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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and thank you for standing by. Welcome to Richardson Electronics Earnings Conference Call for the First Quarter of Fiscal Year 2024. [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, Mr. Edward Richardson, President and Chief Executive Officer. Please go ahead. [Operator Instructions]
Good morning, and welcome to Richardson Electronics Conference Call for the First Quarter of Fiscal Year 2024. 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 Solution. 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'll be making forward-looking statements that 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. Financial results for the first quarter of fiscal year 2024 were below our expectations due to concerns regarding economic conditions, rising interest rates, a lagging China economy and the possibility of a recession across our global customer base. It was especially challenging period given the downturn in the semiconductor wafer fab market and the timing of new orders in our Green Energy Solutions business. While sales were lower than anticipated, our gross margin improved from Q4 fiscal 2023. And the team did an excellent job managing cost. Our core EDG and display businesses were in line with the prior year and the company remained profitable in the quarter. Despite near-term challenges, we've never been more optimistic about our future. We expect the future downturn in the market demand to improve in the coming quarters, and we remitted and committed to our long-term strategy. Our strategy growth plan is focused on expanding our product lines, leveraging the deep relationships we have with over 20,000 customers globally. We do this by listening to our customers and helping them solve problems. We're quickly building a name for ourselves as the technology leader in green energy solutions. In addition, we continue to hear from key customers and technology partners in the semi fab equipment market that they're at the bottom of the semi cycle. These companies anticipate growth in calendar year 2024 that exceeds sales levels during the 2022 cycle. We're taking steps in the interim to address the slowdown without impacting growth in these critical areas. We remain focused on increasing the percentage of our sales that come from our green energy solutions business as well as other products we manufacture. Much of this new business is project-based and timing is not always easy to predict. The success of these strategies, however, supported by our sales growth improved efficiency and higher profitability over the past several years.
Our balance sheet remains strong with $25 million in cash and no debt. Throughout the company, everyone is focused on turning our inventory into cash, managing expenses and driving toward annual positive operating cash flow next fiscal year. Bob Ben, our Chief Financial Officer, will review our first quarter financial performance. Then Greg, Wendy and Jens will discuss numerous opportunities within our business units including the significant number of new products, programs and customers that drive our optimism for the future.
Thank you, Ed, and good morning. I will review our financial results for our first quarter of fiscal year 2024, followed by a review of our cash position. Net sales for the first quarter of fiscal 2024 were down 22.2% to $52.6 million. Compared to net sales of $67.6 million in the prior year's first quarter. PMT sales decreased by $9.6 million or 21.2% from last year's first quarter, driven primarily by a decline in manufactured products for our semiconductor wafer fabrication equipment customers. Net sales for GES were down by $4.1 million or 48.4% from last year's first quarter. Primarily due to lower sales of ultracapacitor modules for wind turbines. It is important to note that the replacement of lead acid batteries in existing wind turbines is often project-based and the timing of orders is difficult to predict. Canvys sales decreased by $0.5 million or 5.0% primarily due to lower customer demand in North America. Richardson Healthcare sales decreased by $0.7 million or 22.1%, primarily due to lower demand in the quarter for parts and equipment. Total company backlog was $148.1 million at the end of the first quarter of fiscal 2024 versus $160.4 million at the end of the fourth quarter of fiscal 2023. Gross margin for the first quarter was 32.8% of net sales compared to 34.1% in last year's first quarter. PMT's gross margin decreased to 32.2% from 34.3%, primarily due to product mix and manufacturing under absorption. Healthcare's gross margin decreased to 31.6% in the first quarter of fiscal 2024 compared to 36.7% in the prior year's first quarter as a result of increased scrap expense and manufacturing under absorption. GES gross margin increased in the first quarter of fiscal 2024 to 36.0%. From 35.5% in the prior year's first quarter due to product mix. Canvys gross margin increased in the first quarter of fiscal 2024 to 34.0% from 31.4% in the prior year's first quarter because of product mix and lower freight costs.
Operating expenses were $15.8 million for the first quarter of fiscal 2024 compared to $14.2 million in the first quarter of fiscal 2023. The increase in operating expenses resulted from higher employee compensation expenses, primarily salaries. The company reported operating income of $1.5 million or 2.8% of net sales for the first quarter of fiscal 2024 versus operating income of $8.8 million or 13.0% of net sales in the first quarter of last year.
Other income for the first quarter of fiscal 2024 including interest income and foreign exchange was $0.1 million compared to other expense of $0.3 million in the first quarter of fiscal 2023. Income tax provision was $0.4 million or 23.7% effective tax rate versus an income tax provision of $2.1 million or a 25.0% effective tax rate for the first quarter of fiscal 2023. Net income for the first quarter of fiscal 2024 was $1.2 million compared to net income of $6.3 million in the first quarter of fiscal 2023.
