Richardson Electronics, Ltd. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2019, three months ended September 1, 2018. The comparable quarter ended September 2, 2017. The current quarter had 13 weeks versus 14 weeks in the prior-year quarter. Dollar amounts below are U.S. dollars.
Business context
Richardson Electronics provides engineered solutions and distributes and manufactures products for power, RF and microwave applications, diagnostic imaging, and customized displays. Its reportable segments are Power and Microwave Technologies Group (PMT), Canvys, and Healthcare.
Financial performance
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Net sales | $44.2 million | $37.0 million |
| Gross profit / margin | $14.0 million / 31.6% | $12.1 million / 32.8% |
| SG&A | $13.1 million (29.7% of sales) | $12.3 million (33.3% of sales) |
| Operating income | $0.9 million | $0.015 million |
| Income (loss) before taxes | $0.7 million | $(0.05) million |
| Income tax provision | $0.3 million | $0.1 million |
| Net income (loss) | $0.4 million; $0.03 per share | $(0.1) million; $(0.01) per share |
| Comprehensive income (loss) | $(0.3) million | $2.0 million |
Sales increased 19.4%. Segment sales were PMT $34.8 million (+19.4%), Canvys $7.2 million (+24.4%), and Healthcare $2.2 million (+5.2%). Gross margin declined overall: PMT was 31.7% versus 32.9%; Canvys improved to 32.2% from 26.8%; Healthcare fell to 28.6% from 48.8%.
- Cash flow: Operations used $3.6 million, investing used $3.4 million, and financing used $0.6 million. Capital expenditures were $1.1 million; the company also purchased a $2.3 million certificate of deposit. Dividends paid were $0.8 million.
- Liquidity: Cash and cash equivalents were $52.5 million at September 1, 2018, down from $60.5 million at June 2, 2018. Short-term investments were $2.3 million; combined cash and investments were $54.8 million. Current assets were $131.6 million and current liabilities $25.1 million.
- Debt and equity: The balance sheet lists no debt balance. Total liabilities were $26.3 million and stockholders’ equity was $134.5 million.
Material changes and management commentary
Management attributed PMT growth to market-share gains in RF and microwave tubes and growth from power-conversion and RF/microwave technology partners. Canvys benefited from stronger North American and European demand. Healthcare’s modest sales growth reflected higher equipment and CT-tube sales, partly offset by lower parts sales. Overall gross margin weakened mainly due to unfavorable PMT product mix and Healthcare product mix and manufacturing variances; Canvys’ improved mix and lower costs partly offset this.
SG&A rose in dollars, principally with higher compensation and other costs associated mostly with increased sales, but declined as a percentage of revenue. The prior-year quarter included a $0.2 million gain on disposal of assets; no such gain was recorded in the current quarter. Foreign-exchange losses were $0.3 million, and the company stated it does not use derivatives to manage currency exposure. Foreign-currency translation reduced current-quarter comprehensive income by $0.7 million.
Outlook, risks and contingencies
- Management said existing liquidity, including cash on hand, should be sufficient for known capital requirements and working-capital needs over the next 12 months. The filing provides no specific earnings or revenue guidance and cautions that quarterly results are not necessarily indicative of full-year results.
- Management identified potential goodwill impairment risks if operating plans, new-product sales, market acceptance, or foreign-market approvals do not meet assumptions. No impairment indicators were identified in the quarter.
- A stockholder derivative lawsuit alleging director fiduciary-duty breaches remained pending after oral argument on the company’s motion to dismiss. The company said it believed the suit lacked merit and that a loss was not probable or estimable.
- The company was under examination in Thailand for fiscal 2008–2011 and reported a $0.1 million liability for uncertain tax positions. A $9.2 million valuation allowance remained against deferred tax assets.
- The company reported no material changes to the risk factors in its latest Form 10-K. Foreign currency exposure, tax matters, and the performance of new products remain relevant risks.
Most important facts for investors to verify
- Whether sales growth and operating profitability persist, particularly given the shorter current quarter and lower consolidated gross margin.
- Whether Healthcare margins recover and whether the growth in PMT and Canvys continues.
- Cash conversion and working-capital movements, especially the $5.4 million decline in accounts payable that drove operating cash use.
- Progress and potential financial impact of the pending derivative litigation, tax examinations, and deferred-tax valuation allowance.
- Any subsequent dividend declaration details: the filing reports dividends paid of $0.06 per common share and $0.054 per Class B share, but the supplied text does not state the amount of the dividend referenced as declared in the October 10 press release.