Richardson Electronics, Ltd 10-Q for FY2024 Q2
Richardson Electronics, Ltd. (RELL)
About this 10-Q
Richardson Electronics, Ltd filed this 10-Q on January 11, 2024, covering the quarter ended December 2, 2023 (FY2024 Q2).
Headline figures
Quarter ended December 2, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $44.13M
- down 33.0% from $65.91M a year earlier
- Net loss
- $1.8M
- compared with net income of $5.55M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from To
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
☐ |
|
☒ |
|
Non-Accelerated Filer |
☐ |
|
Smaller Reporting Company |
|
Emerging Growth Company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
As of January 9, 2024, there were
TABLE OF CONTENTS
|
|
|
Page |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
2 |
||
|
|
2 |
|
|
Unaudited Consolidated Statements of Comprehensive (Loss) Income |
|
3 |
|
|
4 |
|
|
|
5 |
|
|
|
7 |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
17 |
|
|
26 |
||
|
26 |
||
|
|
|
|
|
|
||
|
|
|
|
|
27 |
||
|
27 |
||
|
27 |
||
|
27 |
||
|
28 |
||
|
28 |
||
|
29 |
||
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Richardson Electronics, Ltd.
Consolidated Balance Sheets
(in thousands, except per share amounts)
|
|
Unaudited |
|
|
Audited |
|
||
|
|
December 2, 2023 |
|
|
May 27, 2023 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, less allowance of $ |
|
|
|
|
|
|
||
Inventories, net |
|
|
|
|
|
|
||
Prepaid expenses and other assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Non-current assets: |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Right of use lease asset |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Other non-current assets |
|
|
|
|
|
|
||
Total non-current assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Lease liability current |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Non-current liabilities: |
|
|
|
|
|
|
||
Non-current deferred income tax liabilities |
|
|
|
|
|
|
||
Lease liability non-current |
|
|
|
|
|
|
||
Other non-current liabilities |
|
|
|
|
|
|
||
Total non-current liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Stockholders’ Equity |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Class B common stock, convertible, $ |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Additional paid-in-capital |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
|
|
$ |
|
||
2
Richardson Electronics, Ltd.
Unaudited Consolidated Statements of Comprehensive (Loss) Income
(in thousands, except per share amounts)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss (gain) on disposal of assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Operating (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment/interest income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total other expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Loss) income before income taxes |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income tax (benefit) provision |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Foreign currency translation gain (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common shares - Basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Class B common shares - Basic |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Common shares - Diluted |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Class B common shares - Diluted |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common shares – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common shares – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common shares – Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common shares – Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Class B common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
3
Richardson Electronics, Ltd.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Inventory provisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss (gain) on disposal of assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Inventories |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Accrued liabilities |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property, plant & equipment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash dividends paid on Common and Class B Common shares |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
4
Richardson Electronics, Ltd.
Unaudited Consolidated Statement of Stockholders’ Equity
(in thousands, except per share amounts)
|
|
Common |
|
|
Class B |
|
|
Par |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
|||||||
Balance May 27, 2023 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Options exercised |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Restricted stock issuance |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Class B Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance December 2, 2023 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance September 2, 2023 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Options exercised |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Restricted stock issuance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Class B Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance December 2, 2023 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
5
|
|
Common |
|
|
Class B |
|
|
Par |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
|||||||
Balance May 28, 2022: |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Options exercised |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Restricted stock issuance |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Class B converted to Common |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Class B Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance November 26, 2022 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance August 27, 2022: |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Options exercised |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Class B converted to Common |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Class B Common ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance November 26, 2022 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
6
RICHARDSON ELECTRONICS, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
Richardson Electronics, Ltd. (the "Company", "we", "our") is a leading global manufacturer of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. Nearly
Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, medical and communication applications.
The Company reports its financial performance for the following operating and reportable segments:
Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Green Energy Solutions ("GES") combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. GES’s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long-term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.
7
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements.
Our fiscal quarter ends on the Saturday nearest the end of the quarter-ending month. The second quarter of fiscal 2024 and fiscal 2023 both contained 13 weeks. The first six months of fiscal 2024 contained 27 weeks and the first six months of fiscal 2023 contained 26 weeks.
In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results of interim periods have been made. All inter-company transactions and balances have been eliminated. The unaudited consolidated financial statements presented herein include the accounts of our wholly owned subsidiaries. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations. The results of our operations for six months ended December 2, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending June 1, 2024.
