Categories Earnings Call Transcripts, Technology

Richardson Electronics Ltd (RELL) Q1 2023 Earnings Call Transcript

RELL Earnings Call - Final Transcript

Richardson Electronics Ltd  (NYSE: RELL) Q1 2023 earnings call dated Oct. 06, 2022

Corporate Participants:

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Robert J. Ben — Executive Vice President, Chief Financial Officer and Corporate Secretary

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

Wendy Diddell — Executive Vice President and Chief Operating Officer

Jens Ruppert — Executive Vice President and General Manager, Canvys

Analysts:

Anja Soderstrom — Sidoti — Analyst

Ross Taylor — ARS — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the First Quarter of Fiscal Year 2023 Conference Call. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Ed Richardson.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Good morning, and welcome to Richardson Electronics Conference Call for the First Quarter of Fiscal year 2023. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power & Microwave Technologies Group and our newest business unit, Green Energy Solutions; and Jens Ruppert, General Manager of Canvys.

As a reminder, this call is being recorded and will be available for playback.

I would also like to remind you that we will be making forward-looking statements. They are based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors.

We’re extremely pleased with the strong performance in the first quarter of fiscal 2023. This was our ninth consecutive quarter of sequential revenue growth and is a great start to our new fiscal year. Sales in all our business units were up over Q1 of last year. Investments in our growth initiatives continue to pay off as we focus on pursuing exciting market opportunities that we believe will drive long-term growth.

Beginning in the quarter, we’re reporting a new segment, Green Energy Solutions, or GES. Over the last several years, Richardson Electronics has invested in engineering and manufacturing resources to develop solutions that support a healthier, sustainable environment. As an industry-leading global provider of engineered solutions, we listen to our customers and help them solve problems.

Today, we offer patented solutions that replace lead acid batteries in multiple applications such as wind energy, locomotives and other critical infrastructure environments. We sell components used in electric vehicles or EV and charging stations. We’re working alongside companies that want to replace fossil fuel by developing hydrogen as a fuel source from methane and other [Indecipherable]. We’re also a leading manufacturer of magnetrons used to produce synthetic diamonds, a growing trend among people who want to buy a product that does not come from strip mines that damage the earth.

With increasing sales from green energy products and customers, we decided it was time to separate the business for reporting and resource allocation purposes. We carefully reviewed our customers and the solutions we sell them, noting which ones provide green solutions. Sales from these customers were previously reported in the Power & Microwave Technologies group or PMT. Rest assured, PMT including EDG and PMG is still in focus and growing strongly.

Through our shared PMT sales and marketing teams, we’re confident that sales will grow in green energy solutions as well. In the 75-year history of the Company, we’ve never been more excited about our future. With nearly $200 million in total company backlog, we believe sales and profits will continue to significantly increase in 2023.

With that, I’ll turn the call over to Bob Ben, Chief Financial Officer, to review our first quarter financial performance in more detail. Then Greg, Wendy and Jens will provide more detail on the quarter, including our new business unit and key growth initiatives.

Robert J. Ben — Executive Vice President, Chief Financial Officer and Corporate Secretary

Thank you, Ed, and good morning. I will review our financial results for our first quarter of fiscal year 2023, followed by a review of our cash position. Net sales for the first quarter of fiscal 2023 increased 25.8% to $67.6 million compared to net sales of $53.7 million in the prior year’s first quarter due to higher net sales across all four business units, including our new Green Energy Solutions business unit. PMT sales increased by $4.9 million or 12.2% from last year’s first quarter, driven by strong growth from manufactured products for our semiconductor wafer fabrication equipment customers. Net sales for our new segment, GES, increased $5.9 million or 230.7% from last year’s first quarter. GES combines our key technology partners and engineered solutions capabilities to design and manufacture products for the fast-growing alternative energy storage market and power management for green applications. Canvys sales increased by $2.0 million or 23.4% due to strong customer demand in North America. Richardson Healthcare sales increased $1.0 million or 45.5% due to increases in all product lines.

