Richardson Electronics, Ltd. Stock

Good day and thank you for standing by. Welcome to the Richardson Electronics earnings call for the first quarter of fiscal year 2027. This time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Edward Richardson, Chairman of the Board and CEO. Please go ahead.

Good morning and thank you for joining Richardson Electronics fiscal 2027 first quarter conference call. We appreciate your continued support and interest in our company. Joining me today are Robert Ben, Chief Financial Officer, Wendy Diddell, Chief Operating Officer, Gregory Peloquin, General Manager of our Power and Microwave Technologies and Green Energy Solutions Groups, and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These statements are based on current expectations and involve risks and uncertainties. Actual results may differ materially from those discussed today. Please refer to our press release and SEC filings for discussion of risk factors.

I am pleased to report that we started fiscal 2027 with a strong first quarter. Higher than expected sales growth and expanded gross margin drove a 5x year-over-year improvement in operating income to $5.1 million, or 7.9% of sales. Improved profitability and proactive working capital management generated $5.9 million of cash operating activities compared with $1.4 million in the prior year first quarter. Backlog grew to $184.4 million, up $20 million from fiscal year 2026 year-end. While Robert will review the financial results in detail, the broader takeaways are strong execution across our global teams, growing adoption of key product lines, and positive momentum in our strategic growth priorities.

Our performance was led by continuous strength in our Power and Microwave Technologies, particularly in semiconductor wafer fabrication equipment, RF and microwave components, and engineered solutions. Demand remains healthy across key end markets, including semiconductor manufacturing, defense, communications infrastructure, and industrial applications. This growth reflects favorable market conditions and our multi-year efforts to broaden our customer base, expand technology partnerships, and strengthen our engineering capabilities. We also continue to make progress in Green Energy Solutions. Interest in power management, energy resiliency, and energy storage has strengthened as industrial, commercial, and infrastructure customers seek greater reliability, lower operating costs, and solutions for growing power requirements. We believe these long-term trends support our strategy and create attractive opportunities for Richardson Electronics.

At Canvys, customer engagement remains active across medical and industrial markets. Although project timing can create quarterly variability, customer activity, requests for quote volume, and opportunities for new design wins remain encouraging. Continue to support customers with highly engineered display solutions differentiated by customization quality and long-term support. Strategically, we are seeing increased customer interest in our U.S.-based engineering and manufacturing capabilities. Our Made in America initiative, engineering expertise, global infrastructure, manufacturing footprint, and strong balance sheet are creating opportunities in aerospace, defense, power management, and industrial applications. We expect this trend to remain favorable as customers evaluate supply chain continuity, localization, and tariff exposure in sourcing decisions.

The macro environment remains uncertain with trade policies, tariffs, geopolitical developments, energy markets, and global economic conditions creating challenges across industries. However, the underlying demand drivers supporting our business remain strong, and we continue to focus on what we can control. Expansion of AI-related infrastructure, semiconductor investment, power systems modernization, defense spending, and demand for energy support markets where Richardson Electronics has recognized capability and customer relationships. We remain disciplined in managing inventory, pricing, operating expenses, and capital allocation. A strong balance sheet and debt-free position provide flexibility to invest in strategic growth while maintaining the financial discipline that has been a hallmark of the company for 80 years. Overall, we believe the company is well positioned as we move through fiscal 2027. We remain focused on growing higher value engineered solutions, improving profitability, supporting customers, and creating long-term shareholder value. Thank you. With that, I will turn the call over to Robert Ben for a detailed review of the quarter's financial results.

Thank you, Edward, and good morning. I will review our financial results for our first quarter of fiscal 2027, followed by a review of our cash position. Consolidated net sales increased 18.9% to $64.9 million compared to net sales of $54.6 million in the prior year's first quarter. This was our ninth consecutive quarterly year-over-year increase in sales. The first quarter was led by a 19.7% increase in PMT sales, driven by strong growth in semiconductor wafer fab and RF and microwave products. GES sales increased $2.0 million, or 27.1%, as a result of higher sales of wind products and new products, including battery energy storage systems. Canvys sales increased 7.9%, reflecting higher sales in North America.

Consolidated gross margin for the quarter was 34.6% of net sales compared to 31.0% during the first quarter of fiscal 2026. In the first quarter of fiscal 2027, gross margin benefited by 170 basis points due to an IEEPA tariff refund. PMT gross margin increased to 35.4% compared to 31.3% as a result of product mix and the IEEPA tariff refund. GES gross margin increased to 32.6% from 29.6% due to product mix that included new products. Canvys gross margin increased to 33.0% from 30.9%, primarily due to the IEEPA tariff refund. Operating expenses were $17.4 million compared to $16.0 million in the first quarter of fiscal 2026. The increase in operating expenses resulted primarily from higher employee compensation expenses, including incentives driven by the strong sales growth, and higher travel expenses.

As a percentage of net sales, operating expenses improved to 26.8% in the first quarter of fiscal 2027 versus 29.2% in the prior year's first quarter. Operating income increased over 400% to $5.1 million compared to an operating income of $1.0 million in the prior year's first quarter. Net income was $4.1 million for the first quarter of fiscal 2027 compared to net income of $1.9 million for the first quarter of fiscal 2026. Earnings per common share diluted were $0.27 in the first quarter of fiscal 2027 compared to earnings per common share diluted of $0.13 in the first quarter of fiscal 2026. EBITDA was $6.0 million for the first quarter of fiscal 2027 versus $3.3 million in the first quarter of fiscal 2026. Please note that EBITDA is a non-GAAP financial measure, and a reconciliation of the non-GAAP item to the comparable GAAP measure is available in our first quarter fiscal 2027 press release that was issued yesterday after the market closed.

Turning to a review of our cash position. Cash and cash equivalents at the end of the first quarter of fiscal 2027 were $36.9 million compared to $31.8 million at the end of fiscal 2026. The increase in cash and cash equivalents related to net income adjusted for non-cash items and higher accounts payable, partially offset by higher accounts receivable. Capital expenditures of $1.7 million in the first quarter of fiscal 2027 were primarily related to facilities improvements in IT systems versus $1.0 million in the first quarter of fiscal 2026. Free cash flow was $4.2 million for the first quarter of fiscal 2027. We paid $0.9 million during the quarter for cash dividends. In addition, based on our current financial position, our Board of Directors declared a quarterly cash dividend of $0.06 per common share, which will be paid in the second quarter of fiscal 2027. As of the end of the first quarter of fiscal 2027, the company had no outstanding debt on its revolving line of credit with PNC Bank. Now I will turn the call over to Gregory, who will provide more details for our PMT and GES business groups.

Thank you, Robert, and good morning, everyone. We are excited by the continued progress we are making in both bookings and billings as a result of our multi-year growth strategies underway for GES and PMT. Into FY '27 key strategic imperatives include developing a stronger backlog, launching new products, expanding our customer base, and advancing multiple development programs from beta testing to pre-production. I am pleased to report that we are making excellent progress towards our goals in Q1 FY '27. Starting with GES, our year-over-year sales growth and bookings trends are encouraging as we continue to grow the pipeline of opportunities through both current and new technology partners, as well as engineered solutions developed by our field engineers and design team. GES sales in the quarter grew 27.1% year over year, as more customers adopted our key products across a broader set of applications.

Within GES, we saw continued progress across key growth opportunities. First, we experienced growth adoption of our Pitch Energy Modules across multiple wind turbine platforms. We served dozens of wind turbine owners and operators, including exclusive partnerships with the top four owner-operators of GE wind turbines, as RWE, Inber Energy, Enel, and Nextera. We also saw growth from our multi-brand PEM Turbine Platforms. We continue to grow this program internationally, expanding into Europe, Asia, with new products for other turbine platforms including Suzlon, Senvion, Nordex, and SSB. We have now received orders outside of North America from customers in Brazil, Australia, France, and Italy, adding to our strong rollout in North America. Second, we booked a $2 million BEST program in Q1. This milestone highlights the accelerating momentum of our BEST strategy, supported by a growing pipeline of nearly 50 active opportunities as of today. We expect new partnerships under development will expand our depth of product offering and customer reach in the future.