As described in Note 1, Description of the Company and Note 9, Segment Reporting, the Company reports its financial performance based on
3. NEW ACCOUNTING STANDARDS
ASU 2016-13 (as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and 2020-02) introduced a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expanded the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. The Company
4. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Inventories, net: Our consolidated inventories were stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include approximately $
At this time, we do not anticipate any material risks or uncertainties related to possible future inventory write-downs. Provisions for obsolete or slow-moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in the industry, or market conditions differ from management’s estimates, additional provisions may be necessary. Inventory reserves were approximately $
Revenue Recognition: Our customers are generally not resellers, but rather businesses that incorporate our products into their processes from which they generate an economic benefit. The goods are also distinct in that each item sold to the customer is clearly identified on both the purchase order and resulting invoice. Each product we sell benefits the customer independently of the other products. Each item on each purchase order from the customer can be used by the customer unrelated to any other products we provide to the customer. The Company’s revenue includes the following streams:
Manufacturing/assembly typically includes the products that are manufactured or assembled in our manufacturing facility. These products can either be built to the customer’s prints/designs or are products that we stock in our warehouse to sell to any customer that places an order. The manufacturing business does not include a separate service bundled with the product sold or sold in addition to the product. Our contracts for customized products generally include termination provisions if a customer cancels its order. However, we recognize revenue at a point in time because the termination provisions normally do not require, upon cancellation, the customer to
8
pay fees that are commensurate with the work performed. Each purchase order explicitly states the goods or services that we promise to transfer to the customer. The promises to the customer are limited only to those goods or services. The performance obligation is our promise to deliver both goods that were produced by the Company and resale of goods that we purchase from our suppliers. Our shipping and handling activities for destination shipments are performed prior to the customer obtaining control. As such, they are not a separate promised service. The Company elects to account for shipping and handling as activities to fulfill the promise to transfer the goods. The goods we provide to our customers are distinct in that our customers benefit from the goods we sell them through use in their own processes.
Distribution typically includes products purchased from our suppliers, stocked in our warehouses and then sold to our customers. The distribution business does not include a separate service bundled with the product sold or sold on top of the product. Revenue is recognized when control of the promised goods is transferred to our customers, which is simultaneous with the title transferring to the customer, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods. Control refers to the ability of the customer to direct the use of and obtain substantially all the remaining benefits from the goods. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. Generally, our contracts require our customers to pay for goods after we deliver products to them. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America subject to customary credit checks.
Repair, installation or training activities generate services revenue. The services we provide are relatively short in duration and are typically completed in one or two weeks. Therefore, at each reporting date, the amount of unbilled work is insignificant. The services revenue has consistently accounted for less than
Contracts with customers: A revenue contract exists once a customer purchase order is received, reviewed and accepted. Each accepted purchase order identifies a distinct good or service as the Company's performance obligation. The goods include standard products purchased from a supplier and stocked on our shelves, customized products purchased from a supplier, products that are customized or have value added to them in house prior to shipping to the customer and manufactured products. Prior to accepting a customer purchase order, we review the credit worthiness of the customer. Purchase orders are deemed to meet the collectability criterion once the customer’s credit is approved. The Company receives advance payments or deposits from our customers before revenue is recognized resulting in contract liabilities. Contract liabilities are included in accrued liabilities in the unaudited consolidated balance sheets.
Contract Liabilities: Contract liabilities and revenue recognized were as follows (in thousands):
|
|
May 27, 2023 |
|
|
Additions |
|
|
Revenue |
|
|
December 2, 2023 |
|
||||
Contract liabilities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
See Note 9, Segment Reporting, for a disaggregation of revenue by reportable segment and geographic region, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the Company.
Loss Contingencies: We accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency.
9
Intangible Assets: Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or by recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on a straight-line basis or over their projected future cash flows and are tested for impairment when events or changes in circumstances occur that indicate possible impairment. Our intangible assets represent the fair value for customer relationships agreements acquired in connection with prior acquisitions. Technology represents the fair value acquired in connection with acquisitions and an exclusive license, manufacturing and distribution agreement.
|
|
December 2, 2023 |
|
|
May 27, 2023 |
|
||
Gross Amounts: |
|
|
|
|
|
|
||
Customer Relationships(1) |
|
$ |
|
|
$ |
|
||
Technology |
|
|
|
|
|
|
||
Total Gross Amounts |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accumulated Amortization: |
|
|
|
|
|
|
||
Customer Relationships |
|
$ |
|
|
$ |
|
||
Technology |
|
|
|
|
|
|
||
Total Accumulated Amortization |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net Intangible Assets |
|
$ |
|
|
$ |
|
||
The amortization expense associated with intangible assets subject to amortization for the next five years is presented in the following table (in thousands):
Fiscal Year |
|
Amortization |
|
|
Remaining 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization |
|
$ |
|
|
The weighted average number of years of amortization expense remaining is
Income Taxes: We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.
