Richardson Electronics, Ltd. — FY2022 Form 10-K
Reporting period: Fiscal year ended May 28, 2022 (52 weeks), compared with fiscal 2021 ended May 29, 2021. The filing is an annual report, not a 2021 calendar-year fourth-quarter report.
Business context
Richardson Electronics manufactures and distributes engineered electronic solutions, power grid and microwave tubes and components, diagnostic-imaging replacement parts and services, and customized display solutions. Its reportable segments were Power and Microwave Technologies (PMT), Canvys, and Healthcare. Approximately 57% of FY2022 sales were outside the United States. No customer accounted for more than 10% of sales; one supplier represented 11% of cost of sales.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $224.6 million | $176.9 million |
| Gross profit / margin | $71.7 million / 31.9% | $58.8 million / 33.2% |
| SG&A | $55.7 million / 24.8% of sales | $55.9 million / 31.6% of sales |
| Operating income | $16.0 million | $2.9 million |
| Net income | $17.9 million | $1.7 million |
| Diluted EPS, common shares | $1.31 | $0.13 |
| Operating cash flow | $1.9 million | $0.8 million |
Sales increased 26.9%, with growth in all segments: PMT +29.7% to $178.1 million, Canvys +20.0% to $35.2 million, and Healthcare +10.1% to $11.4 million. Gross margin declined mainly due to PMT product mix, higher freight and foreign-exchange effects in Canvys, and higher Healthcare component scrap. SG&A was broadly flat in dollars; FY2021 included a $1.6 million Varex settlement.
Cash, liquidity, debt and capital
- Cash and cash equivalents were $35.5 million at year-end, down from $43.3 million; the company also held a $5.0 million current certificate of deposit. Management reported total cash, cash equivalents and investments of $40.5 million.
- Operating cash flow of $1.9 million was modest relative to net income, principally because inventory increased $20.6 million and receivables increased $6.2 million, partly offset by higher payables and accrued liabilities.
- Capital expenditures were $3.1 million. Cash dividends paid were $3.2 million; the quarterly dividend was $0.06 per common share and $0.054 per Class B share. No fiscal 2022 share repurchases were reported.
- Total liabilities were $44.0 million, including $3.0 million of lease liabilities. The filing does not report conventional borrowings or other funded debt on the balance sheet.
- Working capital was approximately $112.0 million (current assets of $153.2 million less current liabilities of $41.2 million). Total stockholders’ equity was $135.8 million.
Material changes, outlook and notable items
- Net income benefited from a $2.2 million income-tax benefit. Management released the full valuation allowance on U.S. federal and state deferred tax items, reducing the overall valuation allowance from $12.2 million to $3.5 million. This is an important contributor to reported earnings and may not recur at the same level.
- Management said current liquidity and expected operating cash flows should meet known capital and working-capital needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Beginning in fiscal 2023, the company planned to report Green Energy Solutions as a fourth segment, carved out of PMT, reflecting a greater focus on power-management applications serving green energy markets.
- Management reported no pandemic-related sales decline in FY2022, but COVID-related effects weighed on Canvys and Healthcare gross margins and caused some component delays. Supply-chain disruption, freight costs, inflation, foreign exchange and the Russia-Ukraine conflict were cited as ongoing uncertainties.
- Inventory was $80.4 million net of a $6.1 million reserve, up from $63.5 million. The auditor identified estimation of the PMT inventory reserve as a critical audit matter because of judgments about slow-moving and technology-sensitive products.
- The company settled Varex patent-infringement and trade-secret allegations for $1.6 million in FY2021 without admitting liability. The German tax audit for fiscal 2015–2018 was expected to close in Q1 FY2023.
- BDO issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control were effective as of May 28, 2022.
Key investor verification points
- Assess whether sales growth and segment demand—especially PMT’s newer power-management, green-energy, 5G and semiconductor-related business—continued after FY2022.
- Review inventory aging, turnover and reserve adequacy, given the significant inventory build and the auditor’s critical audit matter.
- Track whether margins recover from freight, mix, foreign-exchange and scrap pressures, and whether pricing offsets higher input costs.
- Separate recurring operating earnings from the tax benefit arising from valuation-allowance releases; verify deferred-tax-asset realization and remaining tax exposures.
- Monitor operating cash conversion and working-capital requirements, including the conversion of inventory and receivables into cash.
- Consider supplier concentration, global supply-chain disruption, foreign-currency exposure (the company reported no derivative hedging), and the control implications of the CEO’s approximately 63% voting power.