We believe our competitive advantage in BEST is rooted in our ability to deliver highly engineered custom solutions for unique applications. That capability is supported by years of engineering and manufacturing expertise in niche power management products and markets, differentiating ourselves and technology partners, a U.S.-based footprint and a nearly 80-year corporate history and a strong balance sheet. Together, these strengths allow us to work closely with customers to design battery energy storage systems tailored to their specific performance, operating, and application requirements. We believe our approach and platform differentiate us from emerging and more standardized off-the-shelf solutions. Today, our pipeline includes niche commercial and industrial applications throughout North America, and we believe there are many opportunities to increase our pipeline throughout FY '27 and beyond. We are also focused on converting this growing pipeline into sales, with multiple opportunities expected to close in FY '27. Our overall GES growth strategy remains centered on power management.

We have rapidly designed multiple products, secured patents, and built a strong global customer base and technology partners. Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities tied to an evolving power management requirements and significant energy transformation initiatives. With these programs, testing and deployment continue to progress well with our key customers. We expect continued sales growth coupled with our growing backlog to produce double-digit growth for GES in FY '27. Turning to the PMT, excluding the legacy healthcare business, sales were $46.6 million in the quarter, a 23.1% increase over the prior year's first quarter. This reflects strong growth for both our semiconductor wafer fab customers as well as our RF and wireless component product line, specifically in SATCOM, radar, and defense communication markets. This continued growth trend in Q1 allowed us to expand sales at a double-digit rate with strong growth and backlog.

We are excited about the positive feedback from our Semi-Fab customers who are expressing ongoing optimism and continued growth well into calendar year 2027. We continue to invest in our infrastructure, including our LaFox-based BEST demo center, while also expanding our design and field engineering teams and enhancing our manufacturing capabilities to support growing demand and innovation. Our field engineering team continues to identify new customers and opportunities across our global end markets. We continue to gain market share by developing new products and solutions that are accepted by our customers. In summary, we are encouraged by the success so far of our strategic initiatives underway across PMT and GES, including our new BEST program, global expansion of our key engineered solutions products, and new technology partnerships. Our global capabilities and global go-to-market strategy continue to separate us from our competition in power management, RF and microwave, and green energy markets. By combining legacy products and new technology partners and engineered solutions, we believe we are well positioned to deliver continued sales growth. We believe positive momentum has continued as we enter Q2 in the second half of FY '27. With the expanding backlog, compelling new products, growing market share, and strong cross-controls, we believe FY '27 will be another strong year for growth in sales and profits for both GES and PMT. And with that, I will turn it over to Jens to discuss Canvys.

to see the future in our fiscal year 2027. Jens, do you want to take Canvys?

Thanks, Gregory, and good morning, everyone. Canvys designs, engineers, manufacturers, and sells custom display solutions to Original Equipment Manufacturers across global medical and industrial markets. Our mission is to deliver high-quality application-specific display solutions that meet demanding customer requirements and support long product life cycles. Canvys reported first quarter fiscal 2027 revenue of $8.9 million, an increase of 7.9% compared with $8.3 million in the first quarter of fiscal 2026. Our business remains project-based and can vary from quarter to quarter based on timing of customer programs and shipments. Gross margin was 33.0% of net sales in the first quarter, compared with 30.9% in the same quarter last year. The year-over-year improvement reflected a more favorable overall product mix and disciplined execution, despite continued variability in freight, duties, tariffs, and other supply chain costs.

Regional performance was mixed with lower year-over-year revenue in Europe, offset by growth in North America. This highlights the value of our diversified customer base while reflecting regional differences in customer demand and program timing. The quarter unfolded in a resilient but uneven global economy. Tariffs, trade policy changes, logistics conditions, and customer scheduling continue to create uncertainty. We remain focused on disciplined execution, customer collaboration, and supply chain flexibility to support customers' requirements and protect program continuity. During the quarter, Canvys continued to pursue opportunities with both repeat and new medical OEM customers across robotic-assisted surgery, navigation, and human-machine interface applications for medical devices. Our solutions also continue to support commercial and industrial applications, including passenger information systems for trains and buses, and HMI technologies used in printing, vending, milling, and packaging equipment.

Our commercial initiatives remain centered on increasing Canvys' visibility and market leadership, developing new opportunities, deepening strategic customer relationships, and converting our pipeline into additional design wins and production programs. We are also continuing to strengthen supply chain flexibility and operational execution, so that we can respond effectively as customers demand patterns and trade conditions evolve. At the end of the first quarter, backlog was $41.8 million, with a book-to-bill ratio of 1.1. These measures provide important visibility into future demand, although the timing of individual programs can cause quarterly fluctuations. Looking ahead, we expect customer investment decisions and production schedules to continue varying by market and program. We remain encouraged by customer engagement, request for quote activity, and our opportunity pipeline. With our improved first quarter profitability, disciplined execution, and continued focus on design wins, we believe Canvys is well positioned to support sustainable growth and create long-term shareholder value. I will now turn the call over to Wendy.

Thanks, Jens, and good morning, everyone. As we have discussed previously, our corporate strategy remains centered on two key priorities: accelerating profitable growth, and improving efficiency. The first quarter's results show strong progress on both fronts. Customer activity and backlog continue to support our growth priorities. At the end of the quarter, PMT and GES backlog increased meaningfully from fiscal year-end, reflecting continued demand across semiconductor, power management, wind, and other engineered solution markets. We continue to view backlog as an indicator of demand and future visibility, while recognizing that shipment timing depends on product mix, customer schedules, supply, and program milestones. We also continue to focus on efficiency and cash generation. Inventory was approximately $103.3 million, essentially flat to FY '26 year-end, as we balanced inventory discipline with the need to support semiconductor, wind, and other customer programs.

Our focus remains on converting inventory and backlog into revenue and cash, improving manufacturing absorption, and directing resources toward the programs that best position us for growth and improved profitability. We also continue to manage sourcing, pricing, operating expenses, and capital commitments carefully. During the fourth quarter, we completed our initial AI readiness and opportunity assessment. In the first quarter, our emphasis shifted from identifying areas to implementing practical use cases and establishing a process for measuring results. We are focused on business outcomes, including reduced manual work, shorter cycle times, better consistency, and improved visibility in business processes. Our use sales, supply chain, manufacturing and engineering, finance, and administrative workflows, with governance and security controls built into the process. We also continue to advance our Made in America strategy, where our U.S.-based engineering, manufacturing, testing, and quality capabilities can help customers address localization, tariffs, supply chain continuity, and speed to market. During the quarter, sales activity continued across aerospace, defense, industrial, semiconductor, and power management applications. Our LaFox operation continues to provide us with the ability to support customers from design and sample builds through production and tests.

We are seeing increased interest in programs that require the combination of technical support and domestic manufacturing capabilities. Our solid relationships with rail and wind customers are a strong testament to our Made in America strategy, as is our growing relationships with companies like C-Motive, Kiva, and Goshen. We are also working on a new program involving ultracapacitor racks. Our ultracapacitor-based energy storage platform delivers a fully integrated solution designed specifically for the demanding requirements of data centers. By combining power conversion and energy storage into a single cohesive system, we eliminate the complexity of multi-vendor architectures and deliver a streamlined high-performance backup solution. We started with contract manufacturing quotes and then continued conversations with our own products. Our previous engineering work on other programs offered a fundamental building block.

We are now looking to make these racks a standard offering to support smaller battery energy storage installs. Our capital allocation priorities remain focused on organic growth. Battery energy storage is becoming an increasingly important part of our growth strategy. During the quarter, our pipeline continued to grow across commercial, industrial, utility, and data center applications where customers need resiliency, energy management flexibility, and engineered solutions. We began shipments for our first Alaska order, a multi-million dollar project that includes 18 customized battery energy storage systems serving seven remote communities. This project is an important early reference point as we continue to pursue additional opportunities where reliability, customization, and technical expertise are critical. We have also started the build-out of our energy storage demonstration center at our LaFox headquarters.