10
Accrued Liabilities:
|
|
December 2, 2023 |
|
|
May 27, 2023 |
|
||
Compensation and payroll taxes |
|
$ |
|
|
$ |
|
||
Accrued severance |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Accrued Liabilities |
|
$ |
|
|
$ |
|
||
Warranties: We offer assurance type warranties for the limited number of specific products we manufacture. We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expense related to our warranty obligations as cost of sales in our consolidated statements of comprehensive (loss) income. Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. With respect to new products, estimates are based generally on knowledge of the products and warranty experience.
Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. Warranty reserves are included in accrued liabilities on our unaudited consolidated balance sheets. The warranty reserves are determined based on known product failures, historical experience and other available evidence. Warranty reserves were approximately $
5. REVOLVING CREDIT FACILITY
The Company entered into a Credit Agreement (the "Credit Agreement") for a
The Credit Agreement provides that the Company must maintain compliance with a maximum consolidated leverage ratio covenant and a minimum consolidated fixed charge coverage ratio, each as determined in accordance with the Credit Agreement. The Credit Agreement also contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limitations on certain other indebtedness, loans and investments, liens, mergers, asset sales, and transactions with affiliates, as well as customary events of default for financings of this type. The Company was in full compliance with all financial covenants as of December 2, 2023.
Borrowings under the Revolving Credit Facility will bear interest at a rate per annum selected by the Company from the following options: (a) Term SOFR Rate (for the applicable Interest Period) plus the SOFR Adjustment (for the applicable Interest Period) plus
11
6. LEASE OBLIGATIONS AND OTHER COMMITMENTS
The Company leases real and personal property in the normal course of business under various operating leases. The Company uses operating leases for facility space and automobiles. Most of the leased facility space is for sales and general office use. Automobile leases are used throughout the Company.
Several leases include renewal clauses which vary in length and may not include specific rent renewal amounts. The Company will revise the value of the right of use assets and associated lease liabilities when the Company determines it is reasonably certain of renewal.
The gross amounts of assets and liabilities related to operating leases were as follows (in thousands):
Lease Type |
|
December 2, 2023 |
|
|
May 27, 2023 |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
The components of lease costs were as follows (in thousands):
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||
Consolidated operating lease expense |
|
Operating expenses |
|
$ |
|
|
$ |
|
||
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||
Consolidated operating lease expense |
|
Operating expenses |
|
$ |
|
|
$ |
|
||
The approximate future minimum lease payments under operating leases at December 2, 2023 were as follows (in thousands):
Fiscal Year |
|
Operating Leases |
|
|
Remaining 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less imputed interest |
|
|
|
|
Net minimum lease payments |
|
$ |
|
|
The weighted average remaining lease terms and interest rates of leases held by the Company as of December 2, 2023 were as follows:
Lease Type |
|
Weighted Average Remaining |
|
Weighted Average Interest Rate |
Operating leases |
|
|
The cash outflows of the leasing activity of the Company as lessee for the six months ending December 2, 2023 and November 26, 2022 were as follows (in thousands):
|
|
|
|
Six Months Ended |
|
|||||
Cash Flow Source |
|
Classification |
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||
Operating cash flows from operating leases |
|
Operating activities |
|
$ |
|
|
$ |
|
||
12
7. INCOME TAXES
We recorded an income tax benefit of $
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2019 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2019 and the Netherlands beginning in fiscal 2021.
We have historically determined that certain undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend distributions. The deferred tax liability related to undistributed earnings of our foreign subsidiaries was less than $
The Company did
The Company maintains a valuation allowance representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance was $
8. CALCULATION OF EARNINGS PER SHARE
We have authorized
Our Class B common stock is considered a participating security requiring the use of the two-class method for the computation of basic and diluted earnings per share. The two-class computation method for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed (loss) earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Basic and diluted earnings per share were computed using the two-class method. The shares of Class B common stock are considered to be participating convertible securities since the shares of Class B common stock are convertible on a share-for-share basis into shares of common stock and may participate in dividends with common stock according to a predetermined formula which is 90% of the amount of common stock cash dividends.
13
The earnings per share (“EPS”) presented in our unaudited consolidated statements of comprehensive (loss) income were based on the following amounts (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|||||||||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||||||||||
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
||||
Numerator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Undistributed (loss) earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock undistributed (loss) earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Class B common stock undistributed (loss) earnings |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Total undistributed (loss) earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for diluted EPS adjusted for weighted average shares and assumed conversion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock weighted average shares and shares under if-converted method for diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Note: There were
|
|
Six Months Ended |
|
|||||||||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||||||||||
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
||||
Numerator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Undistributed (loss) earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock undistributed (loss) earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Class B common stock undistributed (loss) earnings |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Total undistributed (loss) earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for diluted EPS adjusted for weighted average shares and assumed conversion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock weighted average shares and shares under if-converted method for diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Note: There were
14
9. SEGMENT REPORTING
As described in Note 1, Description of the Company and Note 2, Basis of Presentation, the Company reports its financial performance based on the operating and reportable segments which are defined as follows:
Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Green Energy Solutions ("GES") combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. GES’s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long-term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.