Total company backlog was $199.2 million in the first quarter of fiscal 2023 versus $206.2 million at the end of fiscal 2022 and $126.5 million at the end of the first quarter of fiscal 2022. The sequential decline was primarily in Canvys, while the significant year-over-year growth we experienced was due to higher orders across our business units over the last 12 months. Gross margin for the first quarter was 34.1% of net sales compared to 30.3% of net sales in last year’s first quarter. PMT’s margin increased to 34.3% from 30.1%, and GES margin increased to 35.5% from 28.9% primarily due to product mix and improved manufacturing efficiencies. Canvys gross margin decreased to 31.4% from 33.4% because of product mix and foreign exchange effects. Healthcare’s gross margin was 36.7% in the first quarter of fiscal 2023 compared to 24.3% in the prior year’s first quarter due to improved manufacturing absorption and decreased component scrap expense. Operating expenses were $14.2 million for the first quarter of fiscal 2023 compared to $13.5 million in the first quarter of fiscal 2022. The increase in operating expenses resulted from higher employee compensation expenses including incentive expense from significantly higher operating income.

Operating expenses as a percentage of net sales decreased to 21.1% during the first quarter of fiscal 2023 compared to 25.1% during the first quarter of fiscal 2022. The Company reported operating income of $8.8 million or 13.0% of net sales for the first quarter of fiscal 2023 versus operating income of $2.8 million or 5.3% of net sales in the first quarter of last year. Other expenses for the first quarter of fiscal 2023, including foreign exchange, partially offset the interest income, were $0.3 million compared to other expenses of less than $0.1 million in the first quarter of fiscal 2022. Income tax expense was $2.1 million for the first quarter of fiscal 2023 or a 25% effective tax rate versus $0.2 million in the prior year’s first quarter due to the use of federal NOLs in fiscal 2022.

Net income was $6.3 million or 9.4% of net sales for the first quarter of fiscal 2023 as compared to a net income of $2.6 million or 4.9% of net sales in the first quarter of fiscal 2022. Earnings per common share on a diluted basis in the first quarter of fiscal 2023 were $0.45 compared to $0.20 per common share on a diluted basis in the prior year’s first quarter.

Moving to a review of our cash position. Cash and investments at the end of the first quarter of fiscal 2023 were $35.6 million compared to $40.5 million at the end of fiscal 2022 and $36.4 million at the end of the first quarter of fiscal 2022. The Company continues to invest in working capital to support its growth initiatives. Inventory grew to $89.1 million from $80.4 million at the end of fiscal 2022. The largest portion of the increase for the first quarter was due to increases in components and work in process for both our PMT and GES businesses, which we expect will be mostly consumed and completed by the end of the third quarter of fiscal 2023.

Accounts receivable increased to $32.6 million from $29.9 million at the end of fiscal 2022 due to the high sales growth. Our DSO was 39 days, the same as in the fourth quarter of fiscal 2022. Capital expenditures were $1.4 million in the first quarter of fiscal 2023 versus $0.8 million in the first quarter of fiscal year 2022, approximately $0.7 million related to investments in manufacturing, $0.3 million for our facilities, $0.3 million for our IT system and $0.1 million for our Healthcare business. We continue to expect a higher level of capital expenditures in FY 2023 as we make additional investments in our manufacturing capabilities and facility. We paid $0.8 million in cash dividends in the first quarter. In addition, based on our current financial position, our Board of Directors declared a regular quarterly cash dividend of $0.06 per common share, which will be paid in the second quarter of fiscal 2023.

Now, I will turn the call over to Greg, who will discuss the results for our Power and Microwave Technologies and Green Energy Solutions groups.

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

Thank you, Bob, and good morning, everyone. PMT had another excellent quarter with 25.2% growth over prior year. Our strategic execution continues to provide consistently improved profitability with top line growth. To enhance and expedite this growth, we have formed a new strategic business unit to capitalize on the exceptional growth in demand for power management products and green energy applications, such as wind energy, electric locomotives and vehicles and energy storage. This new strategic business unit, Green Energy Solutions, or GES, will allow us to apply focus on resources to generate substantial solutions for our customers. Revenues attributed to GES are being transferred from both segments of the PMT business. We moved sales from PMT based on careful review of customer activity and product use.

