Earnings Call Transcript - RELL Q1 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the First Quarter of Fiscal Year 2023 Conference Call. At this time, all participants are in 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, Ed Richardson.

Ed Richardson, CEO

Good morning. And welcome to Richardson Electronics' conference call for the first quarter of fiscal year 2023. 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, and our newest business unit, 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. We're extremely pleased with a strong performance in the first quarter of fiscal 2023. This was our ninth consecutive quarter of sequential revenue growth and a great start to our new fiscal year. Sales in all our business units were up over Q1 of last year. Investments in our growth initiatives continue to pay off, as we focus on pursuing exciting market opportunities that we believe will drive long-term growth. Beginning in the quarter, we're reporting a new segment, Green Energy Solutions or GES. Over the last several years, Richardson Electronics has invested in engineering and manufacturing resources to develop solutions that support a healthier sustainable environment. As an industry-leading global provider of engineered solutions, we listen to our customers and help them solve problems. Today, we offer patented solutions that replace lead-acid batteries in multiple applications such as wind energy, locomotives, and other critical infrastructure environments. We sell components used in electric vehicles or EV and charging stations. We're working alongside companies that want to replace fossil fuel by developing hydrogen as a fuel source from methane and other refuse. We're also a leading manufacturer of magnetrons used to produce synthetic diamonds, a growing trend among consumers who want to buy products that do not come from strip mines that damage the earth. With increasing sales from green energy products and customers, we decided it was time to separate the business for reporting and resource allocation purposes. We carefully reviewed our customers and the solutions we sell them, noting which ones provide green solutions. Sales from these customers were previously reported in the Power & Microwave Technologies Group or PMT. Rest assured, PMT including EDG and PMG is still in focus and growing strongly. Through our shared PMT sales and marketing teams, we are confident the sales will grow in Green Energy Solutions as well. In the 75-year history of the company, we've never been more excited about our future. With nearly $200 million in total company backlog, we believe sales and profits will continue to significantly increase in 2023. With that, I'll turn the call over to Bob Ben, Chief Financial Officer, to review our first quarter financial performance in more detail. Then Greg, Wendy, and Jens will provide more detail on the quarter, including our new business unit and key growth initiatives.