Earnings per common share diluted were $0.09 compared to earnings per common share diluted of $0.45 in the first quarter of fiscal 2023. Moving to a review of our cash position. Cash and investments at the end of the first quarter of fiscal 2024 were $24.1 million compared to $25.0 million at the end of the fourth quarter of fiscal 2023. U.S. cash and investments were $8.4 million at the end of the first quarter of fiscal 2024 versus $7.6 million at the end of the fourth quarter of fiscal 2023. Capital expenditures were $1.1 million in the first quarter of fiscal 2024 versus $1.4 million in the first quarter of fiscal year 2023. Approximately $0.9 million related to investments in manufacturing including facility expansion and the renovation of our office space. We paid $0.8 million in cash dividends in the first quarter of fiscal year 2024. 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 2024. As of the end of the first quarter of fiscal 2024, the company had not made any draws on its $30 million revolving line of credit with PNC Bank. Now I will turn the call over to Greg, who will discuss the results for our PMT and GES business groups.
Thank you, Bob, and good morning, everyone. In Q1 FY '24, Power & Microwave Technologies or PMT and Green Energy Solutions or GES, continued to gain market share by developing new products and new customer relationships while maintaining our market share with our existing customers. However, we did see a slowdown in revenue coming out of a record year in FY '23, which was mainly due to the semiconductor wafer fab industry slowdown and timing of a number of very large project-based GES opportunities. PMT sales were down year-over-year by 21% primarily based on the semiconductor industry slowdown which started late in calendar year 2022. Again, it is very important to note that we have not lost any market share in this business segment. And through excellent customer relationships and communication, we are hearing that sales will reaccelerate in the back half of calendar year 2024. And that 2025 is anticipated to show record demand and sales. We are well positioned to manage this business as the customer demand increases. GES sales were $4.4 million in the quarter, down $4.1 million from the prior year due to timing on several major project-based opportunities. During the quarter, we added several new customers and increased our market share with customers needing our niche patented Green Energy products. We have many highlights in Q1 for our GES group, beginning with the wind and energy market. During the quarter, we added over $1 million in bookings with several new customers for our flagship ULTRA3000 product, increasing our backlog in this product line to over 12,000 units. All of our existing wind customers are significantly expanding their budgets for lead acid battery replacement within the GE turbines over the next couple of years. The market potential for the ULTRA3000 remains at more than $150 million. The product is reliable and we are doing great success and continued relationships with our Tier 1 owner operators. GE Marketplace, which targets more than 800 wind farm management companies has also started to produce orders as we work directly with GE farm owner operators, site managers and technicians. With over 41,000 units in the field, 3 patents and exclusive relationships with the largest owner operators in North America, we continue to be very excited about this product, technology and opportunities. Our beta testing of our patent-pending Ultra-UPS-3000 with Siemens and other owner operators of GE and Siemens Wind turbines is underway and going well. The Ultra UPS 3000 replaces lead acid batteries in the uninterrupted power supply or UPS that sits at the base of every wind turbine. We are moving forward to testing on other wind turbine platforms such as Senvion, Suzlon and Nordex. Once we begin production, we anticipate expanding to other markets and applications as this product works anywhere a UPS is used.
Our ULTRAPEM or multi-brand pitch energy module is in beta testing with Suzlon on an OEM basis. This opportunity is for more than 7,000 turbines in India alone and several thousand more in North America. This product is also in final testing with a number of owner-operators in Latin America and North America, which have an SSB pitch system. In the EV and diesel locomotive segment of Green Energy Solutions, due to supply chain issues, our superstructure builds for [indiscernible] and Burlington Northern electric locomotives will be completed in late Q3 and Q4 of this fiscal year. We have received beta orders for our patented Ultra Gen 3000 starter module with 2 large diesel and EV locomotive manufacturers.
We will be doing the beta testing in 25 trains in Q3 FY '24. It is important to note that we are exclusive with both of these customers. We continue to identify other niche applications in this patented technology. We are in beta testing with several refrigeration truck manufacturers where the ULTRAGEN is replacing lead acid batteries. There are currently 500,000 refrigeration trucks in North America and we estimate this market opportunity to be have a TAM of $200 million.
