Richardson Electronics Ltd 2027 Q1 Earnings Call

Please go ahead. Good morning, and thank you for joining Richardson Electronics Fiscal 2027 first quarter conference call.

We appreciate your continued support and interest in our company. Joining me today are Bob Ben, Chief Financial Officer, Wendy Diddell, Chief Operating Officer, Greg Peloquin, General Manager of our Power & Microwave Technologies and Green Energy Solutions Groups, and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These statements are based on current expectations and involve risks and uncertainties. Actual results may differ materially from those discussed today. Please refer to our press release and SEC filings for a discussion of risk factors. I am pleased to report that we started fiscal 2027 with a strong first quarter.

Higher than expected sales growth and expanded gross margin drove a five-time year-over-year improvement in operating income to $5.1 million or 7.9% of sales. Improved profitability and proactive working capital management generated $5.9 million of cash from operating activities, compared with $1.4 million in the prior year first quarter. Backlog grew to $184.4 million, up $20 million from fiscal year 2026 year end. While Bob will review the financial results in detail, the broader takeaways are strong execution across our global teams, growing adoption of key product lines, and positive momentum in our strategic growth priorities. Our performance was led by continued strength in our Power & Microwave Technologies, particularly in semiconductor wafer fabrication equipment, RF and microwave components, and engineered solutions. Demand remains healthy across key end markets, including semiconductor manufacturing, defense, communications infrastructure, and industrial applications.

This growth reflects favorable market conditions and our multi-year efforts to broaden our customer base, expand technology partnerships, and strengthen our engineering capabilities. We also continue to make progress in Green Energy Solutions. Interest in power management, energy resiliency, and energy storage has strengthened as industrial, commercial, and infrastructure customers seek greater reliability, lower operating costs, and solutions for growing power requirements. We believe these long-term trends support our strategy and create attractive opportunities for Richardson Electronics. At Canvys, customer engagement remains active across medical and industrial markets. Although project timing can create quarterly variability, customer activity, request for quote volume, and opportunities for new design wins remain encouraging. We continue to support customers with highly engineered display solutions differentiated by customization, quality, and long-term support. Strategically, we are seeing increased customer interest in our U.S.-based engineering and manufacturing capabilities.

Our Made in USA initiative, engineering expertise, global infrastructure, manufacturing footprint, and strong balance sheet are creating opportunities in aerospace, defense, power management, and industrial applications. We expect this trend to remain favorable as customers evaluate supply chain continuity, localization, and tariff exposure in sourcing decisions. The macro environment remains uncertain, with trade policies, tariffs, geopolitical developments, energy markets, and global economic conditions creating challenges across industries. However, the underlying demand drivers supporting our business remain strong, and we continue to focus on what we can control. Expansion of AI-related infrastructure, semiconductor investment, power systems modernization, defense spending, and demand for energy support markets where Richardson Electronics has recognized capability and customer relationships. We remain disciplined in managing inventory, pricing, operating expenses, and capital allocation.

Our strong balance sheet and debt-free position provide flexibility to invest in the strategic growth while remaining the financial discipline that has been a hallmark of the company for 80 years. Overall, we believe the company is well-positioned as we move through fiscal 2027. We remain focused on growing higher value engineered solutions, improving profitability, supporting customers, and creating long-term shareholder value. With that, I'll turn the call over to Bob Ben for a detailed review of the quarter's financial results.

Thank you, Ed, and good morning. I will review our financial results for our first quarter of fiscal 2027, followed by a review of our cash position. Consolidated net sales increased 18.9% to $64.9 million, compared to net sales of $54.6 million in the prior year's first quarter. This was our ninth consecutive quarterly year-over-year increase in sales. The first quarter was led by a 19.7% increase in PMT sales, driven by strong growth in semiconductor wafer fab and RF and microwave products. GES sales increased $2.0 million, or 27.1%, as a result of higher sales of wind products and new products, including battery energy storage systems. Canvys sales increased 7.9%, reflecting higher sales in North America. Consolidated gross margin for the quarter was 34.6% of net sales, compared to 31.0% during the first quarter of fiscal 2026.