Robert Ben, CFO

Thank you, Ed and good morning. I will review our financial results for our first quarter of fiscal year 2023, followed by a review of our cash position. Net sales for the first quarter of fiscal 2023 increased 25.8% to $67.6 million, compared to net sales of $53.7 million in the prior year's first quarter, due to higher net sales across all four business units, including our new Green Energy Solutions business unit. PMT sales increased by $4.9 million, or 12.2% from last year’s first quarter, driven by strong growth for manufactured products for our semiconductor wafer fabrication equipment customers. Net sales for our new segment, GES, increased $5.9 million or 230.7% from last year's first quarter. GES combines our key technology partners and engineered solutions capabilities to design and manufacture products for the fast-growing alternative energy storage market and power management for green applications. Canvys sales increased by $2.0 million or 23.4% due to strong customer demand in North America. Richardson Healthcare sales increased by $1.0 million or 45.5% due to increases in all product lines. Total company backlog was $199.2 million in the first quarter of fiscal 2023 versus $206.2 million at the end of fiscal 2022 and $126.5 million at the end of the first quarter of fiscal 2022. The sequential decline was primarily in Canvys, while the significant year-over-year growth we experienced was due to higher orders across our business units over the last 12 months. Gross margin for the first quarter was 34.1% of net sales compared to 30.3% of net sales in last year's first quarter. PMT's margin increased to 34.3% from 30.1% and GES margin increased to 35.5% from 28.9%, primarily due to product mix and improved manufacturing efficiencies. Canvys gross margin decreased to 31.4% from 33.4% because of product mix and foreign exchange effects. Healthcare's gross margin was 36.7% in the first quarter of fiscal 2023, compared to 24.3% in the prior year's first quarter, due to improved manufacturing absorption and decreased component scrap expense. Operating expenses were $14.2 million for the first quarter of fiscal 2023, compared to $13.5 million in the first quarter of fiscal 2022. The increase in operating expenses resulted from higher employee compensation expenses, including incentive expenses from significantly higher operating income. Operating expenses as a percentage of net sales decreased to 21.1% during the first quarter of fiscal 2023, compared to 25.1% during the first quarter of fiscal 2022. The company reported operating income of $8.8 million or 13.0% of net sales for the first quarter of fiscal 2023 versus operating income of $2.8 million or 5.3% of net sales in the first quarter of last year. Other expenses for the first quarter of fiscal 2023, including foreign exchange, partially offset the interest income were $0.3 million, compared to other expenses of less than $0.1 million in the first quarter of fiscal 2022. Income tax expense was $2.1 million for the first quarter of fiscal 2023 or a 25% effective tax rate versus $0.2 million in the prior year's first quarter due to the use of federal NOLs in fiscal 2022. Net income was $6.3 million or 9.4% of net sales for the first quarter of fiscal 2023 as compared to a net income of $2.6 million, or 4.9% of net sales in the first quarter of fiscal 2022. Earnings per common share on a diluted basis in the first quarter of fiscal 2023 were $0.45, compared to $0.20 per common share on a diluted basis in the prior year's first quarter. Moving to a review of our cash position. Cash investments at the end of the first quarter of fiscal 2023 were $35.6 million, compared to $40.5 million at the end of fiscal 2022 and $36.4 million at the end of the first quarter of fiscal 2022. The company continues to invest in working capital to support its growth initiatives. Inventory grew to $89.1 million from $80.4 million at the end of fiscal 2022. The largest portion of the increase for the first quarter was due to increases in components and working processes for both our PMT and GES businesses, which we expect will be mostly consumed and completed by the end of the third quarter of fiscal 2023. Accounts receivable increased to $32.6 million from $29.9 million at the end of fiscal 2022, due to high sales growth. Our DSO was 39 days, the same as in the fourth quarter of fiscal 2022. Capital expenditures were $1.4 million in the first quarter fiscal 2023, versus $0.8 million in the first quarter of fiscal year 2022. Approximately $0.7 million related to investments in manufacturing, $0.3 million for our facilities, $0.3 million for our IT system, and $0.1 million for our healthcare business. We continue to expect a higher level of capital expenditures in FY 2023, as we make additional investments in our manufacturing capabilities and facility. We paid $0.8 million in cash dividends in the first quarter. 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 second quarter of fiscal 2023. Now, I will turn the call over to Greg, who will discuss the results for our Power & Microwave Technologies and Green Energy Solutions Groups.

