Good day, and thank you for standing by and welcome to the Richardson Electronics Earnings Call for the Second Quarter of Fiscal Year 2024 Conference Call. At this time, all participants are on a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Edward Richardson, CEO. Please go ahead.

Good morning and welcome to Richardson Electronics conference call for the second quarter of fiscal year 2024. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power & Microwave Technologies Group, which includes Green Energy Solutions; and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. I would also like to remind you that we will be making forward-looking statements. They are based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors. Financial results for the second quarter of the fiscal year 2024 fell short of our expectations. Economic conditions, rising interest rates, higher inventory levels, and a lagging economy in China negatively impacted customer demand for our products. As we operate over the near term with a more uncertain economic climate, we remain focused on pursuing our long-term growth strategies. These strategies position the business to take advantage of large, rapidly growing global opportunities. The expertise of our management team is a significant asset during this period, as we have successfully navigated difficult economic periods throughout our history. This is exactly why we maintain a strong balance sheet with access to additional sources of capital if necessary. We've also made the strategic decision to maintain stable levels of manufacturing employees and salespeople as many of the green energy solutions and semiconductor equipment customers expect demand to recover in calendar 2024. Therefore, maintaining continuity in our manufacturing team is important to ensure we can quickly adapt to increased orders and grow market share. Unfortunately, profitability was impacted in the second quarter as our gross margin reflects the under-absorption in our factory. Within our healthcare business, we made some changes to improve inventory and focus on strategic objectives which Wendy will tell you about shortly. Overall, the team continues to do an excellent job managing expenses; we're focused on driving efficiencies, while simultaneously positioning the company for future growth. While we acknowledge revenues will be lower in FY '24 than previously anticipated, we maintain our optimistic outlook and remain committed to our long-term strategy. We continue to expand our product roadmap for green energy solutions. We are adding new customers for wind, electric vehicles, and rail and the applications that take advantage of energy transition initiatives underway across many geographies. While we're in the early innings of this transformation, we have quickly developed a compelling roadmap of products, technologies, and are establishing Richardson Electronics as a leading provider of innovative engineered solutions for global green energy markets. Activity across all our business remains extremely strong, and specifically for the green energy’s business. Our pipeline of potential projects continues to increase. In addition to public and private energy transition initiatives that are underway, we believe that the Inflation Reduction Act of 2022 will create further opportunities for the company. One recent example was a new order from a US-based technology company that's using our 100 kilowatt generators to power a pilot reactor to make crystalline diamond materials for high-tech applications. Under the Inflation Reduction Act, this customer is applying for a grant to build a multi-reactor factory which will require a significant number of 100 kilowatt generators. We believe other wind and electric vehicle and rail customers will benefit from the Inflation Reduction Act, which we expect will support our higher sales forecast. As our GES business gets to scale in the coming quarters and years, much of our near-term new business is project-based and timing is not always easy to predict. I want to stress that we've not lost any opportunities and remain focused on capitalizing on market opportunities supported by the Inflation Reduction Act and other energy transition initiatives globally. We're also focused on adding suppliers that will fill our technology gaps. These relationships are critical to our business model as our partners often support new engineered solution opportunities for the company that drive higher and more profitable sales. Our balance sheet remains strong with nearly $23 million in cash and no debt. Inventory increased in the quarter in line with purchases of Talus products, which would support our profitable business, as well as long lead time capacitors that are required to support our green energy growth initiatives. The balance of our inventory remained flat. And the transit inventory was down, indicating we are reducing inventory purchases in line with sales. With this introduction, I would like to turn the call over to Bob Ben, our Chief Financial Officer, to review our second quarter financial performance in detail. Then, Greg, Wendy, and Jens will discuss our numerous opportunities within our business units, including the significant number of new products, programs, and customers that drive our optimism for future growth.

