RICHARDSON ELECTRONICS LTD

Previous wording

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

Current wording

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

Results of Operations – an analysis and comparison of our consolidated results of operations for the three month periods ended August 31, 2024, and September 2, 2023, as reflected in our unaudited consolidated statements of comprehensive income.

Current wording

Results of Operations – an analysis and comparison of our consolidated results of operations for the three month and six month periods ended November 30, 2024 and December 2, 2023, as reflected in our unaudited consolidated statements of comprehensive (loss) income.

Previous wording

Liquidity, Financial Position and Capital Resources – a discussion of our primary sources and uses of cash for the three month periods ended August 31, 2024 and September 2, 2023, and a discussion of changes in our financial position.

Current wording

Liquidity, Financial Position and Capital Resources – a discussion of our primary sources and uses of cash for the six month periods ended November 30, 2024 and December 2, 2023, and a discussion of changes in our financial position.

Previous wording

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.

Current wording

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. Approximately 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.

Previous wording

Net sales during the first quarter of fiscal 2025 were $53.7 million, an increase of 2.2%, compared to net sales of $52.6 million during the first quarter of fiscal 2024.

Current wording

Net sales during the second quarter of fiscal 2025 were $49.5 million, an increase of 12.1%, compared to net sales of $44.1 million during the second quarter of fiscal 2024.

Previous wording

The first quarter of fiscal 2025 contained 13 weeks and the first quarter of fiscal 2024 contained 14 weeks.

Current wording

The first six months of fiscal 2025 contained 26 weeks and the first six months of fiscal 2024 contained 27 weeks.

Previous wording

Net sales by segment and percent change during the first quarter of fiscal 2025 and fiscal 2024 were as follows (in thousands):

Current wording

Net sales by segment and percentage change during the second quarter and first six months of fiscal 2025 and fiscal 2024 were as follows (in thousands):

Previous wording

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.

Current wording

During the second quarter of fiscal 2025, consolidated net sales increased 12.1% compared to the second quarter of fiscal 2024. Sales for PMT increased 9.9%, sales for GES increased 129.0%, sales for Canvys decreased 6.0% and sales for Healthcare decreased 22.8%. The increase in PMT was mainly due to increased sales of electron devices, RF and Microwave components and engineered solutions for the semiconductor wafer fabrication market. The increase in GES was mainly due to increased shipments of power management products focused on green energy applications. The decrease in Canvys was attributable to lower sales in the European markets. The decrease in Healthcare reflected lower sales in all product lines.

Previous wording

Gross profit by segment and percent of net sales for the first quarter of fiscal 2025 and fiscal 2024 were as follows (in thousands):

Current wording

Gross profit by segment and percentage of net sales for the second quarter and first six months of fiscal 2025 and fiscal 2024 were as follows (in thousands):

Previous wording

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.

Current wording

Consolidated gross profit increased to $15.4 million during the second quarter of fiscal 2025 compared to $12.5 million during the second quarter of fiscal 2024. Consolidated gross margin as a percentage of net sales during the second quarter of fiscal 2025 increased to 31.0% when compared to 28.4% during the second quarter of fiscal 2024. This increase was mainly due to the product mix in PMT, product mix in GES and improved manufacturing absorption in Healthcare with a partial offset from the higher freight costs in Canvys.

Previous wording

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.

Current wording

PMT net sales increased 2.3% to $68.6 million during the first six months of fiscal 2025 from $67.0 million during the first six months of fiscal 2024. The increase was due to increased sales of RF and Microwave components and engineered solutions for the semiconductor wafer fabrication market. Gross margin as a percentage of net sales decreased to 30.1% during the first six months of fiscal 2025 as compared to 30.5% during the first six months of fiscal 2024 due to product mix and manufacturing under absorption.

Previous wording

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.

Current wording

GES net sales increased 129.0% to $6.0 million during the second quarter of fiscal 2025 from $2.6 million during the second 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 numerous green energy applications. Gross margin as a percentage of net sales increased to 32.0% during the second quarter of fiscal 2025 as compared to 29.2% during the second quarter of fiscal 2024 due to product mix.

Previous wording

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.

Current wording

Canvys net sales decreased 15.7% to $14.5 million during the first six months of fiscal 2025 from $17.2 million during the first six months of fiscal 2024, due to lower sales in both the North American and European markets. Gross margin as a percentage of net sales decreased to 33.1% during the first six months of fiscal 2025 from 33.8% during the first six months of fiscal 2024 primarily due to increased freight costs.

Previous wording

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.

Current wording

Healthcare net sales decreased 22.8% to $2.3 million during the second quarter of fiscal 2025 from $2.9 million during the second quarter of fiscal 2024 due to decreases in all Healthcare product lines. Gross margin as a percentage of net sales increased to 35.7% during the second quarter of fiscal 2025 as compared to 14.8% during the second quarter of fiscal 2024 primarily due to improved manufacturing absorption.

Previous wording

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.