Greg Peloquin, General Manager, Power & Microwave Technologies

Thank you, Bob. And good morning, everyone. PMT had another excellent quarter with 25.2% growth over the prior year. Our strategic execution continues to provide consistently improved profitability with top-line growth. To enhance and expedite this growth, we have formed a new strategic business unit to capitalize on the exceptional growth and demand for power management products and green energy applications such as wind energy, electric locomotives and vehicles and energy storage. This new strategic business unit, Green Energy Solutions or GES, will allow us to apply focus and resources to generate substantial solutions for our customers. Revenues attributed to GES are being transferred from both segments of the PMT business. We moved sales from PMT based on careful review of customer activity and product use. GES sales in Q1, FY'23 were $8.5 million, versus $2.6 million in Q1 of last year. With a $56.3 million in backlog, this unit captured numerous successful products such as the ULTRA3000, electric locomotive and battery modules, and products using synthetic diamond manufacturing. Focusing on power management products and green energy applications is key to our long-term success. Recent examples of the launches of our patent-pending shunt resistor and voltage discharge device. These small but critical products are used in all wind turbine service engineers and present us and our company is aggressively identifying ways to help our customers succeed in the green energy market. We're currently in weekly discussions with several major OEMs and our engineering team is rapidly expanding our product line for energy storage products for various green energy applications. We plan to announce several new products in the second half of FY'23. As you can see, our new GES segment is benefiting from large global secular trends that are driving demand for sophisticated power management solutions that help protect the environment. We're successfully capitalizing on these emerging markets through the combination of key technology partners and our engineering solutions capabilities while leveraging our existing global infrastructure. As a result, I'm excited by the current and long-term opportunities we have to grow the GES segment. Looking at our Power & Microwave Technologies Group or PMT business in more detail, PMT increased 12.2% in the first quarter of fiscal year 2023 to $45.4 million, compared to $40.4 million in the same period last fiscal year. In addition to a strong sales quarter, PMT's book-to-bill ratio was over 1.1. Our sales growth, bookings and strong backlog indicate FY'23 will be another excellent year. Our gross margin also increased in the quarter to 34.3% versus 30.1% in the prior year, which is mainly due to a more profitable sales mix in the quarter and an extremely strong quarter for our semiconductor wafer fabrication and equipment business. Both EDG and PMG supported the strong growth we achieved in bookings and billings in our first quarter. Our Electron Device Group or EDG, had an extremely robust quarter as we continue to grow market share and find new applications for our tube products. In addition, we had record shipments to our semiconductor wafer fab customers. We also had excellent growth in our Power & Microwaves Group or PMG. Over the years, we've added new technology partners and new products targeting RF, wireless, and power management applications. This includes programs dedicated to the high-growth power management and energy storage applications. Our entire team has done an excellent job identifying niche technology partners who collaborated with us globally. Our engineered solutions strategy is led by our global technology partners such as Qorvo, MACOM, Nokia Wave, LS Materials, AMOGREENTECH and Fuji Semiconductor, along with key tube manufacturers in the industry. Again, we will continue to add partners to fill technology gaps in our offering as these markets continue to grow. We continue to invest in resources to support the growth we're experiencing in both GES and PMT business. We are adding design engineers and field engineers as we're expanding our manufacturing capabilities and technical expertise. Our growth strategy has been highly successful over the years resulting in new products, customers, revenues, and profits by capitalizing on existing demand creation infrastructure. We still remain challenged by the long semiconductor lead times and overall supply chain. This affects both our component business and engineered solutions. We are aggressively investing in inventory that allows us to support our backlog and ensure we can meet our customers' needs while we collaborate closely with both customers and suppliers. I cannot stress enough the value of Richardson Electronics' model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power management in RF and microwave industries with a focus on the fast-growing energy solutions market. We've 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 as they arise. Our backlog remains strong, and the execution of our strategy has never been better. There's no question our customers, technology partners, and Richardson Electronics products and support are more crucial than ever. And with that, I'll turn it over to Wendy Diddell, to discuss Richardson Healthcare.

Wendy Diddell, COO

Thanks, Greg. Good morning, everyone. First quarter sales for Healthcare were $3.3 million, an increase of 45.5% over Q1 of FY'22. Sales were higher for all product lines, including CT tubes parts and systems. Gross margin in the first quarter improved to 36.7% versus 24.3% in Q1 last year, reflecting steady production and reduced scrap. Margin was also helped by several credits from our suppliers in response to issues we faced in our most recent fourth quarter. This quarter is proof that it is possible to realize higher gross margin when production is constant and we don't suffer significant equipment or component issues. The number of used systems available for purchase is also improving, giving us good revenue growth opportunities, particularly in Latin America, where we sell most of our used systems with ALTA tubes. In May of 2022, we completed our second ALTA750 G beta, and we're able to do a soft launch of the tube. This is the second tube in the Canon series, and it works on newer Canon CT scanner models. Our strategic market approach continues to ensure our tube performance is solid and we can adjust production processes as needed. We are still waiting to receive CE approval, which is required to sell the G tube in Europe and Canada. As a result, we expect sales growth will be gradual. We are making steady progress on the Siemens Repaired Tube program. This is a series of four tube types including the Stratton Z, MX, MXP, and MX P46. The Siemens install base is considerably larger than Canon's and there are no third-party replacement options for these tube types. The Stratton Z is currently in beta site testing and we remain on track to release the repaired tube later in calendar year 2022. The Siemens MX series will follow in calendar year 2023. The Siemens program is a critical element to achieving our goal of providing a positive operating contribution to the company by Q4 of FY'24. Q1 was a good start to FY'23, which helped improve overall company profitability as a percentage of sales in the quarter. I will now turn the call over to Jens Ruppert to discuss the results for Canvys.

