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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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 |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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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 October 8, 2024, there were
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Richardson Electronics, Ltd.
Consolidated Balance Sheets
(in thousands, except per share amounts)
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Unaudited |
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Audited |
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August 31, 2024 |
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June 1, 2024 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance for credit losses of $ |
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Inventories, net |
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Prepaid expenses and other assets |
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Total current assets |
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Non-current assets: |
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Property, plant and equipment, net |
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Intangible assets, net |
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Right of use lease assets |
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Deferred income tax assets |
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Other non-current assets |
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Total non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Lease liabilities current |
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Total current liabilities |
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Non-current liabilities: |
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Deferred income tax liabilities |
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Lease liabilities non-current |
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Other non-current liabilities |
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Total non-current liabilities |
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Total liabilities |
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Stockholders’ Equity |
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Common stock, $ |
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Class B common stock, convertible, $ |
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Preferred stock, $ |
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Additional paid-in-capital |
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Retained earnings |
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Accumulated other comprehensive income |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.
2
Richardson Electronics, Ltd.
Unaudited Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
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Three Months Ended |
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August 31, 2024 |
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September 2, 2023 |
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Net sales |
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$ |
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$ |
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Cost of sales, exclusive of depreciation and amortization |
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Gross profit |
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Selling, general and administrative expenses, inclusive |
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Gain on disposal of assets |
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Operating income |
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Other (income) expense: |
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Interest income |
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( |
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Foreign exchange gain |
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( |
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Other, net |
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Total other income |
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( |
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( |
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Income before income taxes |
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Income tax provision |
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Net income |
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Foreign currency translation gain (loss), net of tax |
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Comprehensive income |
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$ |
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$ |
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Net income per share: |
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Common shares - Basic |
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$ |
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$ |
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Class B common shares - Basic |
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Common shares - Diluted |
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Class B common shares - Diluted |
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Weighted average number of shares: |
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Common shares – Basic |
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Class B common shares – Basic |
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Common shares – Diluted |
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Class B common shares – Diluted |
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Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.
3
Richardson Electronics, Ltd.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
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Three Months Ended |
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August 31, 2024 |
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September 2, 2023 |
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Operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to cash provided by operating activities: |
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Unrealized foreign currency gain |
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Depreciation and amortization |
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Inventory provisions |
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Share-based compensation expense |
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Gain on disposal of assets |
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Deferred income taxes |
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( |
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Change in assets and liabilities: |
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Accounts receivable |
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Inventories |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued liabilities |
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Other |
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Net cash provided by operating activities |
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Investing activities: |
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Capital expenditures |
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Proceeds from sale of property, plant & equipment |
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Net cash used in investing activities |
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Financing activities: |
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Proceeds from issuance of common stock |
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Cash dividends paid on common and Class B common stock |
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Proceeds from revolving credit facility |
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Repayment of revolving credit facility |
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Other |
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Net cash used in financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.
4
Richardson Electronics, Ltd.
Unaudited Consolidated Statement of Stockholders’ Equity
(in thousands, except per share amounts)
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Common |
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Class B |
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Par |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance June 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation, net of tax |
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— |
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— |
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— |
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— |
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Share-based compensation: |
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Restricted stock |
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— |
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— |
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— |
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— |
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— |
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Stock options |
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— |
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— |
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— |
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— |
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— |
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Common stock: |
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Options exercised |
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— |
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— |
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— |
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Restricted stock issuance |
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— |
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( |
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— |
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— |
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Dividends paid to: |
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Common ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Class B Common ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Balance August 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance May 27, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation, net of tax |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Share-based compensation: |
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Restricted stock |
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— |
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— |
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— |
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— |
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— |
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Stock options |
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— |
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— |
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— |
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— |
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— |
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Common stock: |
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Options exercised |
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— |
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— |
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— |
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Restricted stock issuance |
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— |
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( |
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— |
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— |
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( |
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Dividends paid to: |
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Common ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Class B Common ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance September 2, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Refer to the Notes to Unaudited Consolidated Financial Statements in Part 1, Item 1.