Thank you, Ed, and good morning. I will review our financial results for our second quarter of fiscal year 2024, followed by a review of our cash position. Net sales for the second quarter of fiscal 2024 were down 33.0% to $44.1 million compared to net sales of $65.9 million in the prior year second quarter. PMT sales decreased by $9.3 million from last year's second quarter, driven primarily by a decline in manufactured products for semiconductor wafer fabrication equipment customers. Sales for GES declined $9.7 million from last year's second quarter, primarily due to lower sales of ultracapacitor modules for wind turbines as a result of the project-based nature of this product line. Canvys sales decreased by $2.8 million, primarily due to customer pushouts in North America. However, Canvys backlog increased, reflecting higher overall demand. Richardson healthcare sales were comparable to the second quarter of fiscal 2023, as higher CT tube and parts demand offset lower system sales. Consolidated gross margin for the second quarter was 28.4% of net sales compared to 33.2% in last year's second quarter due primarily to product mix and under-absorption. Without the under-absorption of the company's manufacturing facility, management estimates that the company's consolidated gross margin for the second quarter of fiscal 2024 would have been 31.3%. PMT's gross margin decreased to 28.5% from 34.5%, primarily due to product mix, and $0.9 million of manufacturing under-absorption. GES gross margin decreased in the second quarter of fiscal 2024 to 29.2% from 33.9% in the prior year's second quarter due to product mix. Healthcare's gross margin decreased to 14.8% in the second quarter of fiscal 2024 compared to 23.2% in the prior year's second quarter as a result of a $0.3 million increase in manufacturing under-absorption. Canvys gross margin increased in the second quarter of fiscal 2024 to 33.5% from 29.7% in the prior year second quarter because of product mix and lower freight costs. Operating expenses were $14.5 million for the second quarter of fiscal 2024, compared to $14.7 million in the second quarter of fiscal 2023. The decrease in operating expenses resulted from lower incentive expenses, partially offset by higher employee compensation expenses. The company reported an operating loss of $2.0 million for the second quarter of fiscal 2024 versus operating income of $7.2 million in the second quarter of last year. Other expenses for the second quarter of fiscal 2024, including interest income and foreign exchange, were $0.3 million compared to other expenses of $0.1 million in the second quarter of fiscal 2023. Income tax benefit was $0.5 million or a 21.6% effective tax rate versus an income tax provision of $1.5 million or a 21.5% effective tax rate for the second quarter of fiscal 2023. Net loss for the second quarter of fiscal 2024 was $1.8 million or $0.13 per diluted common share compared to net income of $5.5 million or $0.39 per diluted common share in the second quarter of fiscal 2023. Turning to a review of the results for the first six months of fiscal year 2024. Net sales for the first six months of fiscal year 2024 were $96.7 million, a decrease of 27.5% from $133.5 million in the first six months of fiscal year 2023, which reflected lower sales across our business segments. Gross margin decreased to 30.8% from 33.6%, primarily reflecting product mix and manufacturing under-absorption in PMT, as well as increased scrap expense and manufacturing under-absorption in healthcare, which was partially offset by a favorable product mix and lower freight costs for Canvys. Operating expenses were $30.3 million for the first six months of the fiscal year, which represented an increase of $1.4 million from the first six months of the last fiscal year. The increase was due to higher employee compensation expenses associated with the higher staffing levels in fiscal 2023 combined with severance costs relating primarily to healthcare's reduction in staff. Operating loss for the first six months of fiscal year 2024 was $0.5 million as compared to an operating income of $16.0 million for the first six months of fiscal year 2023. Other expenses for the first six months of fiscal 2024, including interest income and foreign exchange, were $0.1 million, as compared to other expenses of $0.5 million for the first six months of fiscal 2023. Income tax benefit was $0.1 million or an effective tax rate of 16.5% during the first six months of fiscal 2024 versus an income tax provision of $3.6 million or an effective tax rate of 23.4% in the prior year's first six months. The company reported a net loss of $0.6 million or $0.04 per diluted common share for the first six months of fiscal year 2024, versus net income of $11.9 million, or $0.83 per diluted common share for the first six months of fiscal year 2023. Moving to a review of our cash position. Cash and investments at the end of the second quarter of fiscal 2024 were $22.8 million, compared to $24.1 million at the end of the first quarter of fiscal 2024. US cash and investments were $8.8 million at the end of the second quarter of fiscal 2024 versus $8.4 million at the end of the first quarter of fiscal 2024. Capital expenditures were $1.5 million in the second quarter versus $1.3 million in the second quarter of fiscal year 2023. Approximately $1.1 million related to investments in manufacturing, including facility expansion, and included final costs for the renovation of our office space. We paid $0.8 million in cash dividends in the second quarter of fiscal year 2024. In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of $0.06 per common share, which will be paid in the third quarter of fiscal 2024. As of the end of the second quarter of fiscal 2024, the company had not made any draws on its $30 million revolving line of credit with PNC Bank. Lastly, the company's Board of Directors created new ownership requirements for outside directors. This includes owning a minimum of $150,000 of our stock after a three-year period.