The CEO, who is the chief operating decision maker, evaluates performance and allocates Company resources primarily based on the gross profit of each segment.
Operating results by segment are summarized in the following table (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||||
PMT |
|
|
|
|
|
|
|
|
|
|
|
||||
Net Sales |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
GES |
|
|
|
|
|
|
|
|
|
|
|
||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canvys |
|
|
|
|
|
|
|
|
|
|
|
||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
||||
15
Geographic net sales information is primarily grouped by customer destination into five areas: North America; Asia/Pacific; Europe; Latin America; and Other.
Net sales and gross profit by geographic region are summarized in the following table (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
December 2, 2023 |
|
|
November 26, 2022 |
|
||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Asia/Pacific |
|
|
|
|
|
|
|
|
|
|
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
||||
Other (1) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Asia/Pacific |
|
|
|
|
|
|
|
|
|
|
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
||||
Other (1) |
|
|
( |
) |
|
|
( |
) |
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
We sell our products to customers in diversified industries and perform periodic credit evaluations of our customers’ financial condition. Payment terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements based on monthly reviews of outstanding accounts.
10. RISKS AND UNCERTAINTIES
Management continues to monitor the impact of global economic factors on its financial condition, liquidity, operations, suppliers, industry and workforce. Our ability to predict and respond to future changes (including residual effects of the Covid-19 pandemic) is uncertain. There may be continued long-term effects from the Covid-19 pandemic on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
11. RELATED PARTY TRANSACTION(S)
On June 15, 2015, the Company entered into a lease agreement for the IMES facility with LDL, LLC. That lease agreement was extended for
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. The terms “may”, “should”, “could”, “anticipate”, “believe”, “continues”, “estimate”, “expect”, “intend”, “objective”, “plan”, “potential”, “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include; economic, labor and political conditions; global business disruption caused by the Russia invasion in Ukraine and related sanctions; currency exchange fluctuations; and the ability of the Company to manage its growth and the risk factors set forth in our Annual Report on Form 10-K filed with the SEC on July 31, 2023. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.
In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them or any outside third party, any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any securities analyst or outside third party, irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
INTRODUCTION
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:
Business Overview
Richardson Electronics, Ltd. (the "Company", "we", "our") is a leading global manufacturer of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. Nearly 55% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair through its global infrastructure.
Some of the Company's products are manufactured in China and are imported into the United States. The Office of the United States Trade Representative ("USTR") instituted additional 10% to 25% tariffs on the importation of a number of products into the United States from China effective July 6, 2018, with additional products added August 23, 2018 and September 24, 2018. These additional tariffs are a response to what the USTR considers to be certain unfair trade practices by China. A number of the Company's products manufactured in China are now subject to these additional duties of 25% when imported into the United States.
Management continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our customers’ markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.
17
The Company reports its financial performance based on the operating and reportable segments defined as follows:
Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Green Energy Solutions ("GES") combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. GES’s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long-term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.
Refer to Note 9, Segment Reporting, to our unaudited consolidated financial statements for additional information on the operating and reportable segments.
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.
18
RESULTS OF OPERATIONS
Financial Summary – Three Months Ended December 2, 2023
Financial Summary – Six Months Ended December 2, 2023
Net Sales and Gross Profit Analysis
Net sales by segment and percent change during the second quarter and first six months of fiscal 2024 and fiscal 2023 were as follows (in thousands):
Net Sales |
|
Three Months Ended |
|
|
FY24 vs. FY23 |
|
||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
|
% Change |
|
|||
PMT |
|
$ |
31,292 |
|
|
$ |
40,585 |
|
|
|
-22.9 |
% |
GES |
|
|
2,609 |
|
|
|
12,293 |
|
|
|
-78.8 |
% |
Canvys |
|
|
7,291 |
|
|
|
10,079 |
|
|
|
-27.7 |
% |
Healthcare |
|
|
2,938 |
|
|
|
2,948 |
|
|
|
-0.3 |
% |
Total |
|
$ |
44,130 |
|
|
$ |
65,905 |
|
|
|
-33.0 |
% |
|
|
Six Months Ended |
|
|
FY24 vs. FY23 |
|
||||||
|
|
December 2, 2023 |
|
|
November 26, 2022 |
|
|
% Change |
|
|||
PMT |
|
$ |
67,036 |
|
|
$ |
85,939 |
|
|
|
-22.0 |
% |
GES |
|
|
7,003 |
|
|
|
20,804 |
|
|
|
-66.3 |
% |
Canvys |
|
|
17,180 |
|
|
|
20,492 |
|
|
|
-16.2 |
% |
Healthcare |
|
|
5,492 |
|
|
|
6,227 |
|
|
|
-11.8 |
% |
Total |
|
$ |
96,711 |
|
|
$ |
133,462 |
|
|
|
-27.5 |
% |
During the second quarter of fiscal 2024, consolidated net sales decreased 33.0% compared to the second quarter of fiscal 2023. Sales for PMT decreased 22.9 %, sales for GES decreased 78.8%, sales for Canvys decreased 27.7% and sales for Healthcare decreased 0.3%. The decrease in PMT was mainly due to a cyclical downturn in the semi-wafer fabrication industry. The decrease in GES reflected the project-based nature of this segment and was mainly due to lower shipments of battery modules for wind turbine products and the
19
completion of Phase I for the EV locomotive prototype build. The decrease in Canvys was primarily due to lower sales in the North American market. The decrease in Healthcare was primarily due to lower equipment sales, partially offset by higher parts and CT tube sales.