5
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 business segments: Power and Microwave Technologies ("PMT"), Green Energy Solutions ("GES"), Canvys and Healthcare. A description of the Company's business segments is provided in Note 10, Segment and Geographic Information.
We currently operate within the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.
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 first quarter of fiscal 2025 contained 13 weeks and the first quarter of fiscal 2024 contained 14 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 three months ended August 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2025.
As described in Note 1, Description of the Company the Company reports its financial performance based on
3. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current period reporting classifications. The reclassification was related to the unrealized foreign exchange gain on the Statement of Cash Flows.
4. NEW ACCOUNTING PRONOUNCEMENTS - NOT YET ADOPTED
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required in an entity's income tax rate reconciliation table and requires disclosure of income taxes paid in both U.S. and foreign jurisdictions. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendment requires disclosures of significant segment expenses that are regularly provided to the chief operating
6
decision maker ("CODM") and included within each reported measure of segment profit of loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The new guidance also requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, this guidance should be applied retrospectively to all prior periods presented. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
5. 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 $
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. 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. Revenue is recognized when control transfers since it is not always based on delivery of the goods. 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 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.
7
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 Balances: Contract balances were as follows (in thousands):
|
|
August 31, 2024 |
|
|
June 1, 2024 |
|
|
May 27, 2023 |
|
|||
Accounts receivable |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contract liabilities |
|
|
|
|
|
|
|
|
|
|||
During the three months ended August 31, 2024 and September 2, 2023, the Company recognized $
See Note 10, Segment & Geographic Information 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.
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.
|
|
August 31, 2024 |
|
|
June 1, 2024 |
|
||
Gross Amounts: |
|
|
|
|
|
|
||
Customer Relationships(1) |
|
$ |
|
|
$ |
|
||
Technology |
|
|
|
|
|
|
||
Total Gross Amounts |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accumulated Amortization: |
|
|
|
|
|
|
||
Customer Relationships |
|
$ |
|
|
$ |
|
||
Technology |
|
|
|
|
|
|
||
Total Accumulated Amortization |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net Intangible Assets |
|
$ |
|
|
$ |
|
||
8
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 2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
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.
Accrued Liabilities:
|
|
August 31, 2024 |
|
|
June 1, 2024 |
|
||
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 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 $
6. 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
9
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 compliance with financial covenants under the Credit Agreement as of August 31, 2024.
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
7. LEASE OBLIGATIONS
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 upon a remeasurement event.
The net assets and liabilities related to operating leases were as follows (in thousands):
Lease Type |
|
August 31, 2024 |
|
|
June 1, 2024 |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
The components of lease costs were as follows (in thousands):
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
August 31, 2024 |
|
|
September 2, 2023 |
|
||
Consolidated operating lease expense |
|
Operating expenses |
|
$ |
|
|
$ |
|
||
The approximate future minimum lease payments under operating leases at August 31, 2024 were as follows (in thousands):
Fiscal Year |
|
Operating Leases |
|
|
Remaining 2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
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 August 31, 2024 and September 2, 2023 were as follows:
Operating Lease as of: |
|
Weighted Average Remaining |
|
Weighted Average Interest Rate |
August 31, 2024 |
|
|
||
September 2, 2023 |
|
|
The cash activities associated with our leases for the three month periods ended August 31, 2024 and September 2, 2023, were as follows (in thousands):
|
|
|
|
Three Months Ended |
|
|||||
Cash Flow Source |
|
Classification |
|
August 31, 2024 |
|
|
September 2, 2023 |
|
||
|
|
|
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
Operating activities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
10
8. INCOME TAXES
We recorded an income tax provision of $
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal and U.S. state. In the Netherlands, years prior to fiscal 2019 are closed for examination. We are under examination in Germany for fiscal years 2019 to 2022. We have no current open audits in the U.S.
We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liabilities on the outside basis difference is now primarily withholding tax on future dividend distributions. The deferred tax liabilities related to undistributed earnings of our foreign subsidiaries was less than $
The Company recorded a $
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 $
9. 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.