GES sales in Q1 FY ’23 were $8.5 million versus $2.6 million in Q1 of last year. With $56.3 million in backlog, this unit captured numerous successful products such as the ULTRA3000, electric locomotive and battery modules and products used in synthetic diamond manufacturing. Focusing on power management products and green energy applications is key to our long-term success. Recent examples are the launches of our patent pending, shunt resistor and voltage discharge device. These small but critical products are used in all wind turbine service [Indecipherable] and present us and the company is aggressively identifying ways to help our customers succeed in the green energy market.

We are currently in weekly discussions with several major OEMs, and our engineering team is rapidly expanding our product line for energy storage products for various green energy applications. We plan to announce several new products in the second half of FY ’23. As you can see, our new GES segment is benefiting from a large, global secular trends that are driving demand for sophisticated power management solutions that help protect the environment. We are successfully capitalizing on these emerging markets through the combination of key technology partners and our engineered solutions capabilities while leveraging our existing global infrastructure. As a result, I’m excited by the current and long-term opportunities we have to grow the GES segment.

Looking at our Power & Microwave Technologies Group, or PMT business in more detail, PMT increased 12.2% in the first quarter of fiscal year 2023 to $45.4 million compared to $40.4 million in the same period last fiscal year. In addition to a strong sales quarter, PMT’s book-to-bill ratio was over 1.1. Our sales growth, bookings and strong backlog indicate FY ’23 will be another excellent year. Our gross margin also increased in the quarter to 34.3% versus 30.1% in the prior year, which was mainly due to more profitable sales mix in the quarter and an extremely strong quarter for our semiconductor wafer fabrication equipment business.

Both EDG and PMG supported the strong growth we achieved in bookings and billings in our first quarter. Our Electron Device Group, or EDG, had an extremely robust quarter as we continued to grow market share and find new applications for our legacy tube products. In addition, we had record shipments to our semiconductor wafer fab customers. We also had excellent growth in our Power & Microwave Group, or PMG. Over the years, we have added new technology partners and new products targeting RF, wireless and power management applications. This includes programs dedicated to the high-growth power management and energy storage applications. Our entire team has done an excellent job identifying niche technology partners who collaborated with us globally. Our engineered solutions strategy is led by our global technology partners such as Qorvo, Macom, Nokia Wave [Phonetic], LS Materials, Amogreentech and Fuji Semiconductor along with key tube manufacturers in the industry, such as CPI, Thales, NJRC, NISD, and Photonis who work with us to manage our customer requirements. Again, we will continue to add partners to fill technology gaps in our offering as these markets continue to grow.

We continue to invest in resources to support the growth we are experiencing in both GES and PMT business. We’re in design engineers, field engineers as well expanding our manufacturing capabilities and technical expertise. Our growth strategy has been highly successful over the years resulting in new products, customers, revenues and profits by capitalizing on our existing demand creation infrastructure. We still remain challenged by the long semiconductor lead times and overall supply chain. This affects both our component business and engineered solutions. We are aggressively investing in inventory that allows us to support our backlog and ensure we can meet our customers’ needs while we collaborate closely with both customers and suppliers. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power management in RF and microwave industries with focus on the fast-growing energy solutions market.

We developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions capabilities. Through our steadfast and creative focus on customers, we’ll continue to excel by taking advantage of opportunities when they arise. Our backlog remains strong, and the execution of our strategy has never been better. There’s no question our customers, technology partners need Richardson Electronics’ products and support more than ever.

And with that, I’ll turn it over to Wendy Diddell to discuss Richardson Healthcare.

Wendy Diddell — Executive Vice President and Chief Operating Officer

Thanks, Greg. Good morning, everyone. First quarter sales for Healthcare were $3.3 million, an increase of 45.5% over Q1 of FY ’22. Sales were higher for all product lines, including CT Tubes, parts and systems. Gross margin in the first quarter improved to 36.7% versus 24.3% in Q1 last year, reflecting steady production and reduced scrap.

Margin was also helped by several credits from our suppliers in response to issues we faced in our most recent fourth quarter. This quarter is proof that it is possible to realize higher gross margins when production is constant and we don’t suffer significant equipment or component issues. The number of use [Phonetic] systems available for purchase is also improving, giving us good revenue growth opportunities, particularly in Latin America, where we sell most of our use systems with ALTA tubes.