Thank you, Bob, and good morning, everyone. As expected, the fiscal 2024 second quarter was challenging for our Green Energy Solutions and Power & Microwave Technologies groups due to a fluid economic environment, the timing of some project-based orders, and a decline in sales in the semiconductor wafer fab market. For our GES business in particular, our second quarter results reflect the startup nature of any new business. As a reminder, we are in the infancy of our GES growth strategy, having started to pursue new GES opportunities only two years ago with new designs and customer requirements establishing manufacturing and test and also launching beta site testing, we expect sales to fluctuate as we get to scale and develop more predictable revenue streams. However, in a short amount of time, we have designed numerous new products, received several patents, and shipped over $77 million to an ever-growing list of key customers, with more than $35 million in backlog going into calendar year 2024. We expect significant bookings to be received in Q3 and Q4 of FY '24. So needless to say, we continue to be very excited about the next three years. Last year, GES benefited from several large projects, including electric locomotive development and major owner operators of GE wind turbines such as Nextera, Enel, and Invenergy. Given the project nature of our GES business, revenue from these products is not necessarily consistent quarter to quarter. In fact, many of our customers over the past three months completed calendar year 2024 budgets, including our product and will roll out purchases in the first half of calendar 2024. In weekly conversations with our major customers, they note it is only a matter of time until new orders are placed. Our customers repeatedly tell us we have maintained our market share for our core GES applications and have identified new product opportunities. And the decline in revenue we are experiencing is purely a timing issue. In fact, our customer pipeline and the number of opportunities continue to increase as we look to take advantage of significant energy transformation projects globally. Our GES and PMT backlogs remain strong at over $100 million. Given our inventory position, we believe we will ship many incoming orders from stock, which we expect will convert working capital into cash in the coming quarters. We are managing our GES business to support our customers' needs when they are ready. So with that introduction, let's look at the second quarter performance of GES and PMT groups in more detail. GES sales were $2.6 million in the quarter, down from $12.3 million in the prior year's record second quarter. The year-over-year decline in GES sales was due to timing on several major project-based opportunities. Last year, GES revenues included the first phase of rollouts to our wind turbine customers and prototype builds for our EV locomotive customers. During the quarter, we added several major new customers such as BP Energy, EDF Energy, and EDP Renewables. I am pleased to report that 90% of our ULTRA3000 sales in Q2 were with new wind customers. We continue to increase our market share with customers needing our niche patented green energy products. We believe Phase 2 rollouts for our wind customers will begin in Q3 and Q4 of FY '24 as many of these customers recently completed their 2024 budgeting process. The forecast they have provided point to growing orders, which we believe will drive stronger GE sales in our fiscal third and fourth quarters. We continue to beta site our patented pending ULTRAUPS 3000, which replaces lead-acid batteries in the UPS system at the base of the wind turbines. The ULTRAUPS 3000 will be used by Siemens and by other owner operators of GE wind turbines going forward. Tests are going well, and we have led to important improvements in the product. We're also testing the ULTRAPEM 3000 which supports other wind turbine platforms such as Suzlon, Senvion and Nordex. This is helping us expand our market outside of North America. One major program for the ULTRAPEM is beta testing with Suzlon in an OEM and replacement basis. This opportunity is for more than 7,000 turbines in India alone and several thousand more in North America. This product is also in final testing with several owner operators in Latin America and North America. We believe initial ULTRAPEM orders will begin in Q4 of FY '24. In the EV locomotive segment, due to supply chain issues for component parts from our suppliers, our superstructure builds for Long Island railroad and BNSF electric locomotives will be completed in late Q3 and Q4 of this fiscal year. We anticipate Phase 2 for our EV locomotive customers will be in the third and fourth quarters of calendar 2024. We also have beta orders for our patented ULTRAGEN 3000 starter module with two large diesel and electric manufacturers. It is important to note that these are exclusive with both manufacturers. We continue to identify other niche applications for the ULTRAGEN 3000. We are in beta testing with several refrigeration truck manufacturers where ULTRAGEN is replacing lead-acid batteries. There are numerous other markets that can benefit from this solution, such as construction equipment, excavators, loaders, and backhoes. These are longer-term opportunities that we expect to add incremental growth in future periods as we leverage our leadership position, utilizing ultra capacitors and other related technologies as power sources across various applications with many large companies throughout the world. In summary, we believe we will begin to see sequential revenue growth in Q3 and Q4 within our GES business, driven by new products, customers, and technology partners, all supported by the forecast and backlog from these project-based customers. I want to stress that we have not lost any market share. In fact, we continue to increase our market share with new products, applications, and customers and our recent performance is a result of timing issues and the emerging nature of our GES business. So turning to PMT, which includes EDG, our legacy tube business, and PMG, our Power & Microwave Components Group, sales decreased 22.9% to $31.3 million. This decline was mainly due to a continued slowdown in our semiconductor wafer fabrication equipment business. The semiconductor wafer fabrication business has always been cyclical. We anticipated the slowdown in 2023, but maintain our expectations that the business will recover in the second half of calendar 2024. This frustration with the cyclical downturn of the wafer fabrication business was offset by strong double-digit bookings growth in our RF and wireless business, mainly supporting wireless infrastructure and communication customers. As mentioned, our engineered solution strategy is led by our global technology partners. We continue to add partners who fill technology gaps in our offering and support our growth. Often through these partnerships, we identify opportunities for new products that we design and manufacture in-house. This increases the value we provide customers and allows us to capture more revenue while expanding and diversifying our customer base. These long-term supplier relationships are extremely strong. And when appropriate, we work with them on strategic long-term purchases to maintain appropriate levels of supply. We negotiate special payment terms and shipping schedules to help improve cash flow. In addition, having inventory at hand allows us to capture and maintain market share. We collaborate with both our customers and suppliers and leverage our customers' forecast to help us strategically invest in inventory, ensuring we can meet our customers' needs. Our growing customer base and strong relationships with these customers and suppliers, using our version of a customer intimacy model, helps us develop new products and opportunities with our existing customer base. We also continue to invest in our infrastructure to support our growth where needed. We're bringing on talented design and field engineers and making investments to enhance our manufacturing capabilities. Our growing in-house design and engineering manufacturing teams are doing a great job supporting increased demand for current products and new product designs. With this team, we will continue to identify, develop, and introduce new products and technologies for green energy and other power management and microwave applications. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers. Our unparalleled capability and global golden market strategy are unique to the power and energy in RF, microwave and green energy markets. We developed a strong business model including legacy products and new technology partners that fit well with our engineered solutions capabilities. Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities when they arise. The execution of our strategy has never been better. There's no question our customers and technology partners need Richardson's capabilities, products, and support more than ever. And with that I'll turn it over to Wendy Diddell to discuss Richardson Healthcare.