The allocation of undistributed (loss) earnings between common stock and Class B common stock is based on the relationship of the weighted shares outstanding for the respective stock class (common or Class B) to the total of the weighted shares outstanding for common stock and 90% of the weighted shares outstanding for Class B common stock. The adjustment to the number of outstanding Class B common stock shares reflects the limitation of Class B common stock dividends to 90% of common stock dividends.
11
The earnings per share (“EPS”) presented in our unaudited consolidated statements of comprehensive income was based on the following amounts (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|||||||||||||
|
|
August 31, 2024 |
|
|
September 2, 2023 |
|
||||||||||
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
||||
Numerator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net 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 income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note: There were
10. SEGMENT AND GEOGRAPHIC INFORMATION
As described in Note 1, Description of the Company, 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
12
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 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 |
|
|||||
|
|
August 31, 2024 |
|
|
September 2, 2023 |
|
||
PMT |
|
|
|
|
|
|
||
Net Sales |
|
$ |
|
|
$ |
|
||
Gross Profit |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
GES |
|
|
|
|
|
|
||
Net Sales |
|
|
|
|
|
|
||
Gross Profit |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Canvys |
|
|
|
|
|
|
||
Net Sales |
|
|
|
|
|
|
||
Gross Profit |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Healthcare |
|
|
|
|
|
|
||
Net Sales |
|
|
|
|
|
|
||
Gross Profit |
|
|
|
|
|
|
||
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 |
|
|||||
|
|
August 31, 2024 |
|
|
September 2, 2023 |
|
||
Net Sales |
|
|
|
|
|
|
||
North America |
|
$ |
|
|
$ |
|
||
Asia/Pacific |
|
|
|
|
|
|
||
Europe |
|
|
|
|
|
|
||
Latin America |
|
|
|
|
|
|
||
Other (1) |
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Gross Profit |
|
|
|
|
|
|
||
North America |
|
$ |
|
|
$ |
|
||
Asia/Pacific |
|
|
|
|
|
|
||
Europe |
|
|
|
|
|
|
||
Latin America |
|
|
|
|
|
|
||
Other (1) |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
13
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.
11. RISKS AND UNCERTAINTIES
Our business and the companies with which we do business are subject to risks and uncertainties caused by factors beyond our control. Such factors include economic pressures related to inflation, rising interest rates, economic weakness or recession, as well as geopolitical and public health, tightening labor markets, and pandemics. These and other similar conditions and events have in the past and could in the future disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
14
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,” “continue,” “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 Russian - Ukraine and Israel - Hamas wars; 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 August 5, 2024. 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 50% of our products are manufactured at our facilities located in LaFox, Illinois, Marlborough, Massachusetts and Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. 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 imported into the United States. The Office of the United States Trade Representative ("USTR") instituted tariffs on the importation of a number of products into the United States from China. These 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 subject to duties 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. 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.
15
We currently operate within the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.
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 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 10, Segment and Geographic Information, for a discussion of the operating results by segment and geographic area.
16
RESULTS OF OPERATIONS
Financial Summary – Three Months Ended August 31, 2024
Net Sales and Gross Profit Analysis
Net sales by segment and percent change during the first quarter of fiscal 2025 and fiscal 2024 were as follows (in thousands):
Net Sales |
|
Three Months Ended |
|
|
FY25 vs. FY24 |
|
||||||
|
|
August 31, 2024 |
|
|
September 2, 2023 |
|
|
% Change |
|
|||
PMT |
|
$ |
34,202 |
|
|
$ |
35,744 |
|
|
|
-4.3 |
% |
GES |
|
|
8,086 |
|
|
|
4,394 |
|
|
|
84.0 |
% |
Canvys |
|
|
7,638 |
|
|
|
9,889 |
|
|
|
-22.8 |
% |
Healthcare |
|
|
3,799 |
|
|
|
2,554 |
|
|
|
48.7 |
% |
Total |
|
$ |
53,725 |
|
|
$ |
52,581 |
|
|
|
2.2 |
% |
During the first quarter of fiscal 2025, consolidated net sales increased 2.2% compared to the first quarter of fiscal 2024. Sales for PMT decreased 4.3%, sales for GES increased 84.0%, sales for Canvys decreased 22.8% and sales for Healthcare increased 48.7%. The decrease in PMT was mainly due to slower sales of electron devices slightly offset by growth in our Wafer Fab and RF and Microwave component businesses. The increase in GES was mainly due to increased shipments of power management products focused on battery modules for wind turbine and electric locomotive products. The decrease in Canvys was attributable to lower sales in the North American and European markets. The increase in Healthcare reflected higher sales in all product lines.