In May of 2022, we completed our second ALTA750G beta, and we’re able to do a soft launch of the tube. This is the second tube in the Canon series, and it works on newer Canon CT scanner models. Our strategic market approach continues to ensure our tube performance is solid, and we can adjust production processes as needed. We are still waiting to receive CE approval, which is required to sell the G tube in Europe and Canada. As a result, we expect sales growth will be gradual.

We are making steady progress on the Siemens repaired tube program. This is a series of four tube types, including the Straton Z, MX, MX P and MX P46. The Siemens installed base is considerably larger than Canons, and there are no third-party replacement options for these tube types. The Straton Z is currently in beta site testing and we remain on track to release the repaired tube later in calendar year 2022. The Siemens MX series will follow in calendar year 2023. The Siemens program is a critical element to achieving our goal of providing a positive operating contribution to the company by Q4 of FY ’24. Q1 was a good start to FY ’23, which helped improve overall company profitability as a percentage of sales in the quarter.

I will now turn the call over to Jens Ruppert to discuss the results for Canvys.

Jens Ruppert — Executive Vice President and General Manager, Canvys

Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures and sell custom displays to original equipment manufacturers in industrial and medical markets throughout the world. Canvys delivered an outstanding performance and set a new quarterly record with sales of $10.4 million for the first quarter of fiscal 2023. Strong customer demand primarily driven in North America drove a 23.4% increase in sales over the same period last year.

Gross margin as a percentage of net sales was 31.4% during the first quarter of fiscal 2023, down from 33.4% during the first quarter of fiscal 2022. The decrease in gross margin was related to the product mix and foreign currency effects. Our backlog remains healthy, which we expect to support strong sales through fiscal 2023 and into fiscal 2024. Given the number of projects currently in the engineering stage, we are well positioned for continued growth.

Our expectations assume no impact from current supply chain obstacles and demand is not [Phonetic] negatively impacted by recessionary pressures. We continue to deal with extended lead times for selected components from our Asian suppliers. To compensate for this, our inventory on hand increased during the quarter. All our monitors are custom and our inventories earmarked for specific customers. So, we believe there is minimal risk. In some cases, customers are paying us to hold inventory above and beyond the annual usage to avoid supply chain disruptions. During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include cardiac pulsed-field ablation, refractive surgery, radiation treatment, endovascular imaging, surgical navigation and robotic-assisted surgery.

In the nonmedical space, our products are used in a variety of commercial and industrial applications. This includes teleprompter, talent monitors and clocks used at TV stations around the world, human machine interfaces or HMI, for surface inspection systems, metal 3D and industrial printers, packaging machines and process automation.

I am so proud of our teams around the world, and we are extremely pleased with the exceptional operating performance. Our strong and growing customer relationships together with the backlog position us for future growth. From the variety of customers and applications as well as the value of orders from existing and new customers, it is clear we offer our global customers outstanding products and local service. While our sales organization stays focused on new opportunities, I stay focused on improving the operating performance of the division, maximizing cash flow and improving Canvys profitability is an ongoing priority. We continue to work closely with our partners to meet the demand of our customers, particularly with the challenges brought by the industry-wide supply chain delays.

I will now turn the call back over to Ed.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Thanks, Jens. Congratulations to you and the team on a new record quarter for Canvys. It’s nice to see all of our businesses are performing so well, particularly considering the economic conditions throughout the world. The credit goes to Richardson Electronics’ fantastic group of employees. As we celebrate the Company’s 75th anniversary, I’m reminded that our employees and our culture make us uniquely positioned for success.

As I mentioned in our new book, Never Give Up, it’s also our ability to double our efforts and preserve through difficult times. Our team has done just that, and I couldn’t be more proud of him. We’re off to a great start in FY ’23. We’re working with our customers to deliver solutions in a timely manner and working with our suppliers to overcome supply chain challenges. We’re focused on the operating performance of the Company. Our year-over-year revenue and profitability will be very strong. The Company has never been healthier.

At this time, we’ll be happy to answer a few questions.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from Anja Soderstrom with Sidoti. Your line is now open.