There are numerous other markets that this product will be applicable to such as construction equipment, including excavators, loaders and backhoes. After a record Q4 and record FY '23, shipments slowed in Q1 and we expect this trend to continue in Q2. With bookings and new products along with the forecast and backlog from our project-based customers, we feel that Q3 and Q4 will be extremely strong for Green Energy Solutions. We have not lost any market share and we continue to increase our market share with new products, applications and customers. Now turning to PMT, which includes EDG, our legacy tube business and PMG, our Power and microcomponents Group, sales decreased 21%. Sales were $35.7 million versus $45.3 million in Q1 last fiscal year. This decline was due to the major slowdown in the semiconductor wafer fabrication equipment business. The decline was somewhat offset by growth in our laser and broadcast tube business, which remains steady. We also saw strong bookings in our RF business. The team has been supporting the semiconductor wafer fabrication business and its customers for well over 25 years. This business has always been cyclical.
We anticipated the slowdown in 2023, but again, expect the business recovered in the second half of calendar 2024. Our engineered solutions strategy is driven by our global technology partners such as Qorvo, MACOM, Nokia Wave, LS Materials, AMOGREENTECH, Navitas and Fuji Electric. Key tube manufacturers and partners include CPI, Thales, Nisshinbo Micro Devices and Photonis. Each of our global partners helps us meet and manage customer requirements.
Our team has done an excellent job identifying and cultivating these relationships. We will continue to add technology partners who fill technology gaps in our offering and support our growth. Often, though, through these partners, we identify opportunities for new products and we design to manufacture in-house, increasing the value we provide customers and allowing us to capture more revenue and increase our customer base. These long-term relationships are extremely strong and we work with them on strategic long-term purchases to keep our customers source supply continually in motion. We negotiate special payment terms and shipping schedules to help improve cash flow.
In addition, having inventory on hand allows us to capture and maintain market share. We also continue to invest in our infrastructure to support our growth. We are bringing on talented design and field engineers and making investments to enhance our manufacturing capabilities. Our growing in-house design engineering and manufacturing teams are doing a great job supporting the increased demand for current products and new product designs. I'm pleased with the progress and with this team, we will continue to identify, develop and introduce new products and technologies for green energy and other power management and microwave applications. Our growth strategy has been proven to be highly successful over the years, and we'll continue to develop new products as well as increase our customer base, revenue and profits by capitalizing on existing demand creation infrastructure. Our belief in the future based on our customer forecast requires us to strategically invest in inventory that positioned us to fill the pipeline and ensure we can meet our customers' needs through close collaboration with both our customers and the suppliers themselves. I cannot stress enough the value of rich electronics model to our customers and suppliers.
Our unparalleled capability and global go-to-market strategy are unique to the power and energy, RF and microwave and green markets. We have developed a strong business model including legacy products and new technology partners that fit well with our engineered solutions capabilities. Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities as they arise. The execution of our strategy has never been better. There is no question our customers and technology partners need Richardson's products and support more than ever. We remain excited about the future as we find opportunities and build our market share for PMT and GES with new products and customers. Our team will continue to work closely with our customers throughout the beta testing phase for the exciting patented products. And with that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare.
Thanks, Greg. Good morning, everyone. First quarter sales for the Healthcare division were $2.6 million, down 22.1% versus the first quarter of last year. Sales were down in all product categories, reflecting lower demand for parts and services throughout the most recent summer months. In the quarter, we sold all of our repaired Siemens Straton Z Tubes, helping improve our gross margin to 31.6%. While this was lower than the prior year's first quarter, this is a significant improvement from the fourth quarter margin of 23.7%.
On a year-over-year basis, gross margin was negatively impacted by higher scrap costs in the quarter. We continue to make good progress on the Siemens repaired tube program. This is a series of 4 tube types, including the Straton Z, MX, MXP and MXP46. The Siemens CT installed base is considerably larger than the installed base for our ALTA tubes, and there are no third-party replacement options for these tube types. The repaired Straton Z is in full production and performing well in the field.
We expect sales to rise gradually in the coming quarters as we expand our production team in the repair process and add more tubes to inventory on a consistent basis. We also continue to make good progress on the repaired Siemens MX series. We know demand is strong based on discussions with our customers. While we anticipate launching the first repaired MX series tube around the end of the calendar year, supply will be limited due to recent challenges we are experiencing replacing a critical component. It is important that we get it right, and we believe we are on track to do so. This will delay having sufficient inventory to meet customer demand until FY '25.
While our engineers work on the Siemens repaired tube program, we continue to work our way through the local registration process for reloading tubes in Brazil. We still anticipate this program may have a small yet positive impact on our revenue in FY '24. We remain cautiously optimistic that the ongoing development efforts within the health care business will enable the division to achieve its goal of breaking even in the fourth quarter of this fiscal year. I will now turn the call over to Jens Ruppert to discuss the results for Canvys.
