Richardson Electronics, Ltd. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, the 13 weeks ended August 28, 2021. Comparatives are the 13 weeks ended August 29, 2020, unless noted. Richardson provides engineered solutions, electronic components and tubes, diagnostic-imaging products and customized display solutions through PMT, Canvys and Healthcare.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $53.7 million | $38.8 million |
| Gross profit / margin | $16.3 million / 30.3% | $12.4 million / 31.8% |
| SG&A | $13.5 million (25.1% of sales) | $13.0 million (33.4% of sales) |
| Operating income (loss) | $2.8 million | $(0.6) million |
| Net income (loss) | $2.6 million | $(1.1) million |
| Diluted EPS, common / Class B | $0.20 / $0.18 | $(0.09) / $(0.08) |
| Operating cash flow | $(4.9) million | $(3.4) million |
| Capital expenditures | $0.8 million | $0.7 million |
Sales rose 38.4%. Gross margin declined 1.5 percentage points, primarily from product mix and lower PMT product margins; Canvys also cited higher freight costs. SG&A increased modestly in dollars but fell as a share of sales. Foreign exchange loss was $27,000, versus $442,000 in the prior-year quarter. Comprehensive income was $1.6 million, including a $1.0 million foreign-currency translation loss.
Segments
- PMT: Sales of $43.0 million, up 42.2%; gross margin 30.1%, down from 33.0%. Growth reflected new power and microwave technology partners, power management and 5G infrastructure, semiconductor wafer-fabrication customers, and electron-device products.
- Canvys: Sales of $8.4 million, up 25.8%; gross margin 33.4%, versus 34.0%. Growth was primarily in Europe.
- Healthcare: Sales of $2.3 million, up 22.0%; gross margin 24.3%, versus 5.6%. Improvement was attributed to favorable mix and higher ALTA 750D tube production.
Financial position and liquidity
At August 28, 2021, cash and cash equivalents were $36.4 million, down from $43.3 million at May 29, 2021. Current assets were $136.2 million and current liabilities $33.3 million. Inventory was $67.6 million, up from $63.5 million; receivables were $29.7 million, up from $25.1 million. Operating cash use included approximately $5.0 million each from increases in receivables and inventory, partly offset by higher payables and accrued liabilities. Management said existing liquidity should meet known capital and working-capital needs for the next 12 months.
No borrowings are reported on the balance sheet. Lease liabilities totaled approximately $3.9 million, including current and non-current amounts. The company paid $0.8 million in dividends and reported $0.9 million of deferred employer Social Security taxes under the CARES Act.
Changes, outlook and risks
- All three segments grew year over year; the strongest percentage growth came from PMT. Profitability returned to positive operating and net income from prior-year losses.
- There is no quantified earnings or revenue guidance in the filing. Management noted that quarterly results are not necessarily indicative of full-year results.
- COVID-19 continued to create uncertainty. The company reported component delays affecting some new-product schedules, but no major supply-chain interruption; further effects on demand, suppliers, transportation, operations and liquidity could not be predicted.
- Some China-manufactured products imported into the U.S. face additional tariffs of up to 25%. Failure to pass costs through, or customer response to higher prices, could pressure sales and margins.
- Foreign-currency exposure is a primary market risk; the company does not use derivatives to manage it. Tax authorities were examining Thailand fiscal years 2008–2011 and Germany fiscal years 2015–2018. The company maintained a full valuation allowance on U.S. federal and state deferred tax assets.
- Inventory reserves were approximately $5.9 million. Management said it did not anticipate material inventory-write-down risks, but changes in demand or market conditions could require additional provisions.
- The filing 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.
Key facts for investors to verify
- Whether sales growth, particularly in PMT and the ALTA 750D product line, continues and translates into improved segment margins.
- Whether gross-margin pressure from PMT mix, freight costs, tariffs and supply-chain conditions persists.
- Whether receivables and inventory growth converts to operating cash flow; operating cash use increased despite the return to profitability.
- Cash availability and liquidity, including the effect of foreign-held cash, repatriation costs and lease commitments.
- Developments in the COVID-19 outlook, China tariffs, foreign-exchange exposure, tax examinations and realization of deferred tax assets.