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RE

RICHARDSON ELECTRONICS, LTD. (RELL)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 delivered sequential recovery with net sales up 18.7% to $52.4M and a return to profitability (diluted EPS $0.05), driven by a sharp rebound in Green Energy Solutions (GES) and improved gross margin to 29.5% .
  • Year over year, revenue fell 25.6% and EPS declined from $0.44 to $0.05 as PMT sales to semiconductor wafer fab customers remained cyclical and down materially; management believes Q3 was the trough for semiconductor revenue and expects recovery in CY2024/CY2025 .
  • Backlog slipped modestly to $147.7M (from $150.7M in Q2), with GES backlog rising to $36.8M; inventory decreased $4.0M sequentially, improving working capital; cash and investments ended at $18.9M .
  • The Board declared a $0.06 per share quarterly cash dividend payable May 29, 2024; management guided to sequential sales growth and profitability improvements in Q4 FY2024, citing improving demand in semiconductor and GES markets .
  • Stock reaction catalysts: continued GES order flow (ULTRA3000 modules, ULTRAUPS3000), confirmation of semi-cap recovery, and backlog growth; note investor focus on capital allocation (buybacks vs. dividends) and Board stock ownership commitments discussed on the call .

What Went Well and What Went Wrong

What Went Well

  • GES rebounded sharply: sales up 342% sequentially to $11.5M on broader customer adoption of ULTRA3000; GES book-to-bill 1.07, backlog grew to $36.8M .
  • Sequential profitability improvement: gross margin rose to 29.5% and operating income reached $1.0M; inventory decreased $4.0M, supporting working capital improvements .
  • Management visibility improved: “We anticipate sequential sales growth in our fiscal 2024 fourth quarter, as well as further improvements in profitability,” said CEO Edward Richardson .

What Went Wrong

  • YoY declines persisted: net sales down 25.6% to $52.4M, operating income down to $1.0M from $7.6M; diluted EPS fell to $0.05 from $0.44, reflecting PMT weakness tied to semiconductor wafer fab customers (-$11.5M impact) .
  • Backlog eased sequentially to $147.7M (from $150.7M) on PMT and Canvys; Canvys faced customer pushouts in North America, though margin improved .
  • Healthcare margins remain volatile despite YoY gross margin improvement to 41.6%; division still targeting breakeven in Q4 amid constrained component supply and program timing .

Financial Results

Consolidated Performance (Sequential comparison within FY2024)

MetricQ1 FY2024Q2 FY2024Q3 FY2024
Revenue ($USD Millions)$52.6 $44.1 $52.4
Gross Margin %32.8% 28.4% 29.5%
Operating Income ($USD Millions)$1.5 $(2.0) $1.0
Net Income ($USD Millions)$1.2 $(1.8) $0.8
Diluted EPS ($USD)$0.09 $(0.13) $0.05

Year-over-Year Snapshot (Q3)

MetricQ3 FY2023Q3 FY2024
Revenue ($USD Millions)$70.4 $52.4
Gross Margin %31.8% 29.5%
Operating Income ($USD Millions)$7.6 $1.0
Net Income ($USD Millions)$6.3 $0.8
Diluted EPS ($USD)$0.44 $0.05

Segment Breakdown (Q3 FY2024 vs. Q2 FY2024 and Q3 FY2023)

Segment Net Sales ($USD Millions)Q2 FY2024Q3 FY2024Q3 FY2023
PMT$31.3 $31.2 $46.8
GES$2.6 $11.5 $11.5
Canvys$7.3 $6.6 $9.7
Healthcare$2.9 $3.1 $2.4
Total$44.1 $52.4 $70.4

KPIs and Balance Sheet Highlights

KPI / MetricQ2 FY2024Q3 FY2024
Backlog ($USD Millions)$150.7 (total) $147.7 (total)
GES Backlog ($USD Millions)$35.7 $36.8
Cash & Investments ($USD Millions)$22.8 $18.9
Inventory ($USD Millions)$117.0 $112.6
Book-to-Bill (GES)N/A1.07
Book-to-Bill (PMT overall)N/A1.14
Dividend per Common Share ($USD)$0.06 (declared) $0.06 (declared)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue (directional)Q4 FY2024Anticipate sequential growth in 2H FY2024 led by GES; semi-cap recovery expected in 2H CY2024 Anticipate sequential sales growth and further profitability improvements in Q4 FY2024 Maintained/clarified
Semiconductor wafer fab sales (directional)CY2024–CY2025Recovery expected in 2H CY2024; CY2025 record demand potential Q3 likely trough; recovery expected back half CY2024 leading to record CY2025 Maintained
DividendQ3/Q4 FY2024$0.06 declared; payable Feb 28, 2024 $0.06 declared; payable May 29, 2024 Maintained
Profitability (directional)Q4 FY2024Focus on expense control; operating cash flow improvement targeted Expect further profitability improvement in Q4 FY2024 Raised tone