Jens Ruppert, General Manager, Canvys

Thanks, Wendy and good morning everyone. Canvys engineers, manufactures and sells custom displays to original equipment manufacturers in industrial and medical markets throughout the world. Canvys delivered an outstanding performance and set a new quarterly record with sales of $10.4 million for the first quarter of fiscal 2023. Strong customer demand, primarily driven in North America, drove a 23.4% increase in sales over the same period last year. Gross margin as a percentage of net sales was 31.4% during the first quarter of fiscal 2023, down from 33.4% during the first quarter of fiscal 2022. The decrease in gross margin was related to the product mix and foreign currency effects. Our backlog remains healthy, which we expect to support strong sales through fiscal 2023 and into fiscal 2024. Given the number of projects currently in the engineering stage, we are well positioned for continued growth. Our expectations assume no impact from current supply chain obstacles and demand is not negatively impacted by recessionary pressures. We continue to deal with extended lead times for selected components from our Asian suppliers. To compensate for this, our inventory on hand increased during the quarter. All our monitors are custom and our inventory is earmarked for specific customers, so we believe there's minimal risk. In some cases, customers are paying us to hold inventory above and beyond the annual usage to avoid supply chain disruptions. During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include cardiac pulse ablation, refractive surgery, radiation treatment, endovascular imaging, surgical navigation, and robotic-assisted surgery. In the non-medical space, our products are used in a variety of commercial and industrial applications. These include teleprompters, talent monitors, and clocks used at TV stations around the world, human-machine interfaces or HMIs for surface inspection systems, metal 3D, industrial printers, packaging machines, and process automation. I am so proud of our teams around the world. And we are extremely pleased with their exceptional operating performance. Our strong and growing customer relationships, together with a backlog position us for future growth. 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 local service. While our sales organization stays focused on new opportunities, I stay focused on improving the operating performance of the division, maximizing cash flow and improving Canvys' profitability is an ongoing priority. We continue to work closely with our partners to meet the demand of our customers, particularly with the challenges brought by the industry-wide supply chain delays. I will now turn the call back over to Ed.

Ed Richardson, CEO

Thanks, Jens. Congratulations to you and the team on a new record quarter for Canvys. It's nice to see all of our businesses performing so well, particularly considering the economic conditions throughout the world. The credit goes to Richardson Electronics' fantastic group of employees. As we celebrate the company's 75th anniversary, I'm reminded that our employees and our culture make us uniquely positioned for success. As I mentioned in our new book, Never Give Up, it's also our ability to double our efforts and persevere through difficult times. Our team has done just that, and I couldn't be more proud of them. We're off to a great start in FY '23. We're working with our customers to deliver solutions in a timely manner and working with our suppliers to overcome supply chain challenges. We're focused on the operating performance of the company. Our year-over-year revenue and profitability will be very strong; the company has never been healthier. At this time, we'll be happy to answer a few questions.

Operator, Operator

Our first question comes from Anja Soderstrom with Sidoti. Your line is now open.

Anja Soderstrom, Analyst

Hi. Thank you for taking my questions and congratulations.

Ed Richardson, CEO

Good morning, Anja.

