Richardson Electronics' 2025-2026 Earnings Calls: Contradictions Emerge on Product Approvals, Semiconductor Growth, and Market Strategies

Financials Results

• Revenue: $52.3M, up 5.7% YOY (9.0% excluding sold health care business)
• EPS: Net loss per diluted common share $0.01, improved from $0.05 loss YOY
• Gross Margin: 30.8% of net sales, down slightly from 31.0% YOY
• Operating Margin: Operating income $0.1M versus operating loss $0.7M YOY

Business Commentary:

• Revenue Growth and Strategic Focus:
• Richardson Electronics reported total sales of $52.3 million for Q2 FY 2026, up 5.7% year-over-year.
• Excluding the previously sold health care business, net sales increased by 9.0%.

• The growth was driven by sales increases in the green energy and Canvys businesses, reflecting the company's strategic focus on higher growth end markets.

• Green Energy Segment Performance:

• The Green Energy Solutions (GES) business unit reported a 39% increase in sales, driven by power management products.

• Growth was supported by increased adoption of pitch energy modules and expansion into new markets and customer bases.

• Canvys Revenue and Market Demand:

• Canvys reported revenue of $8.8 million, exceeding the prior year by 28%.

• The increase was due to improved demand from medical OEMs and a strong backlog, indicating robust future business potential.

• Operating Income Improvement:

• Operating income improved to $0.1 million for Q2 FY 2026 from an operating loss of $0.7 million in the prior year.

• This improvement was attributed to better performance in GES and Canvys, offsetting challenges in other segments.

• Cash Position and Strategic Investments:

• The company maintained a strong cash position of $33.1 million, providing flexibility for operations and strategic growth opportunities.
• Cash was primarily used for manufacturing improvements, IT systems, and dividends, with a focus on investing in growth initiatives within the green energy sector.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'We have achieved 6 consecutive quarters of year-over-year growth.' CFO noted: 'We remain optimistic about our growing project-based business.' Management expressed confidence in strategic initiatives and growth for FY '26, highlighting strong momentum in green energy and semi fab equipment markets.

Q&A:

• Question from Robert Brooks (Northland Capital): Could you discuss what would be considered core backlog versus noncore?
  Response: Core backlog refers to products like pitch energy modules (95% of GES), which saw strong growth and a book-to-bill of 1.10. Noncore includes components for green energy products, which saw lower bookings.

• Question from Robert Brooks (Northland Capital): What's the cadence of orders turning to backlog and then revenues within GES?
  Response: As products move from beta to production, new customers and backlog increase each quarter. In Q2, strong sales came from shipping product from stock due to high demand outpacing forecasts.

• Question from Anja Soderstrom (Sidoti): What opportunity could the GE approval list present for the Ultra 3000?
  Response: GE approval is already secured and being driven by GE's customers (e.g., NextEra). Some owners are bypassing GE services, but the approval is expected to be an upside, not a slowdown.

• Question from Anja Soderstrom (Sidoti): What is the margin impact and opportunity from the medical business as the supply agreement concludes?
  Response: Year-to-date gross margin impact in PMT is nearly negligible (~0%). The business will become profitable starting Q1 FY '27 (likely Q4) as focus shifts entirely to the Siemens repair program.

• Question from Anja Soderstrom (Sidoti): What do you plan to do with the cash?
  Response: Cash (~70% held internationally) will be used for growth investments in green energy (e.g., Sweetwater design center) and opportunistic, bolt-on acquisitions in power management/alternative energy.

• Question from Anja Soderstrom (Sidoti): What do you see for the semi fab equipment market (summer conductor) in the second half of FY '26?
  Response: Customers anticipate solid growth through calendar 2026 and beyond, with stronger forecasts for Q3 and Q4. The company is ready with resources and sees upside.

• Question from Unknown Analyst (Rui Asset Management): Can you give more visibility on the semi fab equipment recovery cadence and outlook?
  Response: Stronger forecasts are seen for Q3 and Q4, though customer input can be volatile. The company is ready to capitalize on upside, and year-to-date sales are still up considerably YOY.