During the first six months of fiscal 2024, consolidated net sales decreased 27.5% compared to the first six months of fiscal 2023. Sales for PMT decreased 22.0%, sales for GES decreased 66.3%, sales for Canvys decreased 16.2% and sales for Healthcare decreased 11.8%. The decrease in sales for PMT was mainly due to a cyclical downturn in the semi-wafer fabrication industry. The decrease in sales for GES reflected the project-based nature of this segment and was mainly due to lower shipments of battery modules for wind turbine products and the completion of Phase I for the EV locomotive prototype build. The decrease in sales for Canvys was primarily due to lower sales in the North American market. The decrease in sales for Healthcare was primarily due to decreases in parts and equipment sales.
Gross profit by segment and percent of net sales for the second quarter and first six months of fiscal 2024 and fiscal 2023 were as follows (in thousands):
Gross Profit |
|
Three Months Ended |
|
|||||||||||||
|
|
December 2, 2023 |
|
|
% of Net Sales |
|
|
November 26, 2022 |
|
|
% of Net Sales |
|
||||
PMT |
|
$ |
8,905 |
|
|
|
28.5 |
% |
|
$ |
14,011 |
|
|
|
34.5 |
% |
GES |
|
|
761 |
|
|
|
29.2 |
% |
|
|
4,162 |
|
|
|
33.9 |
% |
Canvys |
|
|
2,440 |
|
|
|
33.5 |
% |
|
|
2,995 |
|
|
|
29.7 |
% |
Healthcare |
|
|
436 |
|
|
|
14.8 |
% |
|
|
683 |
|
|
|
23.2 |
% |
Total |
|
$ |
12,542 |
|
|
|
28.4 |
% |
|
$ |
21,851 |
|
|
|
33.2 |
% |
|
|
Six Months Ended |
|
|||||||||||||
|
|
December 2, 2023 |
|
|
% of Net Sales |
|
|
November 26, 2022 |
|
|
% of Net Sales |
|
||||
PMT |
|
$ |
20,416 |
|
|
|
30.5 |
% |
|
$ |
29,546 |
|
|
|
34.4 |
% |
GES |
|
|
2,341 |
|
|
|
33.4 |
% |
|
|
7,184 |
|
|
|
34.5 |
% |
Canvys |
|
|
5,805 |
|
|
|
33.8 |
% |
|
|
6,261 |
|
|
|
30.6 |
% |
Healthcare |
|
|
1,244 |
|
|
|
22.7 |
% |
|
|
1,887 |
|
|
|
30.3 |
% |
Total |
|
$ |
29,806 |
|
|
|
30.8 |
% |
|
$ |
44,878 |
|
|
|
33.6 |
% |
Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs and other provisions.
Consolidated gross profit decreased to $12.5 million during the second quarter of fiscal 2024 compared to $21.9 million during the second quarter of fiscal 2023. Consolidated gross margin as a percentage of net sales decreased to 28.4% during the second quarter of fiscal 2024 when compared to 33.2% during the second quarter of fiscal 2023, primarily due to unfavorable product mix and manufacturing under absorption in PMT, unfavorable product mix in GES and manufacturing under absorption in Healthcare. Improved product mix and lower freight costs in Canvys partially offset the unfavorable margin impacts for PMT, Healthcare and GES.
Consolidated gross profit decreased to $29.8 million during the first six months of fiscal 2024 compared to $44.9 million during the six months of fiscal 2023. Consolidated gross margin as a percentage of net sales decreased to 30.8% during the first six months of fiscal 2024 compared to 33.6% during the first six months of fiscal 2023, primarily due to unfavorable product mix and manufacturing under absorption in PMT, unfavorable product mix in GES and manufacturing under absorption as well as higher component scrap expense in Healthcare. Improved product mix and lower freight costs in Canvys partially offsets the unfavorable margin impacts for PMT, Healthcare and GES.