Anja Soderstrom — Sidoti — Analyst

Hi. Thank you for taking my questions and congratulations.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Good morning, Anja.

Anja Soderstrom — Sidoti — Analyst

Good morning. Congratulations on the good quarter.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Thank you.

Anja Soderstrom — Sidoti — Analyst

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

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yes, the original ULTRA3000 was designed for owner operators of GE wind turbines. We started with great success of the top-three NextEra, Embro Energy and Enel. We are the exclusive supplier to those three owner operators in North America. But since the inception of it, it’s caught great notice and we now have 17 different owner operators of GE wind turbines in North America that are buying our product or testing it. So, we’re now — we have weekly calls with Siemens, we’ll be developing a version of the ULTRA3000 for them in addition to it, we’ll be announcing in Q3 of FY ’23 our multi-brand, which will be used in European manufacturers of wind turbines of Nordex, Senvion, Suzlon [Phonetic]. And we are in contact with them. They’ll be doing beta site testing sometime before the end of the year. So, the technology we’re — continue to improve on it. And we’ll be adding that same product for other wind turbines and other GE owner operators.

Anja Soderstrom — Sidoti — Analyst

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

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

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

Anja Soderstrom — Sidoti — Analyst

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

Robert J. Ben — Executive Vice President, Chief Financial Officer and Corporate Secretary

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

Anja Soderstrom — Sidoti — Analyst

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

Robert J. Ben — Executive Vice President, Chief Financial Officer and Corporate Secretary

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

Anja Soderstrom — Sidoti — Analyst

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

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah. So, the product is used for the replacement of lead acid batteries in the generator, bottom of every cell tower, there is a generator. The testing is going well, we’re tweaking it. As the alpha site and beta site testing goes, we hope to still get production orders in Q3 and Q4 of this year. But we’re also in partnership with Northwestern Medical to build again the ULTRAGEN3000 for their generators in their critical facilities. So, we’re happy with the results so far. With the ULTRA3000, we started on top of the mountain with the largest owner operator in North America. So, this one is going probably normal than what we’ve seen in the past in terms of a new product introduction process. But results so far are good. They’re happy with our support and our design. And again, we hope to get production orders sometime in Q3 or Q4.

Anja Soderstrom — Sidoti — Analyst

Okay, thank you. And then moving on to the PMT, in terms of the wafer fab, how — what do you see there in terms of the demand? And people think that maybe we’re towards the end of that cycle. What are you seeing with your customers?

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Well, Land [Phonetic] hasn’t slowed down their forecast or their bookings with us. So, we look at it to consider growing pretty much at the same pace it did last year. And we haven’t seen that from them. They’ve told us to continue getting inventory and building as they’re going to continue at the growth rate they saw over the last 12 months.

Anja Soderstrom — Sidoti — Analyst

Okay, thank you. And then it says that backlog declined? How should we think about that? Was that due to you getting the inventories you were able to ship more of the backlog? Or how should we think about the backlog trending?

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah, the backlog is specific to PMT, and GSS [Phonetic] actually grew slightly in the quarter. The decline was mainly Canvys [Speech Overlap] again, very slight decline.

Anja Soderstrom — Sidoti — Analyst

Okay. And then moving over to healthcare. When — for the gross margin there, it seems like you have better absorption and also the scrapping there. What are the puts and takes and how should we think about that going forward?

Wendy Diddell — Executive Vice President and Chief Operating Officer

So, as I mentioned, what worked to our advantage in the quarter obviously, is staying in full production. As far as going forward, there are a couple things that we pointed out that benefited the gross margin in the first quarter. So, again, the first quarter was 36.7%. There was some benefit from some scrap recoveries that we had in Q1, and that improved the margin by about 3.8%. And then the overall absorption improved the margins about 3.2%. So, on an ongoing basis for modeling purposes, Anja, I’d still keep it right around that 30% mark. And then the things that would challenge that number would be — again, if we had any component issues, any issues with the tubes, etc., so I would feel comfortable in that range.

Anja Soderstrom — Sidoti — Analyst

Okay, thank you. I’ll get back into queue and let someone else ask questions.