In addition, we continue to advance our partnership with Goshen, a leading manufacturer of lithium-ion batteries and battery energy storage systems. We have expanded our REST product family during the quarter with the introduction of the REST 211 and REST 422 systems. Together with the REST 760 and the REST 1505 platforms, these additions broaden our ability to serve a wider range of commercial and industrial energy storage applications. Taken together, these activities demonstrate the progress we are making as our emerging battery energy storage strategy moves from development into commercial adoption and scale. In wind and power management, demand remains supported by the global install base of wind turbines, the need for reliability and life extension solutions, and our expanding portfolio of related products. We have shipped more than 90,000 units since we launched the first product. As Gregory mentioned, we also continue to make progress with geographic expansion, including the ongoing Suzlon rollout and continuing new customer testing in Europe. Margins on these products is accretive to the company's overall margin, further supporting our profitable growth strategies. Semiconductor demand also remained an important growth driver during the quarter. Key customers have indicated continuing activity into calendar 2027. We are expanding capacity via additional shifts to support higher levels of demand. Overall, the first quarter represented a strong start to our fiscal 2027. We delivered strong sales growth, improved operating performance, increased cash, and continued to advance the strategic initiatives that support our long-term plan. With that, I will turn it back to Edward.

Thanks, Wendy. In closing, our first quarter performance reinforces our progress against multi-year strategy. The comments from Robert, Gregory, Jens, and Wendy reflect solid execution across the organization and continued momentum in our chosen markets and programs. I am very proud of the Richardson team. Our priorities remain clear: execute for customers, improve profitability, manage capital with discipline, and convert our strategic initiatives into sustainable growth and long-term value for shareholders, customers, and employees. We will now open the call for questions.

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Ladies and gentlemen, due to time constraints, we ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and a follow-up until all have had a chance to ask a question. After which, we will answer additional questions from you as time permits. Please stand by while we compile the Q&A roster. Our first question comes from Keaton Shoki with Northland Capital Markets. Your line is open.

Hi, this is Keaton Shoki on for Bobby. Congrats on the quarter. My first question is on backlog. We saw it grow another 12% sequentially. And I was curious if we could get a sense of visibility for backlog converting to revenues over the next 12 months. And then as you look at your pipeline for new orders, what are your expectations for backlog growth through year-end?

I will speak to PMT and GES. Our current backlog, I would estimate that, analyst, probably about 75% of the backlog is scheduled to ship in the quarter, I am sorry, the fiscal year. That is continued backlog growth in Q2. And based on the number of new products, number of quotes, number of new customers, we feel that we are going to have strong top-line growth and continued growth in backlog.

Sure. Sure. I am happy to address Canvys. Yeah. So our backlog, you know, we have a lot of orders. They go out like 2 years, 3 years, but we are expecting orders coming in like every quarter. So it is really hard to say. The majority of the backlog will ship also within the fiscal year. But again, you know, some of the orders we have like frame contracts, they carry out for 2 years or even longer.

Okay, thank you for the color on that. And then on the IEEPA tariff refunds, what are your expectations for refunds going forward? Have those most of them worked through? Should we expect the benefit to continue in the next quarter?

Hi, this is Robert Ben. Unfortunately, it is really hard to answer that question. You know, we are getting these refunds sporadically and they do not even really tell us what exactly, you know, time periods they relate to. So I wish I could give you more specific information, but unfortunately, I do not have that to give.

I do not think we expect to receive that much.

Okay, okay, that is helpful. And then can you help me understand the revenue mix within GES? How much of that growth was specifically from the wind ultracapacitors versus the BEST and other new products?

Yes, the majority of it was in the wind and associated products. As you have seen over the last four calls, we currently have seen or continue to have over 23 customers that are using our product, and we have over 10 different products that we are selling into the wind turbine platforms today that, uh, you know, where they are obviously, we started the group, so that is the majority of it on the wind side.

And then, okay, thank you. I will return to the queue.

Thank you. As a reminder, please press star 1-1 to ask a question. Our next question comes from Anja Marie Soderstrom with Sidoti. Your line is open.

Hi, thank you for taking my questions. Congratulations on the great quarter. Hi, Wendy and everyone. Just curious, with a backlog, how much of that is FS 40 40 43?

$43.2 million for GES, $99.4 million for PMT.

Okay, and then within PMT, how much of that revenue is from the semiconductor wafer fab, and what do you see in terms of revenue? Is that growing sequentially? What is your visibility for the second quarter there?

I do not know if we could say what that is for backlog, but the forecast, the input from the customer base. We have numerous customers in the Semi-Fab Space. They look at this type of growth that we are seeing in Q1 to continue well into definitely the rest of our fiscal year 2027, but even into farther for calendar year 2027. Very positive feedback from the customers.

Okay, thank you. And then within the Suzlon opportunity, that is really in its early innings, what kind of opportunities do you see there? How big can that be? Yes, I thought she said Suzlon. Suzlon. S-U-Z-L-O-N. Suzlon, yes. Yes.

The Suzlon platform, is that what you said? Yes. Suzlon, you said. Yes. So we had a very strong shipments in Q1 for Suzlon, for the, you know, replacement business of their lead acid batteries. It was, I think, about $1.5 million. But the good news there is we are working on their new platform for their new turbines called the SX9, and we have been confirmed our product will be installed on an OEM point of view versus the MRO. So we will have both the MRO business worldwide on all Suzlon turbines, but then we will also be standard equipment, if you will, on their new platforms as they introduce new turbines. So it has been a very good relationship. It has been a long one, a lot of work, but like Richardson's DNA, we have done every sort of unique need that they had for that product to work in their turbine over what is going on in about 2 years. So a very good example of Richardson's capabilities there, for sure.

Okay, thank you. And just one last one for me. How do you anticipate the high interest rates to affect?

Well, first of all, we do not have any debt, as you know. You know, there really is not any impact there. Were you thinking something more specific?

Yes, I know. I do not expect it to affect you directly, but it might affect your customers' demand, I would assume, given they are so capital-intense.

Yeah, I, you know, maybe Gregory can speak to the wind customers. Yeah, the interest rates obviously will affect anyone borrowing money. But what we have seen is in a positive and negative, in that this administration has greatly reduced the subsidies and grants that they get for putting in new wind turbines or even new solar, which falls well for us because what people are doing, and we did see a huge increase with one of our largest, I call them the four sisters, and we mentioned them in our presentation notes, they repower. So they take apart the turbine and just rebuild it with all new products to make it last for another 10 to 15 years. And our ultracapacitor or Pitch Energy Modules work perfect for that. Because once they do the repower, that would be the last time they have to put a battery in the turbine. So in a way, the best way to do that to us is the reduction in grants and subsidies in terms of interest rates and, you know, people borrowing money. I do not know if it has a direct effect on our business, but anyone that has to borrow money to do that, it would.

Okay, thank you. That was all for me.

Thanks, Anja. Our next question comes from Ross Taylor with ARS Investment Partners. Your line is open.

Thank you and congratulations. How are you doing? Good. Good quarter. I wanted to ask you guys more of a philosophical question. We have often, Wendy, had discussions about, you know, the desire to build kind of repeat business and, you know, a lot of what Richardson is expert at is things that are limited runs, smaller runs. Are you guys making or do you see progress and opportunity to have business that really becomes more repeat so we can basically, you know, effectively build a core business that covers the operating costs and makes a reasonable return, you know, over the next few years?

Certainly that is true. I will jump in first and other people can add to it. Certainly that is true of our tube business. The tube business is, you know, EDG is MRO and that is very much repeat business, long-term repeat business, very steady business.

Yes, and so you have that base business that is very consistent, very measurable. And then, you know, we have to pick opportunities that we can win at. And we have found so far that these opportunities are very niche, very unique. And so they are not really what I will call consumer goods at all. And there is so much project-based. So, you know, we have seen over time that the Pitch Energy Module business somewhat getting more and more consistent each quarter. We will get a large order, you know, every so the quarter that is starting to get consistent, but it is project-based. Most of these other programs that we are working on. And so we are going to see, you know, large bookings and then booking slowed down a little bit as we build and ship the product to these one-year contracts for backlog. So, you know, really, we do not look for, we look at opportunities where we can win at. And over time, for a good example, the Pitch Energy Modules were project-based, but we have now added, you know, almost a dozen new products in that so we can kind of get a more steady stream of revenue, with the customers we have today as opposed to just the repower, which, you know, the three-month program.