Thanks, Greg. Good morning everyone. Second quarter sales for the healthcare division were $2.9 million, down less than 1% compared to the second quarter of last year and improved over our most recent first quarter. CT tubes and part sales were up versus the prior year's second quarter, while system sales were down due primarily to timing of cash receipts from customers in Latin America. In the quarter, we benefited from sales of our repaired Siemens Straton Z tubes. Healthcare's gross margin in the quarter was very low at 14.8% compared to 23.2% last year. The reason for the decline in margin was due to under-absorption associated with our decision to produce fewer ALTA tubes in the quarter as well as higher scrap costs. Throughout prior quarters, healthcare inventory has increased due in large part to our growing supply of ALTA tubes. These are the replacement tubes for CAT and CT scanners. We decided at the end of the quarter to reduce our staff and temporarily suspend ALTA tube production which will allow us to sell off inventory. We did retain critical resources who will focus on continual product design improvements and cost reduction opportunities, but reduced production may continue to drive our overall gross margin lower than anticipated. We did not lay off resources working on the repaired Siemens tube program. In fact, we are supporting the development team by reallocating some of the employees who were focusing on the ALTA tubes. We continue to make excellent progress with the Siemens program and with a more focused team, anticipate this to continue. The Siemens repair program includes four tube types, the Straton Z, MX, MXP, and MXP46. The repaired Straton Z is in full production and performing well in the field. Straton Z sales are just starting to ramp up as we have a steadier flow of production. The first repaired MX series tubes are in test and provided our beta testing goes well, we anticipate introducing these to the market later in the third quarter. As we mentioned last period, sales of the MX series will be limited due to supply until FY '25. In the quarter, we also received our GMP certification in Brazil. GMP stands for Good Manufacturing Practices. These are the standards set by the National Agency of Health Surveillance, or Anvisa, in Brazil. This paves the way for us to export our tubes to a specific customer in Brazil who will reload and sell our ALTA tubes in-country. We anticipate the first shipments to this customer will be made in the quarter with limited sales in the fiscal year. Rest assured, we continue to monitor healthcare's financial performance with the goal of achieving a break-even point in the fourth quarter. This will be more of a challenge with lower production going through the plant, but we are doing the right things to balance our investments with opportunities in the business. I will now turn the call over to Jens Ruppert to discuss the results for Canvys.