Gross profit by segment and percent of net sales for the first quarter of fiscal 2025 and fiscal 2024 were as follows (in thousands):
Gross Profit |
|
Three Months Ended |
|
|||||||||||||
|
|
August 31, 2024 |
|
|
% of Net Sales |
|
|
September 2, 2023 |
|
|
% of Net Sales |
|
||||
PMT |
|
$ |
10,202 |
|
|
|
29.8 |
% |
|
$ |
11,511 |
|
|
|
32.2 |
% |
GES |
|
|
2,374 |
|
|
|
29.4 |
% |
|
|
1,580 |
|
|
|
36.0 |
% |
Canvys |
|
|
2,621 |
|
|
|
34.3 |
% |
|
|
3,365 |
|
|
|
34.0 |
% |
Healthcare |
|
|
1,229 |
|
|
|
32.4 |
% |
|
|
808 |
|
|
|
31.6 |
% |
Total |
|
$ |
16,426 |
|
|
|
30.6 |
% |
|
$ |
17,264 |
|
|
|
32.8 |
% |
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 $16.4 million during the first quarter of fiscal 2025 compared to $17.3 million during the first quarter of fiscal 2024. Consolidated gross margin as a percentage of net sales during the first quarter of fiscal 2025 decreased to 30.6% when compared to 32.8% during the first quarter of fiscal 2024. This decrease was mainly due to the unfavorable product mix and manufacturing under absorption in PMT and unfavorable product mix in GES with a partial offset from the favorable product mix in Canvys and cost efficiencies in scrap and freight in Healthcare.
17
Power and Microwave Technologies
PMT net sales decreased 4.3% to $34.2 million during the first quarter of fiscal 2025 from $35.7 million during the first quarter of fiscal 2024. The decrease was mainly due to slower sales of electron devices slightly offset by growth in our Wafer Fab and RF and Microwave component businesses. Gross margin as a percentage of net sales decreased to 29.8% during the first quarter of fiscal 2025 as compared to 32.2% during the first quarter of fiscal 2024 due to unfavorable product mix and manufacturing under absorption.
Green Energy Solutions
GES net sales increased 84.0% to $8.1 million during the first quarter of fiscal 2025 from $4.4 million during the first quarter of fiscal 2024. The increase reflected the project-based nature of this segment and was mainly due to increased shipments of power management products focused on battery modules for wind turbine and electric locomotive products. Gross margin as a percentage of net sales decreased to 29.4% during the first quarter of fiscal 2025 as compared to 36.0% during the first quarter of fiscal 2024 due to product mix.
Canvys
Canvys net sales decreased 22.8% to $7.6 million during the first quarter of fiscal 2025 from $9.9 million during the first quarter of fiscal 2024, due to lower sales in both the North American and European markets. Gross margin as a percentage of net sales increased to 34.3% during the first quarter of fiscal 2025 from 34.0% during the first quarter of fiscal 2024 primarily due to improved product mix.
Healthcare
Healthcare net sales increased 48.7% to $3.8 million during the first quarter of fiscal 2025 from $2.6 million during the first quarter of fiscal 2024 due to increases in all Healthcare product lines. Gross margin as a percentage of net sales increased to 32.4% during the first quarter of fiscal 2025 as compared to 31.6% during the first quarter of fiscal 2024 primarily due to cost efficiencies in scrap and freight.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) increased slightly to $16.1 million for the first quarter of fiscal 2025 when compared to $15.8 million for the year ago quarter. This increase of 2.0% from the first quarter of fiscal 2024 mainly reflected higher incentives due to sales growth. Expressed as a percentage of net sales, SG&A was 30.0% for the first quarter of fiscal 2025 and remained unchanged compared to the first quarter of fiscal 2024.