Or a six-month program. Plus, in those markets that we serve that Gregory just mentioned, our market share is still fairly low. We have a lot of runway left to, you know, expand our penetration when you look at, for example, the GE wind turbines in the United States, you know, we are not even at that 20% level. So we have a long way to go, Ross.

Continue to sell these units. Okay, so basically with that what I am hearing you say is on those areas you can, you will basically be able to get both market share growth and then over time, you will that will basically become a recycling business where perhaps every 10 years or so customers might need to replace the module and you will be able to pick up that as a cash flow business. Yes. Yeah. Can you answer, I am going to slide two questions into one, which is talk about the opportunities in both battery storage and also we saw, um, you know, a competitive or competitor in the electric locomotive space makes them deliver some engines, I think, down into L.A. or further, I think, the Union Pacific Yard. Can you talk about where you guys stand, how you see the electric opportunity but like locomotive opportunity? Yes, so right now we are still very.

We are very active in electric locomotives and diesel locomotives. As you know, we have large programs for starter modules, working on an IGBT module for locomotive management. So, we are still hearing from our customers, and we have finished the large order for Burlington Northern Santa Fe that they expect that they will be building and getting more contracts for electric locomotives. So we are just waiting on them. We do not have a lot of input on that for the electric locomotives part. What was the other question? The other part was the, and we are happy to have you on the electric motor, the.

Electric locomotives. Can you talk about the economics in the starter modules as well and compare those to the electric locomotives themselves? What do we look at on a unit basis? Oh, I mean, in terms of cost and resale? Yes, what you sell it for and does it carry kind of corporate average margins, better or worse?

Yeah, I mean, we make strong margins, corporate average margins on the starter modules. It is obviously a much smaller number within the diesel locomotive itself, but it is good margin, we have a niche, and we can expand that technology and other products that we are working on. But, you know, it does not offset the, you know, electric locomotive modules that we make and have installed today.

What is the cost of a starter module for a diesel? Yes, I am not going to share that. I have got too many customers and competitors looking.

And competitors listening.

Give them the family discount. They know that. All right. Okay, and then the battery storage space.

Yes, we really, and it has been confirmed by customers, by integrators, by industry people, this microgrid system, growth. That is what the current order is with BOX in Alaska. There are small microgrids in seven different towns on a federal property. The next one that we will be coming up with is for a large energy company in California, due to NDAs, I cannot give you the name, but I am sure you can figure it out, Ross. And we will be receiving an order to support them with the battery, hence the container. Somebody else will be putting in the whole infrastructure and the build-out of these microgrids. About 10 to 20 different projects that we will be supporting this company on over the next 2 years. It will be about $10 million. The products we work on, because there are too many people involved and companies involved and margins lower on these huge data centers. These microgrids really fit a niche that we are doing. Our product seems to fit that. Our engineering and value-added capabilities allow us to take a product and design it to that really specific site of anything between 200 kilohertz and 5 megawatts. And we are just seeing so many opportunities for that. And with our relationship with our technology partners, our own internal engineering capabilities, to be honest with you, we are winning more than I thought. It has really defined our strategy. We thought it would work and so far it has. Obviously, you can see with the bookings and shipments in a very short amount of time, and the funnel continues to grow.

Yes, it is a real exciting opportunity for you guys. Okay, thank you very much. I will jump back.

Thank you. Thanks, Ross.

As a reminder, please press star 1-1 to ask a question. I am showing no further questions at this time.

I would like to turn it back to Edward Richardson for closing remarks. Thanks again for joining us today and for your questions during the Q&A portion of the call. We appreciate your continued interest in Richardson Electronics and we look forward to speaking with you again in the next quarter. Until then, please feel free to call us at any time. We are happy to answer your questions.

This concludes today's conference. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Good day, and welcome to the Richardson Electronics Earnings Call for the Fourth Quarter of Fiscal Year 2026. [Operator Instructions] Please be advised that today's conference is being recorded.

It is now my pleasure to introduce CEO and Chairman of the Board, Ed Richardson.

Good morning, and thank you all for joining Richardson Electronics' Conference Call for the Fourth Quarter and Full Fiscal year of 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power and Microwave Technologies and Green Energy Solutions Groups; 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 are making forward-looking statements, and they're 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.

I'm pleased to report that Richardson Electronics delivered both a strong fourth quarter and finished the fiscal year 2026. While Bob will provide the detailed financial review shortly, I want to begin by highlighting the broader message from the year.

We delivered significant year-over-year revenue growth, improved gross margin, and strengthened our operating performance. Those results reflect continued execution of the multi-year strategy we've discussed with you over the past few quarters. Our performance was not driven by a single product line, customer, or end market. We saw strength across all 3 of our business units from both new and existing customers. Power and Microwave Technologies continued to benefit from demand in semi-fab equipment, defense, healthcare, and other industrial applications.

Green Energy Solutions continued to advance programs tied to wind, EV, power conversion, and other power management markets. Canvys remained an important and profitable part of the company with customized display solutions serving medical, industrial, and other specialized OEM customers.

Importantly, we also made progress in improving the quality of our revenue. We continue to align our strategic focus on pursuing higher-value engineered solutions, repeatable sales opportunities, and customer programs where our technical knowledge, application engineering, global sourcing capabilities, and inventory position create real value. The more profitable mix of business together with operating disciplines supported the margin [ process ] we achieved during the year.

We've also continued to invest in our current and emerging opportunities with Green Energy Solutions, and we are now advancing our efforts around battery energy storage. We believe this is a natural extension of our capabilities in power conversion and energy-related applications. Customers are looking for ways to manage growing power demand, improve reliability, support renewable generation, and reduce exposure to grid constraints and energy cost volatility. We believe Richardson Electronics is well positioned to support those needs over time.

The opportunity around battery energy storage is still developing and is strategically important. We're working to build the right supplier relationships, technical capabilities, and customer engagement model before scaling the business. We're taking a disciplined approach as we believe the market has attractive long-term potential, particularly as utilities, commercial operators, industrial customers, data centers, and renewable energy developers look for practical solutions to improve power availability and resilience.

From an overall market perspective, the global environment remains mixed, and we're managing the business accordingly. Tariff uncertainty, geopolitical risks, inflation, and uneven industrial demand continue to create challenges for many companies. At the same time, we believe several long-term demand drivers are positive for Richardson Electronics. Electrification, grid reliability, renewable energy integration, AI and data center power requirements, semiconductor capacity investment, defense spending, and the need for customized medical and industrial display solutions all align well with the areas we have experience and technical capability.

We remain disciplined in sourcing, pricing, inventory management, customer commitments, and operating expense control. We believe this discipline together with our strong balance sheet and technical sales organization positions us well to navigate uncertainty while continuing to pursue growth opportunities. Our growth in backlog and improved cash flow from operation highlights this disciplined approach, and we're taking time to manage the business.

The fourth quarter, our results reflected continued positive momentum and a strong close to the year. For the full year, we made meaningful progress against our strategic priorities. We believe the company is entering fiscal 2027 with a stronger operating platform, broader customer engagements, and improved visibility in several attractive end markets.

I'll now turn the call over to Bob Ben, our Chief Financial Officer, who will provide a detailed review of our fourth quarter and full fiscal year results and capital position. Following Bob's remarks, Greg and Jens will provide updates on our business units, and then Wendy will follow with the progress we're making executing against our multiyear strategies.

Thank you, Ed, and good morning. I will review our financial results for our fourth quarter in fiscal year 2026, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. A reconciliation of non-GAAP items to the comparable GAAP measures is available in our fourth quarter fiscal year 2026 press release that was issued yesterday after the market closed.

Consolidated net sales increased 27.6% to $66.2 million compared to net sales of $51.9 million in the prior year's fourth quarter. This was our eighth consecutive quarterly year-over-year increase in sales and the highest quarterly net sales since the third quarter of fiscal 2023. The fourth quarter was led by a 28.1% increase in PMT sales, driven by strong growth in semiconductor wafer fab and RF and microwave products.