Thanks, Wendy, and good morning, everyone. Canvys, engineers, manufactures and sell custom displays to return equipment manufacturers in industrial and medical markets throughout the world. Canvys performance remains strong with sales of $9.9 million for the first quarter of fiscal 2024. Down slightly from $10.4 million during the first quarter last year and up from $9.2 million in the fourth quarter. First quarter sales reflected stable customer demand globally, and we finished the quarter with a backlog of $42.6 million, which remains strong. Gross margin as a percentage of net sales was 34.0% during the first quarter of fiscal 2024 compared to 31.4% during the first quarter of fiscal 2023.
The increase in gross margin was primarily related to a more favorable product mix. During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include ophthalmology, laboratory equipment, video documentation systems, robotic-assisted surgery and surgical navigation. In the nonmedical space, our products are used in a variety of commercial and industrial applications. This includes large-sized industrial printers, displays used in the public transportation space, human machine interfaces for packaging machines and industrial automation, tailor prompting, talent monitors and clocks used in the broadcast market. Over the near term, we expect increasing interest rates and continued high inventory levels will have a short-term impact on our business. Customers are forecasting more conservatively and only placing orders when the inventory is at a minimum level. We haven't lost a program, but we expect sales to vary quarter-to-quarter depending on our customers' inventory levels. Given the number of projects currently in the engineering stage, we believe sales will reaccelerate towards the end of this fiscal year. We are proud of the efforts and innovations of our talented engineering team and the ability to design products that help create productivity and value for our customers. During the quarter, we further advanced our high-end 4K display offering by adding a special film to the LCDs to ensure a super low refraction. The monitors have been evaluated by large medical companies with very positive feedback. From the variety of customers and applications as well as the value of orders from existing and new customers, it is clear of our global customers outstanding products and localized service. While our sales organization stays focused on new opportunities, as they focus on improving the operating performance of the division. Maximizing cash flow and improving Canvys profitability is an ongoing priority as we continue to work closely with our partners to meet the demands of our customers. I will now turn the call back over to Ed.
Thanks, Jens. We understand the near-term challenges you face, but we remain confident that Canvys will continue to grow given the stronger relationships and recognition as a leading custom display solutions provider. To conclude, we're excited about the direction we're headed. We remain committed to our employees, our customers, our suppliers and our shareholders. We're investing in our growth initiatives with an emphasis on engineered solutions that improve sustainability. We're a GES business just getting started. The products we manufacture are used in aftermarket applications and we have solutions that improve operating efficiencies and help companies achieve their green energy goals. Much of our legacy business including EDG is reoccurring revenue for consumable products. Within the launch of the Siemens repair 2 program, we anticipate improvement in our health care business, helping strengthen our bottom line. We'll protect our cash and focus on improving inventory turns. Finally, we're confident that we'll emerge from the challenging period stronger and better positioned to grow in sales and profitability later in the year. We continue to believe it's not a matter of if but win. At this time, we'll be happy to answer your questions.
[Operator Instructions] And our first question comes from Anja Sonderstrom from Sidoti.
So first, I'm curious for the GES as it came in quick softer than I had anticipated. Can you just talk about the timing there? Was this something that was just shifted into the second quarter? Or is it just these larger projects that you are seeing longer sales cycles or -- how should we think about the second quarter for GES?
Yes. It was a combination of 2 things. First of all, the Phase I orders that people in terms of setting their capital budgets, how many farms and how many turbines they were going to start to implement taking out the lead acid batteries with our ULTRA3000. That phase was expedited. The team did an absolutely fantastic job getting the product to the customer in our fiscal year and then the dates they needed it. That was completed. They're installing them over the next couple of quarters. And according to each one of them and we are tied in with every major owner operator GE wind turbines in North America. The Phase II will start early 2024. So in essence, the first quarter of calendar 2024, we'll start seeing the bookings for Phase II. And right now, it looks like, for example, our backlog today is about the size of our sales last year. So we're looking to grow in this fiscal year. The exact timing of how much will ship in Q3 and Q4. This project-based business is very hard to do that, but inputs from the customers is that will kind of be the progress going forward.
So the second quarter is -- could expect it to be at the same level as the first quarter sort of?
It will be very close to the first quarter shipments.
Okay. And then on the flip side the PMT was stronger and we saw growth sequentially. What's driving that? And how is that continuing to the second quarter?
Yes. Both the tube business and then the RF and wireless component business did good. The RF and wireless component business received a lot of strong bookings in Q3 and Q4 of last fiscal year. And so we had very strong shipments and their backlog grew, and they grew year-over-year in Q1. On the tube side, we have real strong growth in our laser tube market. And also, we had a large business with some replacement business [indiscernible]. So that's just a very consistent business. It goes up and down 5% or 6%. But with the recession coming on and this being replacement business, it's not 100% recession-proof, but it's because it's repair business, we seem to have consistent numbers throughout the year. So we'll probably see the same type of growth that we saw in Q1 and now in Q2 throughout the year.