Thanks, Wendy, and good morning everyone. Canvys engineers, manufactures, and sells custom displays to original equipment manufacturers in the industrial medical markets throughout the world. Canvys’ sales for the second quarter of fiscal 2024 reflect certain customer pushouts primarily in North America. As a result, sales were $7.3 million for the second quarter compared to $10.1 million for the second quarter last year. On the positive side, we finished the quarter with a very strong backlog of $48.2 million which increased by $5.6 million from the first quarter of fiscal 2024. Gross margin as a percentage of net sales improved to 33.5% during the second quarter of fiscal 2024 compared to 29.7% during the second quarter of fiscal 2023. The increase in gross margin was primarily related to a more favorable product mix and lower freight costs. During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include medical device controls within the operating room, surgical navigation, laser ablation, radiotherapy, laboratory equipment, super pulsed laser systems, robotic-assisted surgery, and microscopy. In the non-medical space, our products are used in a variety of commercial and industrial applications. This includes displays used in the public transportation space, human-machine interface applications, and teleprompting, talent monitors, and clocks used in the broadcast market. Over the past couple of months, we have seen more caution in some of our customers' ordering behaviors. With a rapid rise in interest rates, continued global weakness, and expanding geopolitical uncertainty, our OEM customers have seen a slowdown in ordering, particularly in industrial and more recently, some medical applications. Given the strong growth drivers in various imaging markets and our customers' levels of excitement towards next-generation products, we see these current dynamics as temporary. Design cycles at Canvys are long, potentially causing sales to vary quarter by quarter. However, we remain focused on adding new customers and programs globally as we leverage and promote our best-in-class design, engineering, and service capabilities. Despite a more cautious macro outlook over the near term, we believe sales will reaccelerate towards the end of the fiscal year, supported by our growing backlog and the number of projects currently in the engineering stage. From the variety of customers and applications as well as the value of orders from existing and new customers, it is clear we offer our global customers outstanding products and localized service. While our sales organization stays focused on new opportunities, I stay focused on improving the operating performance of the division, maximizing cash flow, managing inventory, and improving Canvys’ profitability is an ongoing priority as we continue to work closely with our partners to meet the demand of our customers. I will now turn the call back over to Ed.

Thanks, Jens. We appreciate your team's efforts to manage customer pushouts without sacrificing our long-term partnerships. As you heard from Greg, Wendy, and Jens, there's much to be excited about in Richardson Electronics. We remain committed to our long-term strategy, and we'll continue investing in our growth initiatives with an emphasis on engineered solutions that improve sustainability. We'll protect our cash and focus on improving profitability and inventory turns in the coming quarters. We're also committed to our shareholders and are pleased to announce we've implemented a program requiring our outside directors to purchase shares and maintain ownership of our stock. At this time, we'll be happy to answer your questions.

And thank you. Please stand by for questions. And our first question comes from Anja Soderstrom from Sidoti. Your line is now open.

