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RE

RICHARDSON ELECTRONICS, LTD. (RELL)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 delivered a return to YoY growth: net sales were $53.7M (+2.2% YoY) despite a shorter quarter (13 weeks vs 14), with diluted EPS of $0.04 and gross margin of 30.6% .
  • Mix and under-absorption weighed on margins (PMT gross margin 29.8% vs 32.2% LY; GES 29.4% vs 36.0%), though Healthcare and Canvys margins improved YoY; operating income was $0.3M .
  • Growth engines: GES +84% YoY on locomotive battery modules and wind turbine modules; wafer fab sales +16% YoY; backlog ended at $137.4M (down sequentially from $147.8M) .
  • Management reiterated expectations for FY2025 YoY sales growth and higher profitability and declared a $0.06 quarterly dividend (payable Nov 27, 2024; record Nov 8, 2024) .
  • Street consensus (S&P Global) for Q1 FY2025 EPS/revenue was unavailable to us at this time; we cannot assess beats/misses versus estimates.

What Went Well and What Went Wrong

  • What Went Well

    • GES acceleration: “new program wins” plus improving legacy demand drove an 84% YoY increase (+$3.7M) in GES, with strong shipments in electric locomotive battery modules and wind pitch systems .
    • Semiconductor wafer fab green shoots: wafer fab sales +16% YoY; management sees improving demand into calendar 2025 .
    • Balance sheet/cash discipline: second consecutive quarter of positive operating cash flow; ended Q1 with $23.0M cash and no debt .

  • What Went Wrong

    • Margin pressure: consolidated gross margin down to 30.6% (from 32.8%) on product mix and under-absorption; PMT gross margin fell to 29.8% (from 32.2%); GES to 29.4% (from 36.0%) .
    • PMT and Canvys softness: PMT -4.3% YoY on a non-recurring LY tube sale; Canvys -22.8% YoY on North America/Europe macro headwinds .
    • Backlog sequential decline: backlog $137.4M vs $147.8M in Q4 FY2024, mainly in Canvys and GES, though management expects strengthening over FY2025 .

Financial Results

Revenue, EPS, Margins (oldest → newest)

MetricQ3 FY2024Q4 FY2024Q1 FY2025
Net Sales ($M)$52.375 $47.374 $53.725
Gross Margin (%)29.5% 31.1% 30.6%
Operating Income ($M)$1.006 $(0.114) $0.316
Diluted EPS$0.05 $(0.01) $0.04

Segment Net Sales ($M) (oldest → newest)

SegmentQ3 FY2024Q4 FY2024Q1 FY2025
PMT$31.163 $30.498 $34.202
GES$11.531 $4.699 $8.086
Canvys$6.590 $8.674 $7.638
Healthcare$3.091 $3.503 $3.799
Total$52.375 $47.374 $53.725

Key KPIs (oldest → newest)

KPIQ3 FY2024Q4 FY2024Q1 FY2025
Backlog ($M, period-end)$147.7 $147.8 $137.4
Cash & Equivalents ($M, period-end)$18.9 $24.3 $23.0
Operating Cash Flow ($M)$(2.531) $7.2 $0.412

Additional Q1 FY2025 details:

  • Gross margin by segment: PMT 29.8%, GES 29.4%, Canvys 34.3%, Healthcare 32.4% .
  • Operating expenses: $16.1M; other income: $0.3M; tax provision ~$0.1M (~9% ETR) .
  • EBITDA: $1.7M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Company Sales/Profitability OutlookFY2025“Return to YoY sales growth and higher profitability” (Q4 FY2024) “Expect YoY sales growth and higher profitability” (Q1 FY2025) Maintained
DividendOngoing$0.06 per common share declared (Q4 FY2024) $0.06 per common share declared; payable Nov 27, 2024; record Nov 8, 2024 Maintained

Management also expects backlog to strengthen over FY2025 (timing variable QoQ) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2024, Q4 FY2024)Current Period (Q1 FY2025)Trend
Semiconductor wafer fab cycleQ3 FY2024: cyclical downturn; under-absorption in PMT pressured gross margin . Q4 FY2024: early indications of improving demand in FY2025 .Wafer fab sales +16% YoY; customers indicate potential record calendar 2025; highest-margin business .Improving
GES programs (wind, rail, power mgmt)Q3 FY2024: GES resilient despite tough comps; backlog up sequentially . Q4 FY2024: focus on long-term growth in GES; delays impacted FY2024 .GES +84% YoY; strong locomotive starter/battery modules; expanding ULTRA3000 platforms into Europe; beta-to-production pipelines intact .Improving (with project timing variability)
Margins/under-absorptionQ3 FY2024: under-absorption reduced GM to 29.5% . Q4 FY2024: GM improved to 31.1% YoY .GM 30.6%; mix and under-absorption still present; as programs scale and semi recovers, under-absorption should ease .Gradual improvement as volume recovers
Canvys demandQ3 FY2024: pushouts in North America . Q4 FY2024: weakness persisted .Canvys -22.8% YoY; backlog $38.1M; cautious near-term but expecting recovery into early next calendar year .Stabilizing to improving (near-term cautious)
Inventory/working capitalQ3 FY2024: inventory reduction; cash down on AR/AP swings . Q4 FY2024: first YoY inventory decline since FY2017; $7.2M op CF .Second straight positive op CF; selective inventory builds (major tube vendor through CY2025; ~21.5% of inventory in GES) .Balanced: investing where needed, otherwise tightening
HealthcareQ3 FY2024: margin improvement . Q4 FY2024: growth YoY .Sales +48.7% YoY; near breakeven; evaluating strategic options .Improving; strategic review ongoing