• Question from Robert Brooks (Northland Capital): Could you discuss the progress of growth initiatives launched a couple of quarters ago?
  Response: Initiatives (international expansion, ESS program, new products) are successful: orders shipped to Asia/Europe, new products in beta, first ESS order booked in December, and strategy validated by traction in niche markets.

• Question from Robert Brooks (Northland Capital): Could you expand on intra-quarter tailwinds and headwinds in the PMT business?
  Response: Tailwinds came from strong demand in RF/wireless (SATCOM, drone markets). Headwinds were a slight slowdown in the electronic device MRO business, but overall PMT sales were flat excluding health care.

• Question from Porter Taylor (ARS Investor Partners): Do you have prebuilt product for the semi-cap equipment space in inventory?
  Response: Due to high mix, low volume nature, the company does not hold large finished goods inventory. It aims to ship products almost instantaneously when orders come in.

• Question from Porter Taylor (ARS Investor Partners): Can you give more color on battery storage opportunities and time line?
  Response: Opportunities range from $0.5M to a couple of million dollars, focused on industrial/commercial markets in states with strong incentives. The pipeline is growing, with more color to come in next calls.

• Question from Porter Taylor (ARS Investor Partners): Do you see these initiatives becoming more steady run-rate businesses?
  Response: Some products (like green energy wind modules and EDG components) already have steady run rates. The strategy focuses on broader-market products to reduce volatility.

• Question from Unknown Attendee (private investor): Can you provide an update on the electric locomotive and manufactured diamond product lines?
  Response: Diamond market is oversaturated, causing slower demand for related magnetrons. In EV rail, recent train shipments to Australia are positive, and the company remains optimistic on hybrid trends and its starter modules.

Contradiction Point 1

Ultra 3000/GE Approval Status and Timeline

This is a substantial contradiction involving a clear shift in the **timeline for a critical product approval**. The delay from an expected Q2 completion to a new Q3 testing timeline directly impacts the projected serviceable available market (SAM) and near-term sales pipeline for a key product.

What is the approval list for Alpha-1, and what opportunities could this present? - Anja Soderstrom (Sidoti)

20260108-2026 Q2: An NDA has finally been signed, and product will be sent to GE for testing in Q3... The lack of GE approval is not a current sales slowdown. - Wendy Diddell(COO)

Update on sales of ultracapacitor products to GE turbines under GE's service contracts? - Robert Brooks (Northland Capital Markets)

2025Q4: A final test is pending; the issue is a paperwork delay (NDA) with GE Legal. Once signed, it should clarify that service agreements won't be jeopardized. This would increase the serviceable available market (SAM) by about 35%. - Gregory Peloquin(Executive VP of PMT)

Contradiction Point 2

Semiconductor Wafer Fab Business (EDG) Growth Trajectory

This is a substantial contradiction reflecting a significant **shift in the growth narrative** for a major business segment. The tone changes from a confident declaration of sustained, record-breaking growth to a more tempered "cautiously optimistic" outlook focused on near-term forecasts, which could signal a reassessment of market momentum.

How is the semiconductor wafer fab business performing, and how will tariffs impact it? - Anja Soderstrom (Sidoti)

2025Q3: Semiconductor wafer fab sales surged 139% year-over-year in Q3, with sequential growth each quarter. The company expects continued growth in Q4 and FY26. - Gregory Peloquin(PMT Group GM)

What is the current status of the summer conductor, and do you still expect it to see growth in the second half of 2026? - Anja Soderstrom (Sidoti)

20260108-2026 Q2: Customers anticipate solid growth through the rest of calendar 2026 and beyond. This optimism is reflected in improved near-term forecasts. The outlook is cautiously optimistic. - Wendy Diddell(COO)

Contradiction Point 3

Progress Rail (EV Locomotive) Market Approach

This is a substantial contradiction indicating a **strategic pivot in market engagement**. The company shifts from being a committed participant in a major, high-profile shipment program to a passive "sidelines" observer, redirecting its growth narrative toward a broader market trend. This change in posture could significantly impact future revenue expectations.