Okay. And then inventory seems to be managing that well for the quarter -- what's included in that inventory? And how are you going to need to start building that in anticipation of these large orders that you expect in the second half?
Yes. There was 2 main increases in the inventory, very strategic purchases, one, with some long-term lifetime buy orders to support our customers on product that's being discontinued over the next couple of years to make sure our customers we've had for 20, 30 years have a source of supply. And the other part of it was 4 months ago, we had 0 inventory on the ULTRA3000 and many of the GES products. So we're trying to build up inventory where we have a quarter's -- a minimum of a quarter's worth of inventory. Because just like it's hard to predict these project-based orders. When they come in, typical customer, they want them in the next month or the next week. So we went through 2 years of daily calls on the supply chain issues and we can't let our customers down, and we did an amazing job as you saw with the numbers from FY '23 supporting their Phase I builds, both in the locomotive and the wind turbine business.
[Operator Instructions] Our next question comes from the line of P. Ross Taylor with ARS Investment Partners.
I very rarely get the full name. A couple of things. First, revenues were down about $10 million in the semi-cap equipment space, that carries probably about your best margins in your firm. So would it be safe to assume that on an operating profit basis that probably hit you guys buy something in the neighborhood of around $5 million?
On the operating profit.
That's probably a fair assumption. It might be a little less than that, but that's about correct?
Okay. Do you have any ability to reduce the other costs associated below the operating profit line when you see a drop like that?
So Ross, it's Wendy. We had a few layoffs and we were able to take some cost out there. We had some people voluntarily take furloughs, we were able to take some cost out there. Our plan is considerably higher than where the sales actually came in. So we had savings in the incentive area we certainly hold off on adding any noncritical adds to staff. And in general, we look at things like travel and we cut back on that marketing can we cut back on that. But we're not -- you're not going to see a $5 million reduction in SG&A.
Okay. So it's safe to say that probably cost on an operating basis, $0.35, $0.40 a share. You're being told to look for fiscal '25, that would be at record levels better than you saw last year. Is that true?
So what we're anticipating is that the business will start improving again in the back half of calendar year 2024. And the calendar year 2025, they're anticipating that will be a record year.
Yes. Okay. Calendar 2025, that's even better. Calendar. Right. Okay. So looking at that set up, is there any reason to believe that you should not be able to sustain or even improve profitability as you move back to record levels of revenue in that space?
We absolutely can achieve that.
In addition to that. There's a number of large programs out there on the GES side that would compensate for any continued come back with that market. So -- there's lot of things in the pipeline that we really think will be added to that, that will get us back to these record profits we saw in the last year or so.
Okay. And let's move on to the GES base in Suzlon. They have, what, 7,000 towers each time?
We currently have about 9,000 total turbines. We have a biweekly call with the group in India. The first Phase I will be 7,000 turbines, and those are all in India, actually. And we're all set up to do that beta testing the third week in October, so end of next week or week after, I guess, and we've tested the product in a Suzlon turbine here in the states with one of our owner-operated partners and it has worked very, very well.
So we're really excited about that program, getting an OEM and working with them. And in addition to that, they also own a number of GE sites, which obviously, the ULTRA3000 was designed for. So we look at that program to be very strong going forward, absolutely.
Okay. So when we look at the demand for your ultra capacitors on the GE side, it's 1 for 1, right? So that's -- if there are 18 batteries, that's 18 ultracapacitors. On the Suzlon from my understanding of the technology, it's like a 1 for 3. So if there's 9,000 towers, that would mean you need something each tower having 18 or the equivalent of say 18, you'd end up needing something then in the neighborhood of 50,000 modules or something like that total. The 7,000 in India alone would be like 42,000 modules that you'd be looking at putting that. Is that about right?
That's close. The Suzlon module is based on the ULTRA3000 technology, but it is a redesigned specific for Suzlon, and there's 6 modules in every Suzlon turbine versus 18 modules in every GE turbine. However, this product is a little more expensive than the ULTRA3000. So it'd be 6x 7,000, which is what you came up with about 42,000 of these.
And so we're looking at that project, that opportunity alone is probably something in neighbor of $34 million, $40-something million in revenues and operating profits, something like $14 million to $18 million out of that project alone.
Yes.
Okay. How long would it take you to fulfill an order for 42,000 ultracapacitors?
Well, with the new manufacturing area, it's just about resources. We get the people. Right now, we can produce probably 5,000 to 6,000 a month. So it wouldn't take that long.
So you could easily fulfill that inside a year. And if you ramp up, you could fulfill it inside 6 months or less type of situation?
