019.
- Q3 sales declined in PMT (6.7%) and Canvys (8.3%); Healthcare grew 6.8%. Management attributed PMT’s decline mainly to a slowdown in wafer-fabrication markets, partly offset by RF/microwave growth and tube-business share gains. Canvys compared against large non-recurring prior-year orders; Healthcare benefited from higher equipment sales.
- For the first nine months, all segments grew sales: PMT 6.3%, Canvys 2.8%, and Healthcare 6.6%. Management cited 5G-related partner growth and legacy tube share gains for PMT, stronger North American and European demand for Canvys, and ALTA750 tube and equipment sales for Healthcare.
- Gross margin declined in both comparison periods. Management cited unfavorable product mix and manufacturing variances; Q3 Healthcare also faced tube-development costs and an inventory write-down. SG&A was flat at $13.1 million in Q3, but rose to $39.6 million for nine months, including higher compensation, legal, severance, and bad-debt expenses.
- Management said existing liquidity should cover known capital requirements and working-capital needs for the next 12 months. No specific earnings or revenue guidance was provided in the filing text.
Risks, contingencies, and unusual items
- The Healthcare IMES unit reported lower-than-forecast results, associated with slower ALTA750 tube sales and regional expansion costs. The annual goodwill impairment assessment was ongoing; management warned that missed operating plans or weaker product acceptance could lead to a material non-cash impairment charge. Goodwill was $6.3 million.
- Varex Imaging sued over two patents and sought a preliminary injunction to stop ALTA750 sales. Court rulings on the injunction and Richardson’s motion to dismiss were pending. Richardson said it considered the suit without merit and that a loss was not probable or estimable.
- The nine-month income-tax provision was $0.8 million despite a pretax loss, producing a reported effective tax rate of (383.3%). The filing attributes the rate to geographic income mix, tax-return adjustments, and U.S. deferred-tax valuation allowances; the allowance was $10.8 million.
- The company expected lease accounting adoption in June 2019 to materially affect the balance sheet through recognition of right-of-use assets and lease liabilities, but could not yet quantify the impact.
- Foreign-currency exposure is a principal market risk; the company said it did not use derivatives to manage currency exposure. Disclosure controls were reported effective, and no material change in internal control was identified.
Important facts for investors to verify
- Whether PMT’s wafer-fabrication slowdown persists and whether growth from 5G-related partners and tube-market share gains offsets it.
- Progress in ALTA750 sales, Healthcare segment margins, and the pending goodwill impairment assessment.
- Developments in the Varex patent litigation and any effect on ALTA750 sales.
- Drivers of continued operating cash use, inventory growth, and the decline in cash and investments.
- Future dividend decisions, which the filing says remain at the Board’s discretion, and the eventual quantified impact of lease-standard adoption.