Other Income/Expense
Other income was $0.3 million during the first quarter of fiscal 2025, compared to other income of $0.1 million for the first quarter of fiscal 2024. Other income during the first quarter of fiscal 2025 included interest income and foreign exchange gains. 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.
Income Tax Provision
We recorded an income tax provision of $0.1 million and $0.4 million for the first three months of fiscal 2025 and the first three months of fiscal 2024, respectively. The effective income tax rate during the first three months of fiscal 2025 was a tax provision of 9.0% as compared to a tax provision of 23.7% during the first three months of fiscal 2024. The difference in rate during the first three months of fiscal 2025 as compared to the first three months of fiscal 2024 reflects changes in our geographical distribution of income (loss), which is primarily driven by a decrease in U.S. earnings for fiscal 2025 and the state income tax provision, as well as an increase in the utilization of U.S. research and development credits. The 9.0% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss), as well as the utilization of U.S. research and development credits.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal and U.S. state. In the Netherlands, years prior to fiscal 2019 are closed for examination. We are under examination in Germany for fiscal years 2019 to 2022. We have no current open audits in the U.S.
18
The Company recorded a $0.3 million liability for uncertain tax positions as of August 31, 2024. The uncertain tax positions totaled $0.1 million as of June 1, 2024. We record interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest was included within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $0.1 million for interest and penalties as it relates to the reserve of the research and development credit as of June 1, 2024 and August 31, 2024, respectively.
Net Income and Per Share Data
Net income during the first quarter of fiscal 2025 was $0.6 million, or $0.04 per diluted common share and $0.04 per Class B diluted common share as compared to net income of $1.2 million during the first quarter of fiscal 2024 or $0.09 per diluted common share and $0.08 per Class B diluted common share.
19
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
Our operations and cash needs have been primarily financed through income from operations and cash on hand.
Cash and cash equivalents were $23.0 million at August 31, 2024. Cash and cash equivalents by geographic area at August 31, 2024 consisted of $4.1 million in North America, $9.9 million in Europe, $1.2 million in Latin America and $7.8 million in Asia/Pacific. No cash was repatriated to the United States in the first quarter of fiscal 2025. 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 June 1, 2024, filed with the SEC on August 5, 2024, for further information.
Cash and cash equivalents were $24.3 million at June 1, 2024. Cash and cash equivalents by geographic area at June 1, 2024 consisted of $7.1 million in North America, $7.3 million in Europe, $1.1 million in Latin America and $8.8 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.
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. The Company utilized $1.0 million of the credit line to address short-term cash requirements and repaid that $1.0 million during the first quarter of fiscal 2025. As of the end of the first quarter for fiscal 2025 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 income adjusted for non-cash items and changes in our operating assets and liabilities.
Operating activities generated $0.4 million of cash during the first three months of fiscal 2025. We had a net income of $0.6 million during the first three months of fiscal 2025, which included non-cash stock-based compensation expense of $0.6 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.1 million, unrealized foreign exchange gain of $0.4 million and depreciation and amortization expense of $1.0 million associated with our property, plant and equipment and intangible assets. Changes in our operating assets and liabilities used $1.9 million in cash during the first three months of fiscal 2025, net of foreign currency exchange gains and losses included an increase in inventory of $0.1 million and an increase in accounts receivable of $5.9 million. Partially offsetting the cash utilization was an increase in accounts payable and accrued liabilities of $4.1 million. The increase in accounts receivable was primarily due to the higher level of sales for the current quarter compared to the prior quarter. The changes in accounts payable and accrued liabilities were timing related.