Note: No explicit numeric ranges for revenue, margins, OpEx, OI&E, tax rate were provided; guidance is directional based on management commentary .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
GES adoption (ULTRA3000, ULTRAPEM3000, ULTRAUPS3000)Project-based timing; Phase II rollouts expected; beta testing ongoing; Suzlon OEM opportunity (~7,000 turbines) GES sales up 342% q/q; broader customer base; ULTRAUPS3000 beta progressing; production revenue targeted late Sep/Oct 2024 Positive momentum, expanding pipeline
Semiconductor wafer fab cycleBottoming; recovery in 2H CY2024; CY2025 record potential per customer signals Q3 likely lowest quarter; customers forecast growth back half CY2024, record CY2025 Improving outlook
Inventory and cash managementBuilding inventories for supply assurance; plan to improve turns and convert to cash $4.0M inventory reduction; plan to convert receivables; focus on working capital Improving execution
Canvys demand/backlogCustomer pushouts; backlog strong ($42.6M Q1; $48.2M Q2); margin improving Sales down YoY; backlog robust ($46.2M); margin up to 34.4% Mixed near-term; long-term constructive
Healthcare Siemens repair programProgress with Straton Z; MX series constrained until patent expiry; breakeven target Q4 FY2024 Gross margin up to 41.6%; continued progress; breakeven goal reiterated Gradual improvement
IRA-driven opportunities (generators, hydrogen, diamonds)New orders for 100kW generators; multi-reactor factories grants First generator shipping; demand tied to large chips (AI/EV); magnetron opportunities Emerging opportunity
Capital allocation & Board ownershipNew Board ownership requirement ($150k minimum) Investor calls for buybacks; management prioritizes cash/working capital; Board ownership requirement implemented Governance improving; buyback deferred

Management Commentary

  • “Sales increased 18.7% sequentially, reflecting improving business conditions… Our net sales continue to reflect the cyclical nature of sales to semiconductor wafer fab customers that had an $11.5 million negative impact on sales during the quarter.” — Edward J. Richardson .
  • “Without under absorption… consolidated gross margin for the fiscal 2024 third quarter would have been 31.0%.” — Robert J. Ben .
  • “GES sales were up 342% sequentially… with the addition of new customers, new products, and new technology partners.” — Gregory Peloquin .
  • “We anticipate sequential sales growth in our fiscal 2024 fourth quarter, as well as further improvements in profitability.” — Edward J. Richardson .
  • “Our balance sheet remains strong with nearly $19 million in cash and no debt… we focus on improving profitability and producing positive operating cash flow in FY ’25.” — Edward J. Richardson .

Q&A Highlights

  • Semi-cap outlook and margins: Management expects CY2025 to be a record year across Lam/TEL/AMAT ecosystems, with margins “better than our normal margins” given proprietary products like RF matches .
  • GES Phase II and customer breadth: Phase II ULTRA3000 rollouts anticipated to match or exceed Phase I; shipments to over 12 new customers as budgets approved and orders placed; inventory on hand supports faster deliveries .
  • Inventory monetization: Inventory quality seen as strong; ~$113M total with ~$5M reserves; intention to convert several million dollars to cash as orders release .
  • Capital allocation: Multiple investors urged buybacks; management emphasized maintaining cash and positive operating cash flow before reconsidering repurchases; Board instituted $150k stock ownership requirement for outside directors .
  • Ideal Power partnership: New global distribution and engineering partnership; potential multi-million revenue opportunities across inverter/industrial/charging applications and use in ULTRAUPS3000-related designs .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 FY2024 EPS and revenue was unavailable due to system limits during retrieval; therefore, estimate comparisons cannot be shown. Values intended from S&P Global could not be retrieved; estimates context is based solely on company-reported results and management commentary.
  • Where estimates are unavailable, consider monitoring near-term sell-side updates post-call to recalibrate revenue/EPS expectations for Q4 FY2024 and FY2025 (semi-cap recovery, GES timing) .

Key Takeaways for Investors

  • Sequential momentum re-established as GES normalizes and semi-cap pressures likely trough; watch for confirmation via Q4 backlog growth and book-to-bill >1 in PMT/GES .
  • Exposure to CY2025 semi-cap upcycle is material; proprietary content should support above-company-average margins once volumes normalize (potential EPS leverage) .
  • GES diversification reduces cyclicality: ULTRA3000 adoption broadens; ULTRAUPS3000 and ULTRAPEM3000 could add incremental, higher-value streams in late CY2024/CY2025—track Suzlon OEM progress and Siemens UPS beta exits .
  • Working capital actions are tangible: inventory drawdown, shipping from stock, and receivable conversion targeted—key for cash generation and potential reconsideration of buybacks later .
  • Canvys backlog offers embedded demand despite near-term pushouts; margin improvements indicate operational discipline .
  • Healthcare breakeven aspiration hinges on Siemens repaired tube ramp; monitor component constraint resolution and margin sustainability .
  • Near-term trading: stock likely reacts to GES order flow and semi-cap commentary; medium-term thesis: combined semi-cap rebound plus GES scale-up supports margin recovery and EPS expansion.