Anja Soderstrom, Analyst

Good morning. Congratulations on the good quarter. I just want to start digging into the opportunities within the new or not new, but you broke up the GES segment. So in your presentation, you talked about the GE wind turbine opportunity in itself is $370 million, but you're also retrofitting those capacitors right to fit other wind turbines as well. So the opportunity could be a lot larger than that.

Ed Richardson, CEO

Yes, the original ULTRA3000 was designed for owner operators of GE wind turbines. We initially had great success with the top three operators: NextEra, Embro Energy, and Enel. We are the exclusive supplier for these three in North America. Since its launch, there has been significant interest, and now we have 17 different GE wind turbine owner operators in North America who are either purchasing our product or testing it. We have weekly calls with Siemens and will be developing a version of the ULTRA3000 for them. Additionally, we will announce our multi-brand application in Q3 of FY'23, which will cater to European wind turbine manufacturers like Nordex, Senvion, and Suvion. We are in touch with them and plan to conduct beta site testing before the year ends. The technology is continuously being improved, and we will also expand our product to other wind turbines and GE owner operators.

Anja Soderstrom, Analyst

Greg, you might want to clarify, it's not the capacitors that you're modifying, but the module itself?

Greg Peloquin, General Manager, Power & Microwave Technologies

Yeah, the capacitors – it's a capacitor module; we have a technology partnership with LS Mtron for the capacitors. But we're updating and increasing and improving the power supply, the communication board, etc.

Anja Soderstrom, Analyst

Okay, thank you. Appreciate that clarification. And then within the electronic locomotives, it also looks like you're just scratching the surface there with orders you have. And can you just talk about sort of the opportunity there? And have you put out a number around the total addressable market potential?

Robert Ben, CFO

Yeah, very similar to what you saw with a number of press releases in the past quarter. We now have four different products that we're selling to the owner operator of GE wind turbines. So we started with the ULTRA capacitor, ULTRA3000. But - so the same strategy is with the electric locomotives. We are now selling and designing different products into that market. Currently, our partner is ProgressRail, Caterpillar, and they're forecasting about 50 trains over the next three years. Within that, we'll be participating in the ULTRA capacitor, sorry, the lithium-phosphate iron modules that we're building here. We're also building superstructures, which includes the balance of the equipment needed for the locomotive. We're also building a battery management module that works with the batteries on the train to help manage the current and voltage going through them. The biggest win now is the design we're working on with ProgressRail for a starter module that will be used in their diesel trains. Currently, they have about 7,000 trains, and we will be producing that design sometime in Q3 or Q4 of this fiscal year. With 50 trains projected and the content we have, we estimate this could grow into a $40 million to $50 million business just for electric locomotives over the next one to three years.

Anja Soderstrom, Analyst

Okay. And you're also talking about the growing partnership with Caterpillar, right? Is that beyond the electronic locomotives?

Robert Ben, CFO

Right. One of the best things about becoming a design partner for a company like Caterpillar, ProgressRail, is you're now involved in all their designs. They are coming at us with other opportunities for products within the Caterpillar family. I don’t have anything to announce right now other than the four products I just mentioned for their electric locomotives and diesel locomotives, but there will be other products that we'll be designing for them in the future for sure.

Anja Soderstrom, Analyst

Okay. And in terms of the power base stations, you've been doing some beta testing there with carriers. How are those progressing? And what can we expect from some announcements around that?

Ed Richardson, CEO

Yeah. So, the product is used for the replacement of lead-acid batteries in the generator located at the bottom of every cell tower. The testing is going well; we're tweaking it. As the Alpha and beta site testing progresses, we hope to receive production orders in Q3 and Q4 of this year. We're also in partnership with Northwestern Medical to build again, the ULTRAGEN3000 for their generators in their critical facilities. We’re happy with the results so far; they are pleased with our support and design. Again, we hope to get production orders sometime in Q3 or Q4.

Anja Soderstrom, Analyst

Okay, thank you. Moving on to the PMT. In terms of the wafer fab, what do you see there in terms of the demand? Some believe that maybe we're towards the end of that cycle? What are you seeing with your customers?