Sales for GES were $1.1 million or 20.4% above the fourth quarter of fiscal 2025 as a result of higher sales of wind products. Canvys sales increased $2.8 million or 29.5%, reflecting higher sales in North America. Consolidated gross margin for the fourth quarter was 31.2% of net sales compared to 31.6% during the fourth quarter of fiscal 2025. The 40 basis point decrease in consolidated gross margin was due to lower margin in PMT and GES as a result of product mix, partially offset by higher margin in Canvys due to improved freight costs as a percentage of net sales.

Operating expenses were $17.6 million compared to $15.6 million in the fourth quarter of fiscal 2025. The increase in operating expenses resulted from higher salaries and incentives driven by the significant sales growth in both the fourth quarter and fiscal year 2026. Also included in operating expenses for the fourth quarter of fiscal 2026 was a $0.4 million unclaimed property state audit settlement.

As a percentage of net sales, operating expenses improved to 26.6% in the fourth quarter fiscal 2026 versus 30.0% in the prior year's fourth quarter. Operating income improved significantly and was $3.9 million and non-GAAP operating income was $3.5 million for the fourth quarter of fiscal 2026 compared to an operating income of $0.6 million and non-GAAP operating income of $0.8 million in the prior year's fourth quarter.

Net income was $3.7 million and non-GAAP net income was $3.0 million for the fourth quarter of fiscal 2026 compared to net income of $1.1 million and non-GAAP net income of $1.8 million for the fourth quarter of fiscal 2025. Earnings per common share diluted were $0.25 and non-GAAP earnings per common share diluted were $0.21 in the fourth quarter of fiscal 2026 compared to earnings per common share diluted of $0.08 and non-GAAP earnings per common share diluted of $0.12 in the fourth quarter of fiscal 2025.

EBITDA was $5.0 million in the fourth quarter of fiscal 2026 versus $2.9 million in the fourth quarter of fiscal 2025. Adjusted EBITDA was $4.2 million in the fourth quarter of fiscal 2026 versus $3.1 million in the fourth quarter of fiscal 2025.

Turning to a review of the results for fiscal year 2026. Net sales were $228.6 million, an increase of 9.4% from $208.9 million in fiscal year 2025, which reflected higher sales across all 3 of our business segments. Gross margin was 31.2% of net sales, which was a 20 basis point increase from fiscal 2025. As a percentage of net sales, operating expenses for the fiscal year improved to 28.8% from 29.8% for the prior fiscal year.

Operating income was $6.5 million and non-GAAP operating income was $6.1 million during fiscal 2026 compared to an operating loss of $2.5 million and non-GAAP operating income of $2.6 million during fiscal 2025. The company reported net income of $6.4 million and non-GAAP net income of $5.7 million for fiscal 2026 versus a net loss of $1.1 million and non-GAAP net income of $3.2 million during fiscal 2025.

Earnings per common share diluted were $0.44 and non-GAAP earnings per common share diluted were $0.40 for fiscal 2026 compared to $0.08 net loss per common share diluted and non-GAAP earnings per common share diluted of $0.22 for fiscal 2025. EBITDA was $11.3 million and adjusted EBITDA was $10.4 million for fiscal 2026 versus EBITDA of $2.5 million and adjusted EBITDA of $7.5 million in the prior fiscal year.

Turning to a review of our cash position. Cash and cash equivalents at the end of fiscal 2026 were $31.8 million compared to $29.5 million at the end of the third quarter of fiscal 2026 and $35.9 million at the end of fiscal 2025. The increase in cash and cash equivalents from the third quarter related to net income, adjusted for depreciation and amortization, and lower inventory, partially offset by higher accounts receivable.

Capital expenditures of $1.0 million in the fourth quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements, and IT systems versus $0.8 million in the fourth quarter of fiscal 2025. Total capital expenditures were $4.4 million in fiscal 2026 as compared to $2.8 million in fiscal 2025. We paid $0.9 million in the fourth quarter and $3.4 million in fiscal 2026 for cash dividends.

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 first quarter of fiscal 2027. As of the end of fiscal 2026, the company had no outstanding debt on its revolving line of credit with PNC Bank.

Now, I will turn the call over to Greg, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. GES and PMT are key components of the corporation's multi-year growth plan, and we are encouraged by the continued progress we are making.

Coming into FY '26, we had a number of strategic imperatives, including developing a strong backlog, launching several new products, expanding our customer base, and advancing multiple development programs from beta testing to pre-production. I am pleased to report that we made excellent progress towards our goals throughout all FY '26, and we are accelerating momentum as we experienced in the fourth quarter.

Starting with GES, I'm pleased with both the year-over-year and sequential trends we are seeing as we continue to grow the pipeline of opportunities through both current and new technology partners, products developed by our field sales engineers and design team. GES sales in the quarter grew 20.4% year-over-year, as more companies adopted our key products across a broader set of applications. The strong fourth quarter helped us grow FY '26 sales by 7.3% versus FY '25.

Continued sales growth, coupled with a growing backlog, positions us well going into FY '27. Within GES, we saw continued progress across key growth opportunities. First, we're experiencing growth adoption of our PEM modules across multiple wind turbine platforms. We serve dozens of wind turbine owners and operators, including exclusive partnerships with the top 4 owner-operators of GE wind turbines such as RWE, Invenergy, Enel and NextEra.

We also saw growth from our new multi-brand PEM turbine platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms such as Suzlon, Senvion, Nordex, and SSB. We have now received orders outside of North America from customers in Brazil, Australia, India, France, and Italy, adding to our strong rollout in North America.

Second, we shipped our first BES program in Q4. This milestone highlights the accelerating momentum of our BES strategy, supported by a growing pipeline of nearly 50 active opportunities as of today. We believe we are attracting interest in our BES capabilities as a result of our engineering and manufacturing experience within niche power management markets and our unique technology partners, our U.S.-based footprint, and nearly 80-year corporate history.

Today, our pipeline includes data centers and industrial applications throughout North America, and we believe there are many opportunities to increase our pipeline throughout FY '27 and beyond. We are also focused on converting this growing pipeline into sales, with several exciting opportunities expected to close shortly. In fact, we expect to announce a multimillion-dollar order for our BES systems in Q1.

Our overall GES growth strategy remains centered on power management applications. We rapidly designed multiple products, secured patents, and built a strong global base of customers and technology partners. Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities tied to evolving power management requirements and significant energy transformation initiatives. With these programs, testing and deployment continue to progress well with our key customers, and we feel that this will help us achieve stronger growth in FY '27.

Turning to PMT, excluding the legacy healthcare business, sales were $47.1 million in the quarter, a 31.1% increase over the prior year's fourth quarter. This reflects strong growth in the RF and wireless components product line, specifically in SATCOM, radar, and communication markets, and we again saw very strong growth in the semiconductor wafer fab market.

This continued quarter-over-quarter growth trend in Q4 allowed us to expand sales at a double-digit rate in FY '26, finishing the fiscal year with 14.2% growth versus FY '25. We are excited about the positive feedback from our semi-fab customers who are expressing ongoing optimism and continued growth into calendar year 2027.

Across both GES and PMT, one of the most important priorities is accelerating the design to production cycles. We're expanding our design capabilities to move products more quickly from concept into manufacturing and test in LaFox. Opening our Sweetwater, Texas, location is one of the investments we expect will accelerate product development opportunities. We're also adding experienced industry talent to help expedite growth.

More broadly, we are investing in infrastructure, expanding our design and field engineering teams, and enhancing our in-house design and manufacturing capabilities to support growing demand and innovation. Our field engineering team continues to identify new customers and opportunities across our end markets. We continue to gain market share by developing new products and solutions that are accepted by our customer.

Looking ahead, we are encouraged by the strategic initiatives underway across PMT and GES, including our new BESS program, global expansion of our key engineered solutions products, and new technology partnerships. Our global capabilities and global go-to-market strategy continue to differentiate us from our competition in the power management, RF and microwave, and green energy markets. By combining legacy products and new technology partners and engineered solutions, we believe we are well positioned to deliver continued growth.

So in summary, we remain optimistic about the growing project-based business. We continue to expand our technology partners, design opportunities, and engineering resources while addressing technology gaps with our new partners and solutions. Coming out of the year with increased sales, new products, increased customer base, and new technology partners, and a 24.8% increase in the combined backlog of the 2 SBUs, we believe FY '27 will be another year of growth for both PMT and GES.