Hi, and thank you for…

Good morning, Anja.

Good morning. Thank you for taking my questions. Regarding the ULTRAPEM you are developing with Suzlon Energy for the Indian wind turbine, which is currently in beta testing, do you foresee any risk of those orders being delayed?

Specific to the multi-brand, which is three different platforms of wind turbine manufacturers, we're focused on Suzlon and Senvion and Nordex. No, right now the beta testing is going great. The opportunity, we're exclusive. The numbers they have given us for pricing and rollout are still strong. And so far we have received orders in North America for people servicing Suzlon wind turbines. And we're actually going to India in a few weeks to finish up the installation of the beta testing. And again, that's a working unit, so we're very excited about that opportunity. I believe I gave the numbers in my opening. So could things be delayed a quarter or two? Yes. That's just the nature of this rollout. I mean, it's an infrastructure rollout. Historically, I've had a lot of experience in a Marketing Director role at Motorola, where we rolled out our technology into the base station arena. This wind turbine market is very similar, where when economic issues are applied in a certain area of the world or globally, for example, one of the things we're seeing in Q1 and Q2 where they had budgeted and forecasted to roll out five different sites, they only did two. But that doesn't change the opportunity or the end result of what will be shipping into that customer. It's just a timing thing based on budgets, economic conditions, et cetera. So the reduction would be lowering the number of sites, but the total opportunity, no, we don't see that being limited.

Okay, thank you. And in terms of the semiconductor, how is the conversation there going with Lam Research and are you still confident in that starting to pick up in the third quarter?

We regularly listen to our vendor calls each month, and they have indicated that they are willing to subsidize their vendors to keep their capabilities intact, as they expect the business to be stronger than ever by the end of 2024. However, our business has decreased from around $40 million to $20 million this year. It's a bit of a roller coaster, experiencing fluctuations. For instance, when we transitioned from 3G to 4G, revenues dropped from $22 million to $7 million, and then from 4G to $5 million, it climbed back to $40 million. According to Lam, we are expecting even higher revenues by the close of 2024.

Thank you. I have a quick point to make.

Anja, to add to that, we do expect that in the third and fourth quarters, there won't be much growth in the Lam business. Growth is anticipated to begin after that, as Ed mentioned, in the first and second quarters of the calendar year.

They're burning off inventory.

Oh, yeah. Excuse me. Q3 and Q4 of calendar year 2024. Our Q1 and Q2 of fiscal year 2025. Sorry for the confusion.

Yeah. Okay. And just a quick one, other one for you. Wendy, you mentioned you still think you can reach break-even for the healthcare unit in the fourth quarter. What do you need in terms of revenue to break even at this point?

We need to increase our sales significantly, particularly for CT tubes, including both the Siemens and the ALTA 750 models. To reach the breakeven point in Q4, we're looking at needing about $1 million more in revenue compared to Q2, possibly a bit more depending on our margins. As previously stated, we have experienced under-absorption in the factory, which has negatively impacted our gross margins. In Q2, we implemented cost reductions and shifted some personnel to focus on producing more Siemens tubes. We believe we are on the right track, but we will need to monitor our margins closely.

Okay, thank you. I'll get back in queue.

Thanks, Anja.

Thanks, Anja.

And thank you. And one moment. One moment for our next question. And our next question comes from DeForest Hinman from Bumbershoot Holdings. Your line is now open.

Hey, thanks for taking the questions. Can you just give us some more color on the opportunity within the GES business? I mean just from a context perspective, really good performance in 2023. It seemed like a lot of excitement a couple quarters ago. It still sounds like there's a lot of business opportunities there, but the revenue performance has just really been all over the place. I think, I don't know if it was six months ago, we were talking about growth in GES could offset a lot of the softness within the semi-space. That really hasn't occurred. So can you just reframe what is the revenue opportunity there, maybe within the next six months, within the next 12 months, and then what could this business look like in 2025, your fiscal 2025, if things start improving? Thank you.