Wendy Diddell — Executive Vice President and Chief Operating Officer

Okay, thanks, Anja. Call us anytime.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Thanks, Anja.

Anja Soderstrom — Sidoti — Analyst

Thank you.

Operator

[Operator Instructions]. Our next question comes from Ross Taylor with ARS. Your line is now open.

Ross Taylor — ARS — Analyst

Thank you. And congratulations on what was a really blow way to quarter. My hope is you can keep that up next three — this year and pick up on it the following year.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Thank you. We still have $200 million backlog. So, we hope so.

Ross Taylor — ARS — Analyst

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

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah, it still would be replacement of the lead acid batteries in the wind turbine. That’s what this product does, it replaces that. Obviously the lead acid batteries like a car battery only last a few years. We are working with Siemens and their fleet in India, it builds every six months. So, they really love our product. But for now, that’s the main focus of the product is to get rid of the lead acid batteries in wind turbines and other products.

Ross Taylor — ARS — Analyst

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

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

That would definitely be Phase 2. And yes, we’re in discussions with some major owner — manufacturers of wind turbines to make it an OEM sale as opposed to replacing the lead acid batteries that are in the field. Yep, absolutely.

Ross Taylor — ARS — Analyst

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

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yes, that’s exactly the design we’re working on, and for that where they either have a goal or mandate to take their diesel and reduce the emissions of their existing diesel engines and the current battery is a lead acid battery. And we replace that with a lithium-iron phosphate. So, yeah, that’s all part of that program that you read about all manufacturers.

Ross Taylor — ARS — Analyst

Okay. And then many of the major U.S. rails are talking about zero emissions by 2050. It would seem that you can’t get to zero emissions without electric locomotives. And 2050 seems to be coming up on us reasonably quickly from the life of or the build out of locomotives? When do you think you really start to see the industry ramp it by interest, seeing greater activity in the electric as opposed to modifying diesel?

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah. I think if I look at the forecast, and we have weekly calls with Progress Rail’s engineering team and our team, also their business team. I think it’s going to expedite greatly at the end of 2023. If I look at their forecast and their deadlines, right now it’s a new product, people are getting used to understanding lithium and ultracapacitors across the board. But I think at the end of 2022, we’re going to see a large spike in the expediting of the building of these electric trains. Because you’re right, you won’t get to 100% emissions — zero emissions without having a huge part of your fleet is electric vehicles.

Ross Taylor — ARS — Analyst

Yeah, it does. It seems like. So, you really — I think we’re right on the cusp of this. And that obviously would be a major breakthrough for the Company, for Richardson $1 million to $3 million or something depending on the type of locomotive it would be. That’s a pretty substantial. Those — that adds to backlog pretty fast.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah, I mean, the timing could not be better. What’s interesting is the — we’ve been working with ultracapacitor technology and lithium battery technology for over 15 years. So, we kind of have a head start internally and obviously, the Company has been focused on power management and power products for 75 years, if you will. And what we’re finding is, we have a lot of inside information that really applies to these type of rollouts, and everything’s a rollout Phase 1, Phase 2, Phase 3. And, every time we talk to Progress Rail or another owner operator of a wind turbine, they bring another opportunity to us. And we don’t have a lot of standard products. I guess, at the end of the day, the ULTRA3000 is probably the most standard product we have. But our ability to build niche products that solve a customer’s problem is really being well received right now. We picked a high growth market and I think the timing is great for this company and definitely our shareholders.

Ross Taylor — ARS — Analyst

Do these types of products, the ultracapacitors you’re working on with Cat, have application to broader markets like the engines, the diesel engines they use for everything from Class 8 trucks to earthmoving equipment as well?