20
Power and Microwave Technologies
PMT net sales decreased 22.9% to $31.3 million during the second quarter of fiscal 2024 from $40.6 million during the second quarter of fiscal 2023. The decrease was mainly due to lower sales of semi-wafer fabrication products which mainly reflected the cyclical slowdown in that market. Gross margin as a percentage of net sales decreased to 28.5% during the second quarter of fiscal 2024 as compared to 34.5% during the second quarter of fiscal 2023 due to unfavorable product mix and manufacturing under absorption.
PMT net sales decreased 22.0% to $67.0 million during the first six months of fiscal 2024 from $85.9 million during the first six months of fiscal 2023. The decrease was due to lower sales of semi-wafer fabrication products reflecting the cyclical slowdown in that market. Gross margin as a percentage of net sales decreased to 30.5% during the first six months of fiscal 2024 as compared to 34.4% during the first six months of fiscal 2023 due to unfavorable product mix and manufacturing under absorption.
Green Energy Solutions
GES net sales decreased 78.8% to $2.6 million during the second quarter of fiscal 2024 from $12.3 million during the second quarter of fiscal 2023. The decrease reflected the project-based nature of this segment and was mainly due to lower shipments of battery modules for wind turbine products and completion of Phase I of our EV locomotive prototype build in fiscal 2023. Phase II of the EV locomotive prototype will begin in the second quarter of fiscal 2025. Gross margin as a percentage of net sales decreased to 29.2% during the second quarter of fiscal 2024 as compared to 33.9% during the second quarter of fiscal 2023 due to product mix.
GES net sales decreased 66.3% to $7.0 million during the first six months of fiscal 2024 from $20.8 million during the first six months of fiscal 2023. The decrease reflected the project-based nature of this segment and was mainly due to lower shipments of battery modules for wind turbine products and completion of Phase I of our EV locomotive prototype build in fiscal 2023. Phase II of the EV locomotive prototype will begin in the second quarter of fiscal 2025. Gross margin was 33.4% during the first six months of fiscal 2024 as compared to 34.5% during the first six months of fiscal 2023 due to product mix.
Canvys
Canvys net sales decreased 27.7% to $7.3 million during the second quarter of fiscal 2024 from $10.1 million during the second quarter of fiscal 2023, due to lower sales in the North American market. Gross margin as a percentage of net sales increased to 33.5% during the second quarter of fiscal 2024 from 29.7% during the second quarter of fiscal 2023 primarily due to improved product mix and lower freight costs.
Canvys net sales decreased 16.2% to $17.2 million during the first six months of fiscal 2024 from $20.5 million during the first six months of fiscal 2023, due to lower sales in the North American market. Gross margin as a percentage of net sales increased to 33.8% during the first six months of fiscal 2024 from 30.6% during the first six months of fiscal 2023 primarily due to improved product mix and lower freight costs.
Healthcare
Healthcare net sales decreased 0.3% from $2.9 million during the second quarter of fiscal 2023 primarily due to a decrease in equipment sales, partially offset by increases in parts and CT tube sales. Gross margin as a percentage of net sales decreased to 14.8% during the second quarter of fiscal 2024 as compared to 23.2% during the second quarter of fiscal 2023 primarily due to manufacturing under absorption.
Healthcare net sales decreased 11.8% to $5.5 million during the first six months of fiscal 2024 from $6.2 million during the first six months of fiscal 2023 primarily due to decreases in parts and equipment sales. Gross margin as a percentage of net sales decreased to 22.7% during the first six months of fiscal 2024 as compared to 30.3% during the first six months of fiscal 2023 primarily due to manufacturing under absorption and higher component scrap expense.
21
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) decreased slightly to $14.5 million for the second quarter of fiscal 2024 when compared to $14.7 million for the year ago quarter. The decrease from the second quarter of fiscal 2023 reflected lower incentives due to financial performance partially offset by higher salaries and fringe expense. Expressed as a percentage of net sales, SG&A for the second quarter of fiscal 2024 increased to 32.8% compared to 22.3% for the second quarter of fiscal 2023.
SG&A increased $1.4 million to $30.3 million for the first six months of fiscal 2024 when compared to the prior year. The increase from the first half of fiscal 2023 mainly reflected higher employee compensation expenses. Expressed as a percentage of net sales, SG&A for the first six months of fiscal 2024 increased to 31.3% compared to 21.7% for the first six months of fiscal 2023.
Other Income/Expense
Other expense was $0.3 million during the second quarter of fiscal 2024, compared to other expense of $0.1 million for the second quarter of fiscal 2023. Other expense during the second quarter of fiscal 2024 included interest income and foreign exchange losses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.