Oh, absolutely. And Unique about the large order we received when we started this program, they picked sites and they did a complete repower, meaning they took all the lead acid batteries out and put these in. Some of these other owner operators, it's -- when they have a bet, that's one unique things about our product from the competition is that you can put it in a turbine and keep -- if you want to put 2 in, you can keep the other 16 batteries in the turbine until the warranty runs out or the batteries fail. So they replace them as the batteries fail versus just doing a sweep of every site. So that's just a timing thing. But great business and a great program, great product.
Okay. And the technology with Siemens is a little different is it not you're saying it's like it's one at the base, but it's probably a much bigger, more powerful one than -- what we're seeing is the economics might not be the same as x18 for GE or maybe x6 for Suzlon, but I would assume that's a pretty valuable unit at the base of each Siemens tower.
Yes. So the UPS tech product is a different technology than the ULTRA3000. The ULTRA3000 is a pitch energy module, the UPS is a power -- under power supply. So there's only 1 per turbine, but it's 5x the amount of ULTRA3000. So that's the Siemens design we're working on right now. It's for the UPS, not the ULTRA3000.
And that's a similar margin.
Yes.
Okay. So it looks -- I mean that's really setting up. We've got a market here that seems to be focused on looking at its speed and concerned about what's going on, which leads to my next area, and I know I'm always supposed to ask 2 questions. But Ed and Wendy know me so they know that I'm not going to only ask 2 questions.
That's okay.
So one of the things I'm looking at is at this point in time, this company is actually selling at net-net working capital. The markets are signing a 0 value to the business. It's literally saying that Richardson has worth nothing other than what you can liquidate its current assets for. When I look at that, that tells me that there's something really just kind of wrong with the thinking. And you've done an amazing job of changing this company. I mean this company going back a number of years was highly cyclical and really focused into one primary area and you've diversified it, and I think your dad would be really proud of what you've done with it.
And to be honest, what I'm hearing on this call, I think in 2 years, your dad is going to be -- would be beyond satisfied with you have. I think you'd be enthusiastic because I'm hearing you guys talk about the -- you put these pieces together. We're looking at a return to not just the level of earnings you had last year, but earnings that can be meaningfully higher than that.
Meaning, when I model it out, I get $1.82 a share in fiscal '25 for you. And I think that the inability of the market to appreciate that is problematic. But I also want to say that I think that there are some things that we can do with that. One is in the past, you've indicated that your banking accord doesn't allow you to buy back stock. When you're selling it net-net working capital and not talk to the banks -- one of the guys I go with is Vice Chairman of one of the world's 4 or 5 biggest financial institutions. They don't bank down at this level, but he tells me it's absolutely asinine you can't buy back stock in your bank accord given your balance sheet. And I think that I for one would argue, we need to get a bank accord that reflects what RELL is today and where it is going, which is it's going to go parabolic.
It's going to be a massive free cash flow generator. There is no risk to a bank in lending you money. So it's time that we start to get banks that respect us and give us that type of opportunity. So that's my Ross Taylor [indiscernible] comment at the moment on your banking situation. I do think that if you do that, we're looking at a debt stock that's down a lot this year. You have 5-plus million, you have 100 acres plus an unused land. That's a 0 asset right now, really it's being -- it's being formed at this point?
Correct. .
When you get on leasing out that acreage to be found?
We get about $340 an acre. We sold 55 -- we've sold 225 acres with $55,000 an acres. So it will tell you pretty much what the value is.
Right. So right now, you're getting about $34,000 a year on that land.
That's true. Yes. We think that ultimately that the electric locomotives with Progress Rail and Wabtec are going to be a huge business, and we want to keep space that we can expand backwards we're on 25 acres in the front of the 120-acre property, and we want to keep space to be able to expand.
So if you sold off 50 acres, and you've got the $55,000 you did before, and you turn that into -- you bought 10-year treasuries. You'd literally increase the income off of that land by a factor of 4 or 5 -- and so I'd suggest -- and you could use -- I mean that's in this environment, and that still leaves you a lot of land to expand leads you 50 acres to expand into. But it does strike me as in some ways, you're on the cusp of something major here. The market isn't smart enough to figure it out. There's a reason why, my career is based on the stupidity of the market. I'd like to tell my daughter -- I tell my daughter to right [indiscernible] is stupid. So we look at that in if we could do something that's in the way of monetizing some of that asset, there's a lot of good things we can do use just make more money. That's $0.01 plus a share pretax.
At the same time, you could use that, maybe if your bankers would wake up, they might let you use some of that to retire stock and the touch auction or something and take the selling pressure off in the end of the year because people are looking at their feet, not at the opportunity. So I think that's something we need to look at because there is 0 reason why the stock should trade at net-net working capital.