Thank you for the question. In 2023, we successfully launched new products with a focus on innovative design and efficient manufacturing. Our team performed exceptionally well, bringing these products to market quickly due to high customer demand fueled by the issues associated with lead-acid batteries. Historically, new product introductions can take years, but with our recent launch, we received significantly more orders than anticipated from the top four operators of GE wind turbines in North America, including NextEra, Invenergy, RWE, and Enel. Despite facing supply chain challenges and initial stock issues, we managed to fulfill all requirements. This year, while we still see ample opportunity, the scale has shifted slightly; instead of 10 site installations, we're currently at five. Nevertheless, we've conducted beta tests with other key operators, and today we have over 12 customers in North America, representing more than 12,498 turbines in total. The rollout will span three years, and while challenges may lead to reduced initial quantities, we are also exploring international markets, including opportunities with Suzlon in India. Moreover, we've become the exclusive supplier for the ULTRA3000 in GE's marketplace and are planning to introduce more products there. We're enthusiastic about the ULTRA3000's potential in the wind turbine sector. Additionally, while we await increased market activity, our team is developing new products for green energy applications, including the ULTRAUPS, which is currently in beta testing and performing well. On the electric locomotive front, we've also responded to urgent customer needs, designing and producing various components for battery modules and superstructures. In collaboration with Progress Rail, we've shipped all necessary products for the electric locomotives, which are set to ship to end customers in the upcoming quarters. We anticipate new orders and production for the second half of calendar year 2024. Given the demand for prototype builds, we've shipped over $24 million in products, and we see this as a substantial opportunity, potentially over $100 million in future value as electric locomotives grow more accepted in the market. We are also introducing the ULTRAGEN3000, adding to our offerings for top electric locomotive manufacturers. This partnership is exclusive, and there are no competitors, which puts us in a strong position as our relationships and product offerings continue to expand. Overall, we are optimistic about the future of the green energy infrastructure market.

Okay, that's helpful. Obviously, the market isn't sharing your enthusiasm. The stock is currently trading around book value with no debt. So it's a two-part question. Should we, as shareholders, expect the management team to buy stock, and should the Board consider buying stock themselves and issuing a share repurchase authorization? Thank you.

I want to touch on the excitement part of it. I thought the market and the shareholders got very excited last year on the enthusiasm as what I'm going to call Phase 1 rollout of our green energy solutions strategy. In my opinion, I think they should be just as excited about Phase 2, which as I mentioned today, is coming. It's coming. The suppliers, the customers have confirmed that. It's project-based, but I would be just as excited about the next steps as we roll out this new product line, new products, new SVU going forward. I'll let Ed talk about that.

We just instituted a program with our Board that they're required to buy $150,000 worth of stock as part of their participation on the Board and that's just been implemented. You'll see that going in place. We have about $22 million or $24 million in cash. The difficulty is we have 24 foreign subsidiaries and only about $8 million of that cash is in the US. So, the answer to our buying stock back is that we won't be doing that in the near future.

Thank you. One moment for our next question. Our next question comes from P. Ross Taylor from ARS Investment Partners. Your line is now open.

Thank you.

Good morning, Ross.

Good morning. Congratulations on the move with the Board and getting the Board to be invested along with shareholders and management because I think that's a very important step. I've rarely seen small companies succeed when the Board doesn't have a stock, when the Board doesn't have an interest along with other investors. Second or really the first question is, you commented saying that Lam is telling you that you should be ready for, my words, fiscal or calendar 2025 being the biggest year you've seen from them. Is that correct?

Yes, that's correct.

And the biggest year you've had in that space was what, two years ago at $40 million or so in revenues?

That's right.

Last fiscal year, Ross.

Okay. So what you're really looking at is a situation where we would expect that pretty quickly, once they get this turn going, you're going to see a pretty significant ramp up, pushing those effectively like a 100% plus growth in revenues over what they're currently running at?

That's correct. Yes.

Okay, and that likely has a higher than average company multiple when you reach that level of operating margin when you…

One of those products, we make RF matches and proprietary products where the margin is better than our normal margins.

Okay. And so that alone we're talking about $20-plus-million in revenues being added at, say, mid-30s plus operating margin. That itself is going to be a huge driver forward.

Absolutely.

You've mentioned the ability to turn inventories into cash. Can you share your thoughts on the potential cash generation from reducing your own inventories?

Well, what do we have? About 14,000 of the electric capacitor modules already built for wind turbines. What's the total number that we have already built?