And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys designs, engineers, manufactures, and sells custom displays to original equipment manufacturers across global industrial and medical markets. It's our mission to deliver high-quality display solutions tailored to our customers' needs.

Canvys reported revenues of $12.3 million in the fourth quarter of fiscal year 2026, up 29.5% from $9.5 million in the same quarter of the previous year, setting a new quarterly revenue record for the business. Our business remains project-focused and can vary from quarter to quarter based on customer program timing. For the full fiscal year, revenues were $37.3 million, up 12.4% from $33.1 million in the comparable period last year.

The gross margin was 32.3% of net sales in the fourth quarter compared with 32.1% in the same quarter last year. For the full fiscal year, gross margin was 32.0%, down from 32.9% in the fiscal 2025. The product mix tariffs, freight and other supply chain costs continued to create pressure, but margins remain solid. The backlog at the end of the fourth quarter of fiscal 2026 increased to $40.8 million, up from $38.2 million at the end of the third quarter. With a Q4 book-to-bill ratio of 1.3, we entered the new fiscal year with a solid order book and improved visibility.

Quarter unfolded in a resilient but uneven global economy, with tariffs, trade policy changes, and logistics conditions creating continued uncertainty. Focused on disciplined execution, customer collaboration, and flexibility to support customer schedules. During the most recent quarter, Canvys secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation, endoscopy, and human-machine interface solutions for the control of medical devices.

At the same time, our solutions continue to support a broad set of commercial and industrial applications, including passenger information systems in trains and buses, as well as HMI technologies used in printing, vending, milling, and packaging equipment.

Our initiatives remain centered on increasing Canvys' visibility and market leadership by developing new opportunities, deepening customer relationships, and converting our pipeline into additional design wins and production programs. We continue to strengthen our supply chain flexibility and execution capabilities so we can respond effectively as customer demand patterns and trade conditions evolve.

If we look to the new fiscal year, we expect custom investment decisions to continue, varying by the market, and be subject to program timing. Even so, we are encouraged by the strength of our customer engagement, the level of request-for-quote activity, and our opportunity pipeline. Our record fourth quarter revenue, $40.8 million backlog, and Q4 book-to-bill of 1.3 provide a solid foundation for continued momentum. Our sales team remains focused on developing new opportunities while I remain committed to executing our strategic plans for sustainable growth, and create long-term shareholder value.

Now I'll turn the call over to Wendy.

Thanks, Jens, and good morning, everyone. Let's begin with a quick CT tube update. As I mentioned last quarter, we're now focused entirely on repairing Siemens tubes. We continue to ship a limited number of repaired Straton Z tubes during the quarter. We also completed life testing on the MX series. At the end of the quarter, we repaired several Siemens MX beta tubes. These have recently shipped, and will be deployed for final review prior to full release.

During the fourth quarter of fiscal 2026, we sold most of our assets dedicated to the ALTA Tube program, completed production on this program in March of 2026. We also downsized our CT healthcare team. We remain optimistic that bottom line results from this program will be significantly improved in FY '27.

Stepping back to our multi-year strategy, we remain focused on 2 primary operating priorities: accelerating growth and improving efficiency. Accelerating growth is evident by our revenue trends and growing backlog. Even though a portion of our revenue is booked and shipped during the quarter, we view backlog as an important indicator of demand and future revenue visibility. A growing backlog is directionally positive because it reflects customer orders that are already committed or scheduled, and it gives us greater confidence in the pipeline.

At the same time, backlog does not convert to revenue on a perfectly linear quarterly basis. The timing of conversion depends on product mix, customer delivery schedules, supply availability, and program schedules. So, while we view backlog as an indicator of underlying demand and future revenue, we do not use backlog in isolation as a precise quarterly sales forecast.

Turning to efficiency and cash generation, in addition to downsizing our CT healthcare team at the end of the quarter, we also closed our Powerlink Dubai operations, with all work being transferred to our Powerlink UK location. Our fourth quarter performance also reflects the culmination of the Thales inventory build and ability to generate cash from on-hand inventory. It also reflects our ongoing efforts to take a conservative approach to new inventory. The entire management team continues to look for ways to free up cash for our critical growth initiatives by becoming more efficient in our core operations.

During the quarter, we completed the 90-day AI Advisory Engagement focused on AI readiness, building internal capabilities, and identifying practical use cases across the company. The engagement included 4 working groups: supply chain, manufacturing and engineering, sales, and finance, and resulted in 47 AI opportunities being identified and triaged. Of those, 32 were classified as ready to execute using our existing AI tools, with no additional technology investment required. 11 were identified as potential future agent build opportunities.

We also saw meaningful AI adoption across the company during the engagement period. Users increased by 46%, message volume increased by 60%, and the use of projects expanded significantly. It is clear employees are beginning to incorporate AI into their daily work. Six initial pilot programs have been validated and are ready for execution, including use cases in at-risk account analysis, RMA tracking, supplier compliance, performance review support, and change log analysis. We believe this work establishes a practical foundation for using AI to improve productivity, strengthen workflow consistency, and support process improvement over time.

We continue to advance our Made in America strategy with a focus on opportunities where U.S.-based manufacturing, engineered solutions, and power management capabilities create a competitive advantage. This position is increasingly relevant to customers seeking a more reliable supply chain, reduced tariff exposure, faster response times, and stronger quality control. During the quarter, we converted several customer discussions into commercial activities across aerospace, unmanned defense systems, defense electronics, and U.S.-based industrial manufacturing. The broader pipeline remains active.

Key opportunities include a U.S.-made self-checkout kiosk program for a major national restaurant chain that is currently under final consideration. Also, we have confirmed competitive pricing and received initial approval to begin work tied to a major U.S. defense program. These opportunities are expected to convert to revenue beginning later in the fiscal year. The key takeaway is that our Made in America initiative is moving from prospecting into execution. We are converting customer interest into sample builds, purchase orders, and supplier onboarding activity.

Our near-term focus is to stabilize early production, close open approvals, and continue building momentum in aerospace, defense, industrial, and power management applications while maintaining the financial flexibility and operating capacity needed to support project-specific purchases, technology partner requirements, and potential facility expansion.

Looking further out, we remain focused on driving growth through organic initiatives while maintaining a disciplined and selective approach to capital allocation. While acquisitions are not a near-term priority, should the right opportunity arise, particularly one that supports growth in power management or expands our engineered solutions capabilities, we would evaluate it thoughtfully.

At this stage, our priority is to maintain a strong cash position to support growth in battery energy storage, including key purchases tied to projects and potential facility expansion to accommodate increased demand with our technology partners. We are encouraged by the direction we are headed and believe initiatives underway position us well to continue revenue growth and improve profitability over time.

With that, I'll turn it back to Ed.

Thanks, Wendy. In closing, fiscal 2026 was an important year for Richardson Electronics. We delivered significant year-over-year revenue growth, improved gross margin, and strengthened operating performance, as well as continuing to invest in areas that we believe can support sustainable long-term growth. We're encouraged by the strength across all 3 business units and by the market trends supporting demand for power management, electrification, energy storage, data center infrastructure, semiconductor manufacturing, defense, and customized display solutions.

We also recognize that the macro environment remains uncertain. We'll continue to manage the business with discipline. With a strong balance sheet, a growing base of higher-value engineered solutions, a continued focus on repeatable sales, and a team that's executing well, we believe Richardson Electronics is well positioned to build on the progress we made in fiscal 2026. We remain committed to improving profitability and creating sustainable value for our shareholders, customers and employees as we move forward.

We'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Anja Soderstrom with Sidoti.

Hi, good morning. Congratulations on the strong quarter. And thank you for taking my questions. I'm just curious for the semi-fab demand. What kind of visibility do you have there? And what do you see now into the first quarter?

Yes, we still have limited visibility. You know, people have a hard time forecasting, but the feedback we're getting from our customers in that space and then their customers' customers is very, very positive. We saw, as you know, excellent growth in Q3 and Q4, and that, according to the customer and their end customers, should continue throughout FY '27.