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah, it can. And it goes up and down. So with the electric locomotives using lithium phosphate iron batteries, on the ULTRA3000 or the wind turbine, they’re actually using ultracapacitors. We have signed technology partnerships with the two largest ulracap manufacturers in the world with LS Materials, is number one for larger cells, and then VINATech is number one for smaller and medium cells. So, we’re seeing all applications literally replacing batteries in the power management application of the product. So, we’re talking to drone manufacturers, lighting, charging stations. And then as these ultracapacitor modules and lithium modules — yes, locomotives, higher power, even this current program as big as it is, is commuter trains. The next step is to build and design a superstructure for freight trains, going across the country, longer distances. And one of the things we’re talking about is as they go across the country, literally stopping at a charging station in Wyoming to get charged up and keep going across the United States, we’re involved in those conversations. And yeah, it’s just going to grow and the opportunities, people replacing every type of battery with an ultracap or a lithium is very, very strong. And all this ties into with the highest and largest market is, is energy storage. And we’re already looking at that energy storing containers that support wind farms and solar farms and other products. It just kind of all goes together, and we just have a unique technology and capability to support these applications as they go forward.

Ross Taylor — ARS — Analyst

So in the idea of electric — first of all, if you keep this up, Ed’s going to have to write a new sequel.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

I would like to do this.

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

Well, the neatest thing is, I think it’s just a unique story. So, as you know, if you’ve read Ed’s book, the Company started with his father selling batteries in the land mobile radios, I believe.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

It was a walkie-talkie talkie.

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

And Progress Rail announced that they have booked an order for three electric locomotives with Chicago Metro. So, the computer commuter train actually stops in the La Fox, Illinois, across the street from our corporate headquarters here. So, 75 years later, that product, that locomotive superstructure will be built here in the La Fox. There’ll be an electric locomotive going through the La Fox station, using lithium-iron [Phonetic] phosphate batteries that were manufactured and designed here at Richardson La Fox, Illinois., it’s been quite a trip, but it’s a kind of a unique story that it’ll have to put in his second.

Ross Taylor — ARS — Analyst

His second book. Now with regard to [Speech Overlap].

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

The 100 year anniversary.

Ross Taylor — ARS — Analyst

Well, I won’t be around to read that.

Gregory Peloquin — Executive Vice President, Power & Microwave Technologies

I will.

Ross Taylor — ARS — Analyst

You will, I won’t. Different jobs. But looking at the idea of energy storage, what you’re talking about is the idea that with a lot of these, like solar and other wind, what we have is a problem of how do you make it available around the clock, 365? So, that’s what you’re talking about is, resting products that do that?

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Yeah, energy storage, today the wind turbine, solar farms and other products, they produce energy and then sell it to the market. Well, to store this energy, the sites are going to need much larger, we’ll call containers that they can store this energy and use it when there’s a hike in need for the energy or the price is better. And we’re in conversations with companies like ABB and Shell Oil to design and build these energy storage systems using both lithium and ultracapacitors. That’s all I can announce today. But yeah, that’s the next level of our green energy program is the ESS market which is absolutely huge. It’s a billion-dollar market, but we’re looking to find niche applications for these energy storage modules, containers going forward. And those will be designed and manufactured here in La Fox, Illinois.

Ross Taylor — ARS — Analyst

That’s — I mean the story just keeps getting better. But I wanted to shift to one area where it’s been a struggle, looking at the healthcare space, you’re talking about the idea of getting to kind of a positive contribution by the fourth quarter of ’24. That’s your fiscal 24?

Wendy Diddell — Executive Vice President and Chief Operating Officer

Yes, that’s correct.

Ross Taylor — ARS — Analyst

Okay. And do you see that as a ramp, a steady move towards — we lost what about $5 million in that business last year?

Wendy Diddell — Executive Vice President and Chief Operating Officer

Yes, closer to $6 million.

Ross Taylor — ARS — Analyst

Closer to $6 million. Okay, I should have ordered these questions. So, the good ones were at the end. [Speech Overlap]. Yeah, but the other stuff is, so bloody amazing. So, now we’re looking at closer to $6 million, which is basically you’re earning this kind of money, losing that kind of money on this business.

Wendy Diddell — Executive Vice President and Chief Operating Officer

Correct.

Ross Taylor — ARS — Analyst

So looking at that, do you see that being a constant kind of a north-northwest constant move in getting rid of the loss? Or are we going to see that loss disappear faster at the end of the period? I mean, that alone probably adds $0.30 plus, to — it can add $0.30 to earnings.