Your business is worth easily a low-teens multiple on the earnings power of this business. And the net-net working capital should be an add-in. I don't have anything in my universe that's trading at net-net working capital and I challenge people to find much that is in the world.
Now on to my next [indiscernible].
Last one Ross, we got to give time to everybody else.
I'm really frustrated with your Board. You've got 3 directors who've been there for 10 years. They own 0 stock. I will be honest with you. You guys who've been there for 10 years, shouldn't known less stock than my dogs, right? I mean it's not acceptable. And I look at your business, it's changing. Your business is going places you weren't before. I would love to see you change your Board. I'd love to have you put people on who believe enough in this company that they're willing to spend the price of a happy meal and a lot to say every day to buy a share of stock.
And I also would like to see those people come in with expertise because you've got such a great opportunity here and you've done such a great job with this company. That if you surrounded yourself with people who have green energy background, people who have background in the semi cap equipment space. People who have capital markets background and things of that nature, and those people not just brought their expertise but brought their pocketbooks and bought stock. I think it would send a message to the Street that they just -- they need to look at this opportunity and they need to take you guys seriously. And I know it's always hard. I understand Boards-- these are people who have been around for a long time. But from my outside perspective, their unwillingness to commit capital to buy stock and the lack of clear industry expertise and financial expertise tells me that we need as outside investors, I need people to be my champion on your board and I need people to bring you the skills so that you guys get everything you can out of this opportunity. And so I would strongly advocate. We bring some new blood into the board. I'm in my mid-60s. So I hate calling people in their 70s old. But that we need new people on this board who bring that expertise and honestly come in and are excited by this opportunity and say I right now can buy a stock for $0 to $0.50 above net-net working capital that I think is going to earn close to $2 in few years, and that's insane. And I want to own a lot of them.
And I'll let others talk now.
Yes. Well, we certainly agree with you and we had a long discussion with the Board when they were here this week about buying stock, and that's under consideration. We agree -- we think this company will be $500 million in the next 3 to 5 years, and we have $25 million in cash today. We'll go cash flow positive in 2025. So all the things you say we agree with, and we appreciate your opinion.
[Operator Instructions] Our next question will come from the line of Barry Mendel with Mendel Money Management.
Yes, a couple of things. One, -- when do you expect your backlog to start increasing because I think that would be a catalyst for the stock. I know you expect the big locomotive orders at least last quarter, you said sometime in the third or fourth quarter of this year. So when do you expect the backlog to kind of bottom out?
Yes. On the GES side and the PMT side, we look at the backlog to start having some of these project-based businesses the end of Q2 at the very beginning of our Q3. And then we expect the delivery will be over the next 6 months after that. So end of Q2, based on some of the beta testing we have and the customer's forecast and then -- but Q3 should be a very strong booking quarter, Q3.
Your fiscal Q3.
Our fiscal Q3, yes.
Okay. In terms of the semi space because I recall last quarter, I thought you mentioned the semi space expected to improve in the first half of calendar '24 not just sending the second half calendar '24 -- what's the reason for that?
It's Wendy. We -- I think we've been consistent saying it's the our customers are -- have been forecasting improvement in the second half. We are hoping that maybe we would see some of that start to come in, in the first half, but it's always been consistent that they were not anticipating significant or really any recovery until the second half of calendar year 2024.
Okay. And the [indiscernible]. What was going on with their business?
I'm sorry, could you repeat that? You're a little bit distorted.
What's going on with the magnetrons business in terms of capacity and the sales there?
Magnetrons, yes. Well, we're building new test equipment. We've improved decarbonization of the filament out in the tube and there's a huge demand out there, probably over 5,000 tubes a year, and we're trying to build our capacity to take advantage of that. And we're -- we have monthly progress in that area plus the 915-megahertz magnetron at 100 kilowatts. There's a huge market for also creating synthetic diamonds, and then they make hydrogen out of methane gas, which is another big application. So the magnetron business is strong and well and our restriction is how fast we can develop higher-power magnetrons and improve the quality of the ones we make already.
As I recall you, what was redoubling capacity in that business earlier this year in the spring and early summer.
Yes. We're still having difficulty there. The problem is that tube type equipment is all custom made. And -- we've geared up now where we can build about $240 a month, but we need to get to $500 a month on the [ YJ 1600 ] which is the 6-kilowatt too but we're getting there. It's progress. It's slow.
When you expect [indiscernible]?
I would say 6 months out.
[Operator Instructions] Our next question comes from the line of Ron Richards.
I was wondering in light of all the problems that Siemens is having, I know that you're in beta plus right now, do you have any guess as to when we might start receiving some orders from Siemens?