Management Commentary

  • CEO framing: “Our first quarter results are encouraging… new program wins… drove an 84%, or $3.7 million year-over-year increase in GES… seeing green shoots in semiconductor wafer fab” .
  • Balance sheet stance: “Second straight quarter [of] positive operating cash flow… ended the quarter with no debt and $23.0 million in cash and cash equivalents” .
  • CFO on profitability/margins: 220 bps YoY GM decline mainly from PMT mix and under-absorption; EBITDA $1.7M; ETR ~9% .
  • GES pipeline: “Strong sales in electric locomotive battery modules… dozens of wind turbine owners… exclusive partnership with the top four owner operators of GE wind turbines… sold over 57,000 units in North America” .
  • Strategic posture: “Expect demand… to improve over the coming quarters… launch several new products in green energy… drive higher manufacturing demand and improve gross margin” .

Notable quotes:

  • “Overall, fiscal year 2025 is off to a good start, and we expect year-over-year sales growth and higher profitability for the full fiscal year” — Edward J. Richardson .
  • “This was our first quarterly year-over-year increase in sales since Q3 FY2023” — CFO Robert J. Ben .
  • “Q1 FY’25 bookings exceeded Q1 FY’24 by 35%” — PMT/GES GM Greg Peloquin .

Q&A Highlights

  • GES drivers/Europe expansion: New program wins include ULTRA3000 for wind repowering; strong interest in Europe across Suzlon/Senvion/Nordex/SSB platforms; largely “plug-and-play” with minor mechanical tweaks; launching broader European commercialization .
  • India/Suzlon OEM: Replacement cycle on ~9,000 turbines; initial production orders expected imminently; KEBA pitch control partnership; Richardson product slated in new Suzlon turbines starting 2025 .
  • Inventory strategy: ~21.5% of inventory tied to green energy; concentrated tube vendor inventory to grow through CY2025 given supplier exit; no quality/obsolescence concerns; programs include stock adjustment privileges to mitigate risk .
  • Margin outlook: As semi and GES scale, under-absorption should ease; management targets “30+” margins overall in PMT+GES mix context .
  • Semi wafer fab outlook: Customers signal record calendar 2025; this is the company’s highest-margin business .
  • Capital allocation: Buybacks not prioritized near term given working capital needs to support semi upcycle and global operations; $23M cash of which ~$3.5M in U.S. .

Estimates Context

  • We attempted to retrieve S&P Global consensus estimates for Q1 FY2025 EPS and revenue; data was unavailable to us at this time due to system limits. As a result, we cannot state a beat/miss versus Street for this quarter. We will refresh once S&P Global data is accessible.
  • Actuals for reference: revenue $53.7M, diluted EPS $0.04, gross margin 30.6% .

Key Takeaways for Investors

  • Early-cycle recovery: Semiconductor wafer fab sales turned positive YoY (+16%), and customers indicate potential record CY2025 — a key margin and earnings lever as volumes recover .
  • GES momentum: Material YoY growth (+84%) with expanding platforms (ULTRA3000) and geography (Europe), plus rail starter module volume starting in calendar Q1 2025; revenue may remain lumpy but pipeline supports FY2025 growth .
  • Margins poised to improve as absorption returns: Under-absorption and mix drove YoY GM compression; as semi and GES scale through FY2025, fixed-cost absorption should normalize .
  • Backlog dipped sequentially ($137.4M vs $147.8M) on GES/Canvys timing, but management expects strengthening over FY2025; watch bookings and book-to-bill trends .
  • Cash discipline intact: second consecutive positive operating CF; $23.0M cash and no debt provides flexibility to fund working capital for the semi upturn and GES launches .
  • Trading setup: With Street comparisons unavailable, the near-term narrative hinges on sequential sales recovery vs Q4 FY2024 and management’s reiterated FY2025 growth/profitability outlook; catalysts include semi order inflection, European ULTRA3000 wins, and rail starter module ramp .