In the first quarter of fiscal 2027, gross margin benefited by 170 basis points due to an IEEPA tariff refund. PMT gross margin increased to 35.4%, compared to 31.3%, as a result of product mix and the IEEPA tariff refund. GES gross margin increased to 32.6% from 29.6% due to product mix that included new products. Canvys gross margin increased to 33.0% from 30.9%, primarily due to the IEEPA tariff refund. Operating expenses were $17.4 million compared to $16.0 million in the first quarter of fiscal 2026. The increase in operating expenses resulted primarily from higher employee compensation expenses, including incentives driven by the strong sales growth and higher travel expenses. As a percentage of net sales, operating expenses improved to 26.8% in the first quarter of fiscal 2027 versus 29.2% in the prior year's first quarter.

Operating income increased over 400% to $5.1 million, compared to an operating income of $1.0 million in the prior year's first quarter. Net income was $4.1 million for the first quarter of fiscal 2027, compared to net income of $1.9 million for the first quarter of fiscal 2026. Earnings per common share diluted were $0.27 in the first quarter of fiscal 2027 compared to earnings per common share diluted of $0.13 in the first quarter of fiscal 2026. EBITDA was $6.0 million for the first quarter of fiscal 2027 versus $3.3 million in the first quarter of fiscal 2026. Please note that EBITDA is a non-GAAP financial measure and a reconciliation of the non-GAAP item to the comparable GAAP measure is available in our first quarter fiscal 2027 press release that was issued yesterday after the market closed. Turning to a review of our cash position.

Cash and cash equivalents at the end of the first quarter of fiscal 2027 were $36.9 million compared to $31.8 million at the end of fiscal 2026. The increase in cash and cash equivalents related to net income adjusted for non-cash items and higher accounts payable, partially offset by higher accounts receivable. Capital expenditures of $1.7 million in the first quarter of fiscal 2027 were primarily related to facilities improvements in IT systems versus $1.0 million in the first quarter of fiscal 2026. Free cash flow was $4.2 million for the first quarter of fiscal 2027. We paid $0.9 million during the quarter for cash dividends. In addition, based on our current financial position, our board of directors declared a quarterly cash dividend of $0.06 per common share, which will be paid in the second quarter of fiscal 2027.

As of the end of the first quarter of fiscal 2027, the company had no outstanding debt on its revolving line of credit with PNC Bank. Now, I will turn the call over to Greg, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. We are excited by the continued progress we are making in both bookings and billings as a result of our multi-year growth strategies underway for GES and PMT. Coming into FY 2027, key strategic imperatives include developing a stronger backlog, launching new products, expanding our customer base, and advancing multiple development programs from beta testing to pre-production. I am pleased to report that we are making excellent progress towards our goals in Q1 FY 2027. Starting with GES, our year-over-year sales growth and bookings trends are encouraging as we continue to grow the pipeline of opportunities through both current and new technology partners, as well as engineered solutions developed by our field engineers and design team.

GES sales in the quarter grew 27.1% year-over-year as more customers adopted our key products across a broader set of applications. Within GES, we saw continued progress across key growth opportunities. First, we experienced growth adoption of our pitch energy modules across multiple wind turbine platforms. We serve dozens of wind turbine owners and operators, including exclusive partnerships with the top four owner operators of GE wind turbines such as RWE, Invenergy, Enel, and NextEra. We also saw growth from our multi-brand PEM turbine platforms. We continue to grow this program internationally, expanding into Europe, Asia, with new products for other turbine platforms, including Suzlon, Senvion, Nordex, and SSB. We have now received orders outside of North America from customers in Brazil, Australia, India, France, and Italy, adding to our strong rollout in North America. Second, we booked a $2 million BESS program in Q1.