Operating activities generated $1.0 million of cash during the first three months of fiscal 2024. We had a net income of $1.2 million during the first three months of fiscal 2024, 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 $0.1 million and depreciation and amortization expense of $1.0 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $1.8 million in cash during the first three months of fiscal 2024, net of foreign currency exchange gains and losses included an increase in inventory of $3.2 million, a decrease in accounts payable of $2.4 million and a decrease in accrued liabilities of $1.1 million. Partially offsetting the cash utilization were decreases in receivables of $4.5 million and prepayments of $0.4 million. The decrease in accounts receivable was primarily due to the lower level of sales in the current quarter. Most of the inventory increase supported the products for electron tubes and Healthcare. The decreases in accounts payable and accrued liabilities were timing related.
20
Cash Flows from Investing Activities
Cash used in investing activities of $0.9 million during the first three months of fiscal 2025 was due to capital expenditures. Capital expenditures were primarily related to our IT system and LaFox manufacturing and facilities. LaFox manufacturing primarily supports the Electron Device Group ("EDG") and Green Energy Solutions ("GES").
Cash used in investing activities of $1.1 million during the first three 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 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 in financing activities of $0.9 million during the first three months of fiscal 2025 primarily resulted from $0.9 million of dividend payments to stockholders partially offset by $0.1 million of proceeds from the issuance of stock.
Cash used by financing activities of $0.6 million during the first three months of fiscal 2024 primarily resulted from $0.8 million of dividend payments to stockholders offset by $0.3 million of proceeds from the issuance of stock.
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements are prepared in accordance with U.S GAAP. Preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The Company’s most critical accounting policies and estimates are those most important to the portrayal of its financial condition and results of operations and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based on information available when they are made and, therefore, may differ from estimates made under different assumptions or conditions.
The Company’s significant accounting policies are consistent with those discussed in Note 3, Significant Accounting Policies and Disclosures, to the consolidated financial statements and the MD&A section of the Company’s fiscal 2024 Annual Report on Form 10-K (the “2024 Annual Report”). During the three months ended August 31, 2024, there were no significant changes in the application of critical accounting policies.
Impact of New Accounting Standards
For information about recently issued accounting pronouncements, see Note 4, New Accounting Pronouncements - Not Yet Adopted, included in Part 1, Item 1.
21
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 of our operations, assets and liabilities 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 June 1, 2024 filed with the SEC on August 5, 2024.
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 August 31, 2024.
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 first quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
22
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 June 1, 2024, filed with the SEC on August 5, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
a) Form 8-K disclosures for the quarter covered by this Form 10-Q:
Submission of Matters to Vote of Security Holders
We held our annual meeting of stockholders on October 8, 2024. At the annual meeting, our stockholders (i) elected each of the nominees listed below to the Company’s Board of Directors to serve for a term expiring at the 2025 Annual Meeting; (ii) ratified the selection of BDO USA, P. C. as our independent registered public accounting firm for fiscal 2025; and (iii) approved, on an advisory basis, the compensation of the Company’s named executive officers.
The final results for the votes regarding each proposal are set forth below:
Nominee |
|
For |
|
|
Abstain/Withhold |
|
|
Broker Non-Votes |
|
|||
Edward J. Richardson |
|
|
25,048,700 |
|
|
|
3,048,851 |
|
|
|
1,932,766 |
|
Wendy S. Diddell |
|
|
27,837,126 |
|
|
|
260,425 |
|
|
|
1,932,766 |
|
Jacques Belin |
|
|
24,935,122 |
|
|
|
3,162,429 |
|
|
|
1,932,766 |
|
James Benham |
|
|
24,935,237 |
|
|
|
3,162,314 |
|
|
|
1,932,766 |
|
Kenneth Halverson |
|
|
24,936,927 |
|
|
|
3,160,624 |
|
|
|
1,932,766 |
|
Robert H. Kluge |
|
|
26,111,151 |
|
|
|
1,986,400 |
|
|
|
1,932,766 |
|
Paul J. Plante |
|
|
23,137,263 |
|
|
|
4,960,288 |
|
|
|
1,932,766 |
|
b) Not applicable.
c) 10b5-1 trading arrangements:
None.
23
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 first quarter of fiscal 2025, filed with the SEC on October 10, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Comprehensive 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. |
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
24
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: October 10, 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) |
25