Ed Richardson, CEO

Well, Land hasn't slowed down their forecast or their bookings with us. So we look at it to continue growing pretty much at the same pace as last year. We haven't seen any slowdown from them, and they've instructed us to continue getting inventory and building as they're going to maintain the growth rate they saw over the last 12 months.

Anja Soderstrom, Analyst

Thank you. Regarding the backlog decline, how should we think about that? Was that due to you getting inventories you were able to ship more of the backlog? Or how should we think about the backlog trending?

Ed Richardson, CEO

Yeah, the backlog is specific to PMT and GES actually grew slightly in the quarter. The decline was mainly in Canvys, again, very slight decline.

Anja Soderstrom, Analyst

Okay. And in healthcare, regarding the gross margin, it seems like you have better absorption and also reduced scrap there. What are the puts and takes and how should we think about that going forward?

Wendy Diddell, COO

So, as I mentioned, what worked to our advantage in the quarter, obviously, is staying in full production. In terms of going forward, there are a couple of things that we pointed out that benefited the gross margin in the first quarter. Again, the first quarter was 36.7%. There was some benefit from some scrap recoveries that we had in Q1, which improved the margin by about 3.8%. Overall absorption improved margins by 3.2%. So for ongoing modeling purposes, I'd keep it right around that 30% mark. The challenges to that margin would be any component issues, or issues with the tubes, etc. I would feel comfortable keeping it in that range.

Anja Soderstrom, Analyst

Thank you. I'll get back in queue and let someone else ask questions.

Wendy Diddell, COO

Okay, thanks, Anja. Call us anytime.

Anja Soderstrom, Analyst

Thank you.

Operator, Operator

Please stand by for our next question. Our next question comes from Ross Taylor, with ARS. Your line is now open.

Ross Taylor, Analyst

Thank you. And congratulations on what was a really blowout quarter. My hope is that as you can keep that up for the next three this year and pick up on it the following year.

Ed Richardson, CEO

We still have a $200 million backlog. So we hope so.

Ross Taylor, Analyst

I hope so as well. I think that you guys really look like you should be able to build from here. So I'm pretty excited about that. With regard to wind turbines, you initially started out in the replacement business; is that kind of how we see Siemens working as well as the other European manufacturers? The idea is that you would initiate into their products with replacement of existing components, or do you see an OEM announcement from one of them soon?

Ed Richardson, CEO

Yeah, it still would be a replacement for the lead-acid batteries in the wind turbine. That's what this product does; it replaces that. Obviously, the lead-acid batteries, like a car battery, only last a few years. We are working with Siemens and their fleet in India, and they build every six months. So they are really happy with our product. But for now, that's the main focus; we want to eliminate lead-acid batteries in wind turbines and other products.

Ross Taylor, Analyst

But initially, we would be seeing sales on a repair replacement type cycle or business as opposed to coming out of the factory with the ultracapacitor as part of the original equipment?

Ed Richardson, CEO

That would definitely be phase two. And yes, we're in discussions with major original manufacturers of wind turbines to make it an OEM sale rather than simply replacing the lead-acid batteries already in the field.

Ross Taylor, Analyst

Okay, that would be exciting. Looking at the locomotive business, recently, Union Pacific signed a deal to modernize and improve fuel efficiency on about 600 trains in a deal worth over $1 billion. It looks like it was done on diesel locomotives. Is the starter module part of what you would see in that type of move with Caterpillar diesel electric motors?

Ed Richardson, CEO

Yes, that's exactly the design we're working on, and they either have a goal or mandate to reduce emissions of their existing diesel engines. Currently, the battery in their trains is a lead-acid battery, and we're replacing that with a lithium-ion phosphate battery. So yeah, that's part of that program you read about regarding all manufacturers.