And sort of what lead time do you have there if something comes up in quarter?

Lead time in terms of building the product for a new order?

Yes.

Yes. The team, we're very aggressive on inventory. We try to make sure we actually have weekly, monthly calls with the customer. So we have the piece parts in stock and just waiting for releases from the customer.

Okay, thank you. And then at Canvys was quite the surprise with a record quarter. What's the price there and do you see that continuing into the first quarter?

So, I mean, I'm really pleased with that record quarter we had and then a book-to-bill of 1.3. When you have a record quarter and the book-to-bill is up, it's really a great momentum. Obviously, our business is project driven. So we have sometimes larger call-offs. It's really project business. So it's really hard to say, but obviously, you know, we all foresee a cross next year.

Our next question comes from the line of Bobby Brooks with Northland Capital.

Hey, can you guys hear me now? Sorry about that.

You must be sleep-deprived, Bobby. That happens.

Yes, I appreciate it. So, Ed, you talked about pursuing higher-value engineered solutions in your prepared remarks. And maybe I'm wrong here, but I feel like that's been a focus for the business for several years. So if that is the case and it seems like this is kind of turning the corner, maybe just like could you expand on like what it can -- it seems like something really kind of clicked in the quarter or over the last several months that's kind of helped unlock growth with that. Just was curious to hear a more expanded view there.

Well, I think the thing that we're seeing is lots of new opportunities in new areas. Let Greg tell you about some of the new products that we're working on.

Yes, I think Ed's comment was based on from an investment point of view going forward, it will be focused on these higher engineered solution type products. And we continue to get, first of all, the existing products that we've introduced over the years are gaining market share globally, as I said in my comments. But in addition to that, we're getting more and more opportunities from customers that we did work for.

For example, on the electric locomotive, we now have gotten a number of opportunities for other products for Progress Rail, Caterpillar. So some of these are different than we've currently done, and they might take a different piece of equipment, maybe a different type of person in terms of engineer, software engineer, mechanical, electrical. So I think that's what we talk about here in terms of long-term 3- or 5-year growth is where do we invest in, and that investment would be in these higher technology and higher integrated type products.

Got it. That makes a lot of sense. Then I know last quarter, your ultracapacitor replacements for the GE turbines, those became an approved product for GE service turbines, right? And so I was just curious to hear how that opportunity developed there during the quarter.

Yes, so as you know, Bobby, we kind of worked with them. They wanted to do some testing. So their GE site installers could use these products. Our product passed with flying colors. In fact, based on the data, it was proven safer than dealing with the discharge of the current lead-acid batteries in the turbine. That was very, very positive.

So what GE decided to do, and we have no control over that, we've done our job, we've created a product that works and is safe and is in high demand by their owner-operators. It's site-specific. And so yes, they've approved a site in Canada for this because it's up to your owner-operators now to go back to GE and say, "Hey, this thing's now been approved by you. We'd like to install it," but it's going to be site-specific and we have no control over that. But anyway, yes, they released an order for a site in Canada to one of our large owner-operators. We did ship that in Q1. It was a nice start to Q1, so it's not even in the fourth quarter numbers.

That's great to hear. And then I just wanted to maybe get a little bit more context around the battery energy storage solutions and its relation to the data center opportunity. It seems like you guys kind of spoke to that a little bit more today than in past quarters.

So is that like, for my context and other people on the call, like you're not necessarily focusing on these like mega projects where it's, you know, folks are looking to secure like 700 megawatts, a gigawatt plus of power, but maybe kind of smaller installations? Or maybe I'm off base, but I was thinking that or under the impression that your battery energy solutions are more like single-digit megawatt or maybe even kilowatt size. Could you just refresh us there and maybe just frame what type of data centers you'd be looking to service there?

Yes, so Bobby, you're correct. The mega data centers is not what we are focused today. It's more the C&I, commercial and industrial type products and applications. Our first offering as we develop these relationships with technology partners such as Gotion and others, will be one product is 760 kilowatts, and the other one is 5 megawatts.

And so somebody wants 10 megawatts, it just stacks up. But it's smaller niche applications that, not surprisingly, the current people involved in this market want nothing to do with. And that opportunity I mentioned that we have now booked is for 17 units, containers, but it's a unique facility. It's actually, the press release will come out. It's for a federal reservation in Alaska, and they'll put 1 or 2 in each of the towns on that reservation to help balance a grid, give them backup power, et cetera.

So the opportunities we have in our pipeline, and we're now over 50, are mainly for municipal buildings. That was the first one we booked, with Goleta in California for their municipal building, but utility applications, commercial applications, and the demo center that we're putting here in LaFox is actually a working unit, and it is for us to use to keep backup power, but also store, balance the grid, and sell it back to the grid, and to make some money that way, which the state of Illinois has the best subsidies and grants.

So you're exactly right. Right now there's more than enough opportunities for these smaller niche, I'll call them niche applications, that we seem to have a fit with our global capabilities, with being around 75 years. A lot of people that go after these smaller opportunities are LLCs. Just in 2025, over 100 LLCs went bankrupt. So these companies are really happy to work with a company that's been around for 80 years, no debt, and will service these niche applications with these products.

That's very helpful, Greg. And I think that's a great point on the niche of where you're playing. And then the competition that you're facing. You have a significant advantage over them, it seems. I'll jump back into the queue and congratulations on a really strong quarter.

And our next question comes from the line of [ Joseph Midkiff ], independent.

Hey, good morning. Congrats on the excellent quarter and really a long-term positive trajectory. I am a long-term retail shareholder. And my question was really about capital and capital deployment. I was curious as to whether there's been any consideration made to returning additional capital to shareholders. I know the company has historically had a very conservative approach to the market, and I'm sure there's some strategic purpose, but I wondered if you could speak to what that strategic purpose may be and whether any indicators in the business would give you confidence to deploy additional capital into buybacks or dividends. Thank you.

That's a question that we hear every quarter, and every quarter when the board gets together, we talk about it. We've always come to the same conclusion that we're better off to employ our capital and new opportunities such that Greg was talking about rather than buying our own stock back.

Is there anything in the business or are there particular hallmarks that would lead you to reevaluate that?

Not that we presently have visibility to.

Our next question comes from the line of [indiscernible] with [ Velta Research ].

Hi, team. Just wanted to say solid work on this quarter. I did have a few questions. First question would be, could you guys provide the manufactured and distribution split within PMT? I was just hoping to get a gauge on the durability of the mix shift.

No, we don't provide that at that level.

Okay, that's no problem. I guess my next question would be more so on backlog. How much of it would you say is expected to fill within the next four quarters, like ballpark?

I'll speak to PMT. Most of our backlog is -- because of the project-based nature of it is scheduled and the contracts that we sign are a year. So it depends on when we signed it, whether it will ship in this fiscal year or not. But there's no 3-, 4-, 5-year type contracts. Most of the backlog should ship within the fiscal year or within 5 quarters for PMT and then GES. Jens, do you want to...

Yes. So our backlog, because it's project-specific and we sell to large medical OEMs, it's a little different. So we have sometimes contracts to deplete the backlog over 2 or 3 years even. However, we expect every quarter new orders to make more than that backlog is right now. So backlog is going up for a while, and we are very positive on that.

And your next question comes from the line of Bobby Brooks with Northland Capital.

Just a quick one. I know -- I think it's in the release, GES backlog was up 5% year-over-year. Greg, could you speak to what the PMT specific backlog was? Because I know Canvys was really great growth. I'm just trying to square off what -- where our PMT landed?

Yes. The backlog increase -- and the backlog itself, there's no one-hit wonders, which is so -- we're adamant about that. We want to have nice, consistent growth when we invest in a product or a product line that is consistent long-term and short-term growth very fast. So the backlog today, it's a combination of both our technology partners on the power management side within GES.

We did see a large increase in our pitch energy modules with a very large order internationally. That was part of the growth, and then a handful of niche products that we have, such as the temperature monitoring device, the shunts, et cetera. So the backlog growth was across the board, both in components and engineered solutions. But if you look at the overall percent, it's that pitch energy module business that continues to gain market share. As you know, Bobby, it's a very large market that we're penetrating.