Wendy Diddell — Executive Vice President and Chief Operating Officer

Ross, that is absolutely our goal is to speed up the timeframe in which we at least break even or even start providing operating contribution. The first quarter was good, we made really good progress towards our goal. If we were to analyze the first quarter, the improvement to the bottom line for the Company would be significant. So, yeah, I think it’ll be gradual. I can’t say quarter-over-quarter, every quarter is going to be the same as first quarter, but I will say that we’re on the right track. And when we get to Siemens tubes, then we’re going to start shipping those hopefully in the next quarter or two, starting with the Stratton Z, that puts another tool in the sales people’s bag, it puts another product into production and helps us absorb the fixed costs of the factory, and it’ll improve our margins. So, everything is looking positive. And yes, I do think, we’ll be able to show a steady upward trend. Maybe a little bouncy from time to time, so hang with us, but that’s our goal.

Ross Taylor — ARS — Analyst

So, this really — what you’re talking about as a company here at this point in time, that alone to drive earnings up by 25% or more from where they were last year. And then we’ve got all this other stuff that’s going on, I mean, I know you’re cautious and I know you’re very conservative on how you guide. But it seems that this — we’re really sitting on the launch pad for something that that might be a bad analogy, considering how some rockets have gone off lately. But really just you’re looking at the next two years, three years that’s potentially being years that we shouldn’t — I don’t think my model tells me you could easily double or more earnings over that timeframe.

Robert J. Ben — Executive Vice President, Chief Financial Officer and Corporate Secretary

We’re still seeing about 20% growth, something like that. And we’re projecting about $255 million in revenue for this year. And we’d like to under promise and over perform, but certainly we think not just two or three years, the next five years. If you just look at 20% growth every year for the next five years in healthcare at least breaking even, you can imagine what the bottom line number looks like.

Ross Taylor — ARS — Analyst

Yeah, as I say, it’s beyond powerful. It’s really an exciting story. Okay, I’ve monopolized enough of your time. I’ll let others go, but congratulations and glad to say thank you for the way this is setting up.

Robert J. Ben — Executive Vice President, Chief Financial Officer and Corporate Secretary

Yeah. Well, call us anytime we’re happy to answer your question.

Wendy Diddell — Executive Vice President and Chief Operating Officer

Thanks, Ross.

Ross Taylor — ARS — Analyst

Well, look forward to it. Thanks. Take care, guys.

Operator

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

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

Thanks, Michelle. Well, it’s obvious that we’re very excited about the future and we appreciate your support. We’re very flat organization, so anytime you have any questions, give us a call or if you’re in the Chicago area, come and see us. We’re actually doing what I call a teach-in, is it next week, Wendy?

Wendy Diddell — Executive Vice President and Chief Operating Officer

It’s on Tuesday.

Edward J. Richardson — Chairman of the Board, Chief Executive Officer & President

On Tuesday, where we’re inviting institutions and individual investors to come in for a tour of the factory and a lunch and any of you are invited to come, that’s Tuesday starting 10 o’clock in the morning. So, give us some advance notice so we make sure we’ve got a lunch for you. Anyway, we look forward to discussing many of these new programs as well as our fiscal 2023 second quarter performance with you in January. Thanks very much. Call us anytime.

Operator

[Operator Closing Remarks]

Disclaimer

This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

© COPYRIGHT 2021, AlphaStreet, Inc. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

Most Popular

Broadcom (AVGO) seems a good buy ahead of VMware deal. Here’s why

The performance of Broadcom, Inc. (NASDAQ: AVGO) has been impressive in the last few years -- a period of high uncertainty -- as the successful business model helped it remain

Delta Air Lines (DAL): A look at the airline’s expectations for the near term

Shares of Delta Air Lines Inc. (NYSE: DAL) were down 2% on Monday. The stock has dropped 12% year-to-date. The company delivered double-digit revenue growth for its most recent quarter

Why it’s a good idea to keep an eye on Autodesk (ADSK) stock

Autodesk, Inc. (NASDAQ: ADSK) is a market leader in computer-assisted design software, catering mainly to the architecture, engineering, construction, and manufacturing sectors with its mission-critical solutions. The company, which is

Add Comment
Loading...
Cancel
Viewing Highlight
Loading...
Highlight
Close
Top