Yeah, 14,000 built and about that much on backlog with customers.

All right. So it's a matter of not if it's when, it's all timing when they're going to release. And normally these wind turbines, they do their maintenance in the spring of the year and as Greg mentioned, right now they're all going through a budgeting process. So we have these orders, but they haven't released them. So it's a matter of timing.

But what we should see is the ability to convert several million dollars of inventory into cash as they convert to…

Multi-million dollars.

Okay. Since it's not several, I'll take multi as being a larger number than several.

That's correct. Okay. In a normal year, we do over $10 million a year with wind turbines alone.

It seems that listening to your discussion and reading your release indicates that this quarter was impacted by a series of unfortunate, unrelated, and related events all occurring simultaneously. However, this should mark the lowest point for what we're experiencing. Moving into the second half of the year, we can expect to see some incremental growth, followed by rapid growth in top line earnings and free cash flow generation. Surprisingly, this was the most optimistic call you've had, even though the stock is down 20% today and trading below $10 a share.

No, we fully understand. I have a saying, you can't fall off the floor. So with all of these things we have going, we think that the company, 50% of our business will be green energy going forward. And we think within five years, it will be $500 million and extremely cash flow positive.

This is a point from which you don't think you can fall from.

No, we're absolutely amazed that the business dropped to this level. But it did, and that's our current situation. However, we have the backlog and the inventory, so it's a matter of timing, not if but when.

And can you give a little bit of background on the opportunity in hydrogen? Market size or…

Yeah. We are just starting to work in that area. So they are buying 100 kilowatt generators that we make and they're converting methane gas into hydrogen and acetylene. And actually at this point, the acetylene has more value than the hydrogen. But a lot of companies, including Caterpillar, are talking about having their equipment run on hydrogen in the future. And one of the most profitable ways to generate that hydrogen is using 100 kilowatt microwave generators that we manufacture. They use a tube that's about $10,000 and the generator is like $100,000. So that could be a profitable business for us in the future.

And how many tubes do you need?

There's one tube in each generator. We have one customer that we mentioned that's making these crystalline or synthetic diamonds for industrial applications and they are talking about buying 200 generators over the next two years.

Over the next two years?

Several years.

Okay. When we consider this, part of the business model involves selling the acetylene. By selling the acetylene, it can reduce or eliminate the cost of producing hydrogen, which then provides an additional benefit with the hydrogen.

Yeah, that's correct.

Okay, as I mentioned, I find this very interesting. This isn't the most optimistic call I've heard from you, so don't be disheartened by the fact that investors tend to only take a quick look at the surface.

Well, we've only been around for 76 years. And in my history, the stock has been $375.29. So we'll get there. It's just a matter of when.

Let's get back to new highs.

Okay. Thank you.

Thanks, Ron.

Thanks.

And thank you. And one moment, please. One moment for our next question. And our next question comes from Ronald Richards. Your line is now open.

Good morning, Ronald.

Hey, guys. I got a question. Good morning. I saw you got those orders coming in India and I was wondering about GE's penetration in other foreign markets, what kind of progress you're making.

The largest opportunity is with Suzlon, specifically in India, where we plan to test a new OEM product at their facility. This product will not replace lead-acid batteries in their wind turbines, but will integrate into the PEM system of their turbines. This presents a significant chance for us. We also have several smaller opportunities with Enel in Italy and Nordex in Germany. Our aim is to capture as much market share as possible in North America, especially with GE, even though it's not entirely exclusive. We're actively training our global sales team on these new products, which are unfamiliar to them as well. We're optimistic about the opportunities ahead, but the most significant in the next year will likely be with Senvion on a global scale. Once we begin production for India, it should positively impact all of their turbines and operators worldwide.

Okay.

Thank you.

Okay, thank you. And I am showing no further questions. I would now like to turn the call back over to Ed Richardson, CEO, for closing remarks.

Thanks, Justin. Well, we want to wish you all a very happy and prosperous new year and we appreciate your investment, interest in Richardson Electronics. We assure you that it's only up from here and not a matter of if but when and we look forward to discussing our fiscal year 2024 third quarter with you in April. And we're available to take your calls at any time, so don't hesitate to call us. Thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.