Can you update us on the Progress Rail and Wabtec programs? - Barry Mendel (Mendel Money Management)

2025Q3: The company shipped nice orders in Q3 and will finish shipping the long iron railroad trains in FY26. The program is the largest electric vehicle train in the world. - Gregory Peloquin(PMT Group GM)

Can someone provide an update on the electric locomotive and manufactured diamond product lines? - Brett Davidson (private investor)

20260108-2026 Q2: The company shipped significant EV batteries in FY23 and is taking a sidelines approach to observe performance. The more steady run-rate growth is expected from the broader market shift toward hybrid trains... - Wendy Diddell(COO)

Contradiction Point 4

Healthcare Business Financial Impact and Exit Strategy

This is a substantial contradiction concerning the **quantification of financial liability and the timeline for operational turnaround**. The shift from vague, ongoing losses tied to a manufacturing commitment to a specific claim of "nearly negligible" gross margin impact and a clear positive inflection point in Q1 FY27 represents a significant change in the narrative around this segment's drag on profitability.

What are the expected losses in healthcare for FY26? - Barry Mendel (Mendel Money Management)

2025Q3: Losses are expected to continue as the company completes its commitment to manufacturing AltaTubes, with the quantity commitment expected to take 12-18 months. - Wendy Diddell(COO)

What is the margin impact of the medical business with the supply agreement, and what opportunities do you see? - Anja Soderstrom (Sidoti)

20260108-2026 Q2: The year-to-date gross margin impact from the healthcare business in PMT has been nearly negligible (~0%). ... Shifting focus entirely to the profitable repair of Siemens tubes should turn the bottom line positive beginning in Q1 FY27. - Wendy Diddell(COO)

Contradiction Point 5

Growth Outlook and Market Positioning for the Semiconductor Wafer Fab Equipment Business

This is a substantial contradiction involving a **change in the characterization of the business's recovery and market position**. The description shifts from a post-inventory "return to peak" optimism to a more measured statement about benefiting from AI-driven demand, which may imply a different understanding of the sustainability and drivers of growth.

When will the semiconductor wafer fab equipment sector experience an inflection point from the current downturn? - Chip Rui (Rui Asset Management)

2025Q4: Sales are recovering from a prior peak, with current sales (~$20M+) expected to improve each quarter... The business has sole-source, high-margin products and is optimistic about a return to peak levels (over $40M). - Edward Richardson(CEO)

What is your outlook for the summer conductor and expectations for growth in the second half of 2026? - Anja Soderstrom (Sidoti)

20260108-2026 Q2: For the semiconductor wafer fab equipment market (EDG), customers anticipate solid growth through the rest of calendar 2026 and beyond. This optimism is reflected in improved near-term forecasts. The company is positioned to benefit from AI-driven demand, particularly in memory applications. - Wendy Diddell(COO)

Contradiction Point 6

Nature of Growth in Green Energy Solutions (GES)

This is a substantial contradiction reflecting a **significant change in the narrative about business consistency and forecasting reliability**. The shift from describing growth as inherently "lumpy" and quarter-to-quarter volatile to highlighting a strong, steady core business with a book-to-bill ratio of 1.10 could materially alter investor perceptions of the segment's predictability and underlying health.

What were the product wins for Green Energy Solutions (GES) in fiscal 2025 that contributed to growth? - Robert Brooks (Northland Capital Markets)

2025Q4: Growth was lumpy quarter-to-quarter (84% in Q1, 129% in Q2, 14% in Q4), but the pipeline and new product introductions are strong for future growth. - Gregory Peloquin(Executive VP of PMT)

Could you clarify the difference between core and noncore backlog? - Robert Brooks (Northland Capital Markets)

20260108-2026 Q2: The core business showed strong growth (39% sales increase) with a book-to-bill ratio of 1.10, even as overall backlog decreased slightly. - Gregory Peloquin(General Manager of PMT and GES Group)