Other expense was $0.1 million during the first six months of fiscal 2024, compared to other expense of $0.5 million for the first six months of fiscal 2023. Other expense during the first six months of fiscal 2024 included interest income and foreign exchange losses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities.
Income Tax Provision
We recorded an income tax benefit of $0.5 million and an income tax provision of $1.5 million for the second quarter of fiscal 2024 and the second quarter of fiscal 2023, respectively. The effective income tax rate during the second quarter of fiscal 2024 was 21.6% as compared to 21.5% during the second quarter of fiscal 2023. The difference in rate during the second quarter of fiscal 2024 as compared to the second quarter of fiscal 2023 reflects changes in the geographical distribution of income (loss), which is primarily driven by a decrease in U.S. earnings for fiscal 2024 and the state income tax provision, as well as the utilization of U.S. research and development credits. The 21.6% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the utilization of the U.S. research and development credit.
We recorded an income tax benefit of $0.1 million and an income tax provision of $3.6 million for the first six months of fiscal 2024 and the first six months of fiscal 2023, respectively. The effective income tax rate during the first six months of fiscal 2024 was a tax benefit of 16.5% as compared to a tax provision of 23.4% during the first six months of fiscal 2023. The difference in rate during the first six months of fiscal 2024 as compared to the first six months of fiscal 2023 reflects changes in the geographical distribution of income (loss), which is primarily driven by a decrease in U.S. earnings for fiscal 2024 and the state income tax provision, as well as the utilization of U.S. research and development credits. The 16.5% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the utilization of the U.S. research and development credit.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2019 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2019 and the Netherlands beginning in fiscal 2021.
The Company did not have any uncertain tax positions as of December 2, 2023 and May 27, 2023. We record penalties and interest related to uncertain tax positions in the income tax expense line item within the consolidated statements of comprehensive (loss) income when applicable. The reserve for the German audits was reversed in fiscal 2023.
22
Net (Loss) Income and Per Share Data
Net loss during the second quarter of fiscal 2024 was $1.8 million, or $0.13 per diluted common share and $0.12 per Class B diluted common share as compared to net income of $5.5 million during the second quarter of fiscal 2023 or $0.39 per diluted common share and $0.35 per Class B diluted common share.
Net loss during the first six months of fiscal 2024 was $0.6 million, or $.04 per diluted common share and $0.04 per Class B diluted common share as compared to net income of $11.9 million during the first six months of fiscal 2023 or $0.83 per diluted common share and $0.75 per Class B diluted common share.
23
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
Our operations and cash needs have been primarily financed through cash on hand.
Cash and cash equivalents were $22.8 million at December 2, 2023. Cash and cash equivalents by geographic area at December 2, 2023 consisted of $9.3 million in North America, $6.6 million in Europe, $1.1 million in Latin America and $5.8 million in Asia/Pacific. We repatriated $0.3 million to the United States in the second quarter of fiscal 2024 from our entity in Mexico. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes. See Note 8, Income Taxes, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for the fiscal year ended May 27, 2023, filed with the SEC on July 31, 2023 for further information.
Cash and cash equivalents were $25.0 million at May 27, 2023. Cash and cash equivalents by geographic area at May 27, 2023 consisted of $8.1 million in North America, $8.6 million in Europe, $1.5 million in Latin America and $6.8 million in Asia/Pacific. No funds were repatriated to the United States in fiscal 2023 from our foreign entities.
Our short-term and long-term liquidity requirements primarily arise from: (i) working capital requirements, (ii) capital expenditure needs and (iii) cash dividend payments (if and when declared by our Board of Directors). Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.
Based on past performance and current expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months. Additionally, while our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for growth in our markets, we believe our existing sources of liquidity as well as our ability to generate operating cash flows will satisfy our future obligations and cash requirements.
On March 20, 2023, the Company established a senior, secured revolving credit facility agreement with a three-year term in an aggregate principal amount not to exceed $30 million, including a swingline loan and a letter of credit sub-facility (collectively, the "Revolving Credit Facility") with PNC Bank. The Revolving Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving Credit Facility are expected to be used for working capital and general corporate purposes of the Company and its subsidiaries. As of the end of the second quarter for fiscal 2024 and the date of this report, no amounts were outstanding under the Revolving Credit Facility.
Cash Flows from Operating Activities
Cash flows from operating activities are primarily a result of our net (loss) income adjusted for non-cash items and changes in our operating assets and liabilities.
Operating activities generated $1.8 million of cash during the first six months of fiscal 2024. We had a net loss of $0.6 million during the first six months of fiscal 2024, which included non-cash stock-based compensation expense of $0.8 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.3 million and depreciation and amortization expense of $2.1 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $0.9 million in cash during the first six months of fiscal 2024, net of foreign currency exchange gains and losses included an increase in inventory of $6.2 million, a decrease in accounts payable of $1.1 million and an increase in prepayments of $0.2 million. Partially offsetting the cash utilization was a decrease in receivables of $6.3 million and an increase in accrued liabilities of $0.4 million. The decrease in accounts receivable was primarily due to the lower level of sales across our operating segments in the current quarter. Most of the inventory increase supported the products for electron tubes and GES. The changes in accounts payable and accrued liabilities were timing related.