Ross Taylor, Analyst

Okay. And many of the major U.S. rails are talking about zero emissions by 2050. It would seem that you can't reach zero emissions without electric locomotives. And 2050 seems to be coming up quickly when you consider the life cycle of a locomotive. When do you think we'll really start to see the industry ramp up interest and see greater activity in the electric space as opposed to simply modifying diesel?

Ed Richardson, CEO

I think if I look at the forecasts, and we have weekly calls with ProgressRail's engineering team and our team, their business team. I think it's going to expedite greatly at the end of 2023. If I consider their forecasts and deadlines, right now it's a new product; people are getting used to understanding lithium and ultracapacitors across the board. But I think at the end of 2023, we're going to see a large spike in the expediting of building these electric trains. Because you're right; one won't reach 100% zero emissions without a significant part of your fleet consisting of electric vehicles.

Ross Taylor, Analyst

Yeah, it looks like you're right on the cusp of this. And that, obviously, would be a major breakthrough for the company. For Richardson, if this materializes into a million-dollar to $3 million deal, depending on the type of locomotive, that could add significantly to the backlog.

Ed Richardson, CEO

Yeah, I mean, the timing could not be better. We've been working with ultracapacitor technology and lithium battery technology for over 15 years. So we basically have a head start internally, and the company has focused on power management and power products for 75 years. What we’re finding is we have a lot of insight information that really applies to these types of rollouts, and everything follows a rollout phase: Phase 1, Phase 2, Phase 3. Each time we talk to ProgressRail or another owner operator of a wind turbine, they bring additional opportunities to us. We don't have a lot of standard products; I guess at the end of the day, the ULTRA3000 is probably the most standard product we have. But our ability to build niche products that solve a customer's problems is being well received right now. We've picked a high-growth market, and I think the timing is great for this company and definitely our shareholders.

Ross Taylor, Analyst

Do these types of products, the ultracapacitors you're working on with Caterpillar, have applications in broader markets such as the engines they use for everything from Class 8 trucks to earthmoving equipment as well?

Ed Richardson, CEO

Yeah, it can; and it goes both ways. For instance, with the electric locomotives, they are using lithium phosphate iron batteries on the ULTRA3000, whereas for the wind turbine, they are using ultracapacitors. We have signed technology partnerships with the two largest ultracap manufacturers globally, LS Materials being number one for larger cells, and then Binatech for medium and smaller cells. We are seeing applications literally replacing batteries in the power management application of our products. We're talking to drone manufacturers, lighting, and charging stations. As these ultracapacitor and lithium modules grow, yes, locomotives will be significant, even this current program which is large, district commuter trains. The next step is to build and design a superstructure for freight trains traveling across the country for longer distances. We're discussing establishing charging stations in locations such as Wyoming to facilitate charging before continuing across the United States. We're involved in those conversations, and yes, the opportunities are strong. Customers are looking to replace every type of battery with an ultracap or lithium battery. This all ties into what has become the largest market, which is energy storage. We're also examining energy-storing containers that support wind farms and solar farms among other products. Everything integrates; we just have a unique technology and capability to support these applications as they proceed forward.

Ross Taylor, Analyst

So in the context of electric, if you keep this up, Ed may have to write a sequel.

Ed Richardson, CEO

I enjoy doing this. Well, the neatest part is, I think it's just a unique story. So as you know, if you've read this book, the company started with my father selling batteries for land mobile radios, I believe. It was a walkie-talkie. It’s particularly interesting that ProgressRail recently announced they have booked an order for three electric locomotives with Chicago Metro. The metro commuter train stops at La Fox, Illinois, across from our corporate headquarters. So 75 years later, that product, that locomotive superstructure will be built here in La Fox, utilizing lithium-ion phosphate batteries manufactured and designed at Richardson in La Fox, Illinois. It's been quite a journey, but what a unique story for my second book.

Ross Taylor, Analyst

His second book. Now, with regard to

Robert Ben, CFO

The 100th anniversary.