Yes. I think it's similar to the other ones based on how they structure their capital request and money. So they're -- they put in for it. The part's been successful in testing. And again, Q3, Q4 of our fiscal year is when we think we'll be getting per them production orders. We've already received orders for beta testing and alpha testing, but production orders probably Q3, Q4 based on what they're telling us.
Okay. That your fiscal Q3, Q4?
Yes.
And that particular product, Ron, it's the UltraUPS3000, which is also in test with other large wind turbine companies. Greg, do you want to comment on that?
Yes, it's, again, a base design that we're designing for Siemens, but also we have beta testing going on with NextEra and RWE. So yes, it's -- and again, it goes in every one of their turbines. So we're excited about that product.
And the aftermarket -- so Siemens might be an OEM opportunity, but the other ones are aftermarket. Turbines to be built. So if that's your concern with Siemens it's not an issue.
Yes. No. It's not based on new builds.
[Operator Instructions] Our next question comes from the line of Michael Hughes of SGF Capital Markets.
First one, can you just -- can you break out the backlog by segment for the quarter, please?
Michael, this is Bob Ben. Yes. So again, the total backlog at the end of the quarter was $148.1 million. Of that, approximately $67.4 million was PMT, $36.5 million was Green Energy Systems, $42.6 million is Canvys and the remaining $1.6 million was healthcare.
Okay. And then Wendy, I think you referenced an issue with a critical components for the Siemens 2 program. Can you elaborate on that a little bit?
A little bit. I don't want to get into too much detail on this call, but it is a part that we thought we could use the refurbished part or a part that's already been used on another 2. And unfortunately, that method is not going to work. So we have -- we need to wait until the patent expires. In the interim, there are a number of the MX series that we can repair without replacing that specific component and that's what we'll focus on, which is why I say we'll have limited supply until next summer.
When does the patent expire?
During the summer of 2024.
Okay. Right, right. Okay. That makes sense. And then last question for you. I'm not sure if you'll disclose the precise number, but was the semi-cap equipment revenue up or down sequentially?
It was down, certainly. Pretty much flat.
So flat for the May quarter.
Yes. It's running about $4 million or $5 million a quarter.
One moment for our next question. Our next question comes from the line of Andrew Rim with Odinson Partners.
Thanks a lot. Just on the beta test coming up in October, what needs to be proven in that beta test?
They just -- they run it. They take the turbine and shut it down. So there's an electrical fault to see if it works. They just -- for the most part, I just want to run it in a specific turbine for a period of time [indiscernible] some want to do it for a year, some want to do for 6 months, some for 3 months. But it's just the beta testing, we've done almost all the testing you can get in the data, in our labs in either a local turbine but then when we go to the large orders, these large customers, it averages between 3 months to a year.
They just want to run it in a turbine to make sure it works. I was just going to say, in beta testing, so then there might be a mechanical issue, meaning the way it fits into the box that we might have to do a tweak here and there. But it's just a handful of tweaks, but it really the performance of it. They just need to run it for a certain period of time.
Okay. Setting aside the nuance with the mechanical box piece. Just if we try to think reasonably expectation, you've talked about 7000 wind towers. But realistically, knowing that the beta test could take 6 months plus it probably wouldn't be until the back half of calendar '24, where you might start seeing kind of full rollout of that kind of deployment. Is that a fair assessment?
Yes. The -- and that's specific to the Suzlon opportunity in India. If everything goes perfectly, yes, we'll see shipments in our Q4 and the early part of fiscal year '25. But yes, based on history and the way these things work, and I've been doing NPIs or new product introductions for almost 40 years, second half of 2024 calendar year will be when we see the large production orders going on.
All right. I want to tag on, I think the question or a couple of people go. I think same as Rob mentioned this comment about stock buyback. I want to pile on to that comment by suggesting you might want to take a look at foregoing dividend payment and do a stock buyback because that would be a much higher return profile for investors. So it's a way to both pay and the investors back. It's a more efficient way to do it because they don't have to pay taxes. And obviously, you should be able to -- if you realize what you guys are trying to do here, obviously, the stock should be significantly higher, so that would be a great return on investments for you and shareholders. Also what you said about the Board, I would double down on that in terms of ownership. So I guess that's 2 votes for a couple of different thoughts there. And then lastly, just, Ed, it sounds like maybe you have a cold, so I hope you get well soon. Thanks a lot, you guys.
Thank you.
Thank you.
Thank you. I would now like to turn the conference back over to Mr. Richardson for closing remarks.
Well, we appreciate all your comments, and we appreciate your investment and interest in the company, Richardson Electronics. We look forward to our ongoing discussions and sharing our fiscal 2024, second quarter with you in January. Do not hesitate to give us a call any time. We're happy to take your calls and talk to you individually. Thanks, Noma. It was a very good question-and-answer period.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.