24
Operating activities used $7.2 million of cash during the first six months of fiscal 2023. We had a net income of $11.9 million during the first six months of fiscal 2023, which included non-cash stock-based compensation expense of $0.5 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.2 million and depreciation and amortization expense of $1.8 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $21.5 million in cash during the first six months of fiscal 2023, net of foreign currency exchange gains and losses, included an increase in accounts receivable of $5.5 million, an increase in inventory of $18.1 million and an increase in prepaid expenses of $0.4 million. Partially offsetting the cash utilization for accounts receivable, inventory and prepaid expenses was an increase in accounts payable and accrued liabilities of $1.9 million. The increase in accounts receivable was primarily due to increased sales. The majority of the inventory increase was to support the product growth in LaFox manufacturing, Green Energy Solutions and Canvys, in addition to increases in the inventory for electron tubes. The increase in accounts payable was related to the inventory increase and the increase in accrued liabilities was timing related.
Cash Flows from Investing Activities
Cash used in investing activities of $2.7 million during the first six months of fiscal 2024 was due to capital expenditures. Capital expenditures were primarily related to our IT system and the LaFox manufacturing and facilities renovation. LaFox manufacturing primarily supports the Electron Device Group ("EDG") and Green Energy Solutions ("GES").
Cash used in investing activities of $2.6 million during the first six months of fiscal 2023 was mainly due to capital expenditures. Capital expenditures were primarily related to our IT system, as well as our LaFox manufacturing business and facilities, which also supports both EDG and Green Energy Solutions. The Company did not have any investment purchases or maturities in the first six months of fiscal 2023.
Cash Flows from Financing Activities
Cash flows used in financing activities consist primarily of cash dividends and cash flows provided by financing activities consist primarily of the proceeds from the issuance of stock. All future dividend payments are at the discretion of the Board of Directors. Dividend payments depend on earnings, capital requirements, operating conditions and such other factors that the Board may deem relevant.
Cash used by financing activities of $1.5 million during the first six months of fiscal 2024 primarily resulted from $1.7 million of dividend payments to stockholders partially offset by $0.3 million of proceeds from the issuance of stock.
Cash provided by financing activities of $1.2 million during the first six months of fiscal 2023 primarily resulted from the $2.9 million proceeds from the issuance of stock less the $1.7 million of dividend payments to stockholders.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management and Market Sensitive Financial Instruments
We are exposed to many different market risks with the various industries we serve. The primary financial risk we are exposed to is foreign currency exchange, as certain operations, assets and liabilities of ours are denominated in foreign currencies. We manage these risks through normal operating and financing activities.
The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks is set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 27, 2023, filed with the SEC on July 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 2, 2023.
Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the second quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May 27, 2023, filed with the SEC on July 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 5. OTHER INFORMATION
None.
27
ITEM 6. EXHIBITS
Exhibit Index
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
31.1 |
|
Certification of Edward J. Richardson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Robert J. Ben pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32 |
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101 |
|
The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2024, filed with the SEC on January 11, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Comprehensive (Loss) Income, (iii) the Unaudited Consolidated Statements of Cash Flows, (iv) the Unaudited Consolidated Statement of Stockholders’ Equity and (v) Notes to Unaudited Consolidated Financial Statements. |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
RICHARDSON ELECTRONICS, LTD. |
|
|
|
|
Date: January 11, 2024 |
By: |
/s/ Robert J. Ben |
|
|
Robert J. Ben Chief Financial Officer and Chief Accounting Officer (on behalf of the Registrant and as Principal Financial Officer) |
29
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Edward J. Richardson, certify that:
Date: January 11, 2024 |
||
|
||
Signature: |
|
/s/ Edward J. Richardson |
|
||
Edward J. Richardson |
||
Chairman of the Board and Chief Executive Officer |
||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Ben, certify that:
Date: January 11, 2024 |
||
|
||
Signature: |
|
/s/ Robert J. Ben |
|
||
Robert J. Ben |
||
Chief Financial Officer and Chief Accounting Officer |
||
Exhibit 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-Q for the period ended December 2, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Richardson, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
/s/ Edward J. Richardson |
Edward J. Richardson |
Chairman of the Board and Chief Executive Officer |
January 11, 2024 |
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-Q for the period ended December 2, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Ben, Chief Financial Officer and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
/s/ Robert J. Ben |
Robert J. Ben |
Chief Financial Officer and Chief Accounting Officer |
January 11, 2024 |