Current wording

Selling, general and administrative expenses (“SG&A”) increased to $16.0 million for the second quarter of fiscal 2025 when compared to $14.5 million for the year ago quarter. This increase of $1.5 million or 10.4% from the second quarter of fiscal 2024 mainly reflected higher incentives due to sales growth. Expressed as a percentage of net sales, SG&A was 32.3% for the second quarter of fiscal 2025 compared to 32.8% in the second quarter of fiscal 2024.

Previous wording

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.

Current wording

Other income and expense includes interest income, foreign exchange gains and foreign exchange losses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Previous wording

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.

Current wording

We recorded an income tax benefit of $0.2 million and $0.1 million for the first six months of fiscal 2025 and the first six months of fiscal 2024, respectively. The effective income tax rate during the first six months of fiscal 2025 was a tax benefit of 60.4% as compared to a tax benefit of 16.5% during the first six months of fiscal 2024. The difference in rate during the first six months of fiscal 2025 as compared to the first six months of fiscal 2024 reflects changes in the geographical distribution of income (loss), which is primarily driven by an increase in U.S. earnings for fiscal 2025 and the state income tax provision, as well as the impact of U.S. research and development credits. The 60.4% effective income tax rate differs from the federal statutory rate of 21% as a result of the geographical distribution of income (loss), as well as the utilization of the U.S. research and development credit.

Previous wording

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.

Current wording

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 Netherlands, years prior to fiscal 2020 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.

Previous wording

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.

Current wording

The Company recorded $0.3 million for uncertain tax positions as of November 30, 2024 as compared to $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 (Loss) 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 November 30, 2024.

Previous wording

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.

Current wording

Net loss during the first six months of fiscal 2025 was $0.2 million, or $0.01 per diluted common share and $0.01 per Class B diluted common share as compared to a net loss of $0.6 million during the first six months of fiscal 2024 or $0.04 per diluted common share and $0.04 per Class B diluted common share.

Previous wording

Our operations and cash needs have been primarily financed through income from operations and cash on hand.

Current wording

Our operations and cash needs have been primarily financed through operations and cash on hand.

Previous wording

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.

Current wording

Cash and cash equivalents were $26.6 million at November 30, 2024. Cash and cash equivalents by geographic area at November 30, 2024 consisted of $8.5 million in North America, $8.9 million in Europe, $1.2 million in Latin America and $8.0 million in Asia/Pacific. No cash was repatriated to the United States in the first six months 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.

Previous wording

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.

Current wording

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. There was no utilization of the credit line during the second quarter of fiscal 2025. As of the end of the second quarter for fiscal 2025 and the date of this report, no amounts were outstanding under the Revolving Credit Facility.

Previous wording

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.

Current wording

Cash flows from operating activities are primarily a result of our net income (loss) adjusted for non-cash items and changes in our operating assets and liabilities.

Previous wording

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.

Current wording

Operating activities generated $5.9 million of cash during the first six months of fiscal 2025. We had a net loss of $0.2 million during the first six months of fiscal 2025, which included non-cash stock-based compensation expense of $0.9 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.2 million, unrealized foreign exchange gain of $0.2 million and depreciation and amortization expense of $2.1 million associated with our property, plant and equipment and intangible assets. Changes in our operating assets and liabilities generated $3.2 million in cash during the first six months of fiscal 2025, net of foreign currency exchange gains and losses, included an increase in accounts payable and accrued liabilities of $5.2 million, an increase accounts receivable of $1.1 million and an increase in inventories of $1.7 million. The increase in accounts receivable was primarily due to the higher level of sales. The changes in accounts payable and accrued liabilities were timing related.

Previous wording

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.

Current wording

Operating activities generated $1.8 million of cash during the first six months of fiscal 2024. We had a net loss of $0.6 million during the first six months of fiscal 2024, which included non-cash stock-based compensation expense of $0.8 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.3 million and depreciation and amortization expense of $2.1 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $0.9 million in cash during the first six months of fiscal 2024, net of foreign currency exchange gains and losses included an increase in inventory of $6.2 million, a decrease in accounts payable of $1.1 million and an increase in prepayments of $0.2 million. Partially offsetting the cash utilization was a decrease in receivables of $6.3 million and an increase in accrued liabilities of $0.4 million. The decrease in accounts receivable was primarily due to the lower level of sales across our operating segments in the current quarter. Most of the inventory increase supported the products for electron tubes and GES. The changes in accounts payable and accrued liabilities were timing related.

Previous wording

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").

Current wording

Cash used in investing activities of $1.4 million during the first six 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").

Previous wording

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").

Current wording

Cash used in investing activities of $2.7 million during the first six months of fiscal 2024 was due to capital expenditures. Capital expenditures were primarily related to our IT system and the LaFox manufacturing and facilities renovation. LaFox manufacturing primarily supports the Electron Device Group ("EDG") and Green Energy Solutions ("GES").

Previous wording

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.

Current wording

Cash used in financing activities of $1.6 million during the first six months of fiscal 2025 primarily resulted from $1.7 million of dividend payments to stockholders partially offset by $0.3 million of proceeds from the issuance of stock.

Previous wording

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.

Current wording

Cash used by financing activities of $1.5 million during the first six months of fiscal 2024 primarily resulted from $1.7 million of dividend payments to stockholders partially offset by $0.3 million of proceeds from the issuance of stock.