Ross Taylor, Analyst

Well, I won't be around to read that. You will; I won't. Different jobs. Looking at the idea of energy storage, what you're discussing highlights the issue of availability around the clock, 365 days a year? So that's what you're referring to?

Ed Richardson, CEO

Yes, with energy storage, today, wind turbine, solar farms, and other products generate energy and then sell it to the market. For energy storage, those sites will need larger containers that can hold this energy for use when demand or pricing is optimal. We're engaged in discussions with companies like ABB and Shell Oil to design and construct these energy storage systems utilizing both lithium and ultracapacitors. That's all I can disclose for now. However, this represents the next level of our green energy program, which is an enormous billion-dollar market. We're aiming to find niche applications for these energy storage modules and containers going forward, and they will be designed and manufactured here in La Fox, Illinois.

Ross Taylor, Analyst

The story just keeps getting better. But I wanted to shift to one area where it has been a struggle. Looking at the healthcare sector, you're indicating that you're working towards achieving a positive contribution by the fourth quarter of '24, which refers to your fiscal 2024?

Wendy Diddell, COO

Yes, that's correct.

Ross Taylor, Analyst

Okay. Do you see this as a steady kind of northwest constant move to eliminate the loss? Or will we see this loss dissipate more quickly at the end of the period? This situation could add at least $0.30 to earnings.

Wendy Diddell, COO

Ross, that is absolutely our goal: to speed up the timeframe in which we at least breakeven, or even start providing an operating contribution. The first quarter was positive; we made really good progress towards our goal. If we analyze the first quarter, the improvements in our bottom line would be significant for the company. Yes, I think it'll be gradual. I can't guarantee that every quarter will mirror the first quarter, but I will say that we're on the right track. Once we obtain the Siemens tubes, those will start shipping in the next quarter or two, commencing with the Stratton Z. This will introduce another product for our sales team to market, adding another production line and assisting us in absorbing the fixed costs of the factory, thus boosting our margins. Everything is looking positive. Yes, I believe we’ll be able to demonstrate a steady upward trend. There may be some fluctuations along the way, but hang in there with us as we pursue this goal.

Ross Taylor, Analyst

This really presents an opportunity for the company at this moment in time. That could alone drive earnings up by 25% or more from last year's figures. And then we have all these other developments occurring. I know you're cautious, and I appreciate your conservative approach to guidance. But it seems we're truly positioned for what might be an exciting couple of years ahead.

Robert Ben, CFO

We're still projecting approximately 20% growth, something like that. Additionally, we expect about $255 million in revenue for this year. We prefer to underpromise and overperform; however, we believe that not just in two or three years, but over the next five years, with 20% growth annually in healthcare and a break-even target, you can visualize the growth in our bottom line.

Ross Taylor, Analyst

Yeah, as I mentioned, it’s incredibly powerful. It's genuinely an exciting narrative. Okay, I have monopolized enough of your time. I'll allow others to ask their questions.

Robert Ben, CFO

Well, call us anytime. We're happy to respond to your questions.

Wendy Diddell, COO

Thanks, Ross.

Ross Taylor, Analyst

I look forward to it. Thank you and take care, everyone.

Operator, Operator

I am showing no questions are in the queue. I would now like to turn the conference to Ed Richardson for closing remarks.

Ed Richardson, CEO

Thanks, Michelle. Well, it's obvious that we're very excited about the future, and we appreciate your support. We're a very flat organization, so anytime you have any questions, give us a call. Or if you're in the Chicago area, come and see us. We're inviting institutions and individual investors to join us for a factory tour and lunch next week on Tuesday, starting at 10 o'clock in the morning. Please provide some advance notice so we can make sure we prepare lunch for you. Anyway, we look forward to discussing many of these new programs, as well as our fiscal 2023 second quarter performance, with you in January. Thank you very much. Call us anytime.

Operator, Operator

Today's conference call has concluded. Thank you for participating. You may now disconnect.