Got it. And so was like PMT backlog up double digits in the fourth quarter, fair to say or...

PMT backlog was up double digits in the quarter, yes, I believe.

Yes, great. And then maybe just one last one.

Go ahead, Bobby. Sorry.

No, you said up $10 million.

Yes, I believe it was up $10 million in the quarter.

Awesome. And just the last one for me is, it seems like -- would it be fair -- is it a fair read-through to say, you know, if we rewound the story to 2024, a lot of the focus was on the pitch energy modules and the wind turbine solution opportunity. But now today and especially over just the last two prints, it seems like that continues to be a great growth opportunity, but it seems like there's more [Technical Difficulty] per se. Is that a fair way to be thinking or maybe we just -- maybe it's just something I missed 2 years ago, but just curious to kind of hear your guys' thoughts there.

Yes, Bobby, you broke up pretty bad, but I think I understood your question in that our focus was never on wind turbines or solar or anything like that. It's been on power management applications. And what we're finding as we even add new technology partners, we're finding other niche power management applications. I think you saw the press release on C-Motive, where we'll be building power supplies and motor drives for them.

Also, you know about the starter modules. We have another large locomotive manufacturer that is also having us design one for them. Of course, the pitch energy module was one part, it was one customer, but the goal is to expand that globally because we are a global company with 60% of our sales outside of North America.

And that's into effect. And then with that, you know, the whole growth concept in our model for 80 years has been, what can you sell to an existing customer base? Because that's the most cost-effective way to bring new products to market. So we're identifying what I call niche, but they're very large. The 20-newton meter product that we're coming out with for 20-newton meter wind turbines, that'll be out in Q1, allows us to sell pitch energy modules in that application. We got the turbine guard. We've got the UPS now in an agreement with KK Wind. So these are the things that are going to be coming out. You'll see the press releases, but it's more power management type applications that just happened the first large one we had was in a wind turbine. So I would always look at it as we have a very unique capability with all these new products that are out there.

All of them either need a power management section or a new power management section based on the frequency or power levels. And we've done years and years and years of ultracapacitor experience, high-power tubes, high-power industrial components, so in a very strong and growing design and manufacturing team. So that's kind of the direction. We're not focused on wind turbines, we're focused on power management, in this case, the initial growth was in wind turbines. But you're right, that percent, even though that's going to keep growing, the percent will probably be in other products going forward.

Hey, let me jump in and correct something. The question was asked, I think maybe we misunderstood it, about what's the percentage of our manufactured product versus distribution product. And we said that we don't discuss that. We actually have reported that, and it is in the range of 55% to 60% of the products that we sell are products that we either manufacture directly or are manufactured exclusively for us to our specifications. So we wanted to follow up with that.

Our next question comes from the line of [ Joseph Nergis ] with [ Segrin Investments ].

Well, first, let me congratulate you on a great quarter and on the prospects that you've enumerated on this call. My call is basically on, I'll call it before Gotion and after Gotion, after the press release with Gotion. In the last conference call, I guess you talked about quite a few quotes out there on the battery energy solution issue quite a bit. Were you utilizing Gotion batteries previous to their press release, our partnership with them?

Yes, we were working with Gotion on and that's how we got to know them. And once we shared both of our capabilities, and as maybe you know, they're about 30 minutes from here. We talked to them about the batteries as we were looking at some of these opportunities.

But during those discussions, they needed us to help bring their batteries to market, being again, a North American company, and to meet all of those BABA, Build America, Buy America, federal entity, et cetera, Made in America. And so our relationship with Gotion in the beginning was, yes, just buy batteries from them and build a product. And it was an application we're working on, but has evolved to -- they'll be a technology partner of ours. They will give us the batteries and we will build the containers and integrate them here. So we'll either design or build our own PCS, the transformer, and all the other products that would go in that and use Gotion as our technology partner for their batteries.

And again, the good thing is with their batteries being built here in North America, we meet all the qualifications that the larger OEMs need to put that product and get the subsidies from the various states or grants based on the Made in America concept. So it's a good match, and we just had a meeting about a month ago with the Gotion CEO and I, and the whole troop was out there, and we signed an MOU, and we're going to help them bring their batteries to market, and they're going to help us bring BES products to market.

That's terrific. And so, Gotion has a sales force too. Are they pursuing the sales independent of you guys on some of these projects, and then they come to you?

Yes. They have a handful of people that talk to some of the larger things, like one of the other callers talked about these 100-megawatt sites...

Very large, yes.

Yes, we'll be exclusive for certain size containers, and all referrals would come to us. We'll work together, but we have a much larger, much more knowledgeable sales force for North American opportunities than they do.

So it -- but they have the technology and a $2 million manufacturing location...

Was it 2 million square feet?

But it's $1 billion, right.

Yes, 2 million square feet facility. So that's our relationship with Gotion, and they'll be our partner bringing BES. The opportunity I just talked about that we booked, those will be Gotion batteries in those products.

Just one other follow-up. Subsequent to your announcement on the press release on the Gotion partnership, Gotion announced another battery, I guess if I say it right, they're [indiscernible] sodium-ion battery that they're introducing. And that seems like to me anyway, a game-changing potential product. I understand they're going to be manufacturing that battery in China. Do we know if there's any possibility that will be manufactured in Illinois, let's say, over the next year or so?

Yes, we've had conversations with them about that. Right now, the product they had fits the technical needs and cost needs of our current opportunities. So they showed us our roadmap. The goal is to eventually bring that to North America. And again, for the same reasons we talked about.

Obviously it's a huge market for BES products and the whole build in America, subsidies and grants. But their goal is to, yes, bring that to America eventually, but they're about a $3.5 billion, $4 billion company. They have a huge facility in China. Now, I just think they're using that to get it introduced and get it designed, and then they can transfer the production to North America.

Thank you. I would now like to hand the call back over to CEO and Chairman of the Board, Ed Richardson, for closing remarks.

Well, thanks again for joining us today and for your questions during the Q&A portion of the call. We look forward to talking to you again next quarter. But if you have any questions at any time, you're welcome to call us directly. Thank you.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the Third Quarter of Fiscal Year 2026. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Ed Richardson, Chairman and Chief Executive Officer. Please go ahead.

Good morning, and thank you all for joining Richardson Electronics conference call for the third quarter of fiscal year 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power & Microwave Technologies and Green Energy Solutions Group; 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're 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.

I'm pleased to report that Richardson Electronics has now delivered seven consecutive quarters of year-over-year sales growth, reflecting continued progress in executing our multiyear strategy. Our performance this quarter was led by strong momentum in PMT, particularly in EDG and the semi fab equipment market. Third quarter sales growth was supported by continued discipline around gross margin and operating expenses. Our performance reflects the strength of our team as we continue to invest across the organization to build depth, technical expertise and operating performance. I believe our efforts are positioning Richardson Electronics for sustainable long-term value creation.

Looking at our third quarter FY '26 results, total sales were $55.5 million, up from $53.8 million in Q3 of last year, while operating income improved to $1.5 million compared with operating loss of $2.7 million in the prior year quarter. Gross margin increased to 31.9%, an increase of 90 basis points over last year. PMT sales increased to $38.7 million, up $3.4 million year-over-year. Green Energy Solutions performed in line with expectations, although below the prior year due to the timing of sales and Canvys remain profitable with a 32.2% gross margin despite softer revenue in North America. It's important to note that this is the final quarter in which our year-over-year comparisons are affected by the sale of much of our health care business in Q3 of FY '25. That transaction continued to impact our year-over-year sales and profitability comparisons this quarter, but it will no longer impact going forward.

We also remain focused on expense discipline, working capital management and improving inventory turns. We ended Q3 with $29.5 million in cash and cash equivalents. Our order activity remains solid and total backlog increased to $151.2 million at quarter end, giving us confidence as we move forward into the final quarter of the fiscal year. We also closely are monitoring the developing situation in Iran, the related movement in energy markets in the evolving tariff environment. While these issues are creating real uncertainty for many companies, they've not had a significant impact on our business or markets at this point. We've remained disciplined in how we manage sourcing, inventory, pricing and customer commitments. We believe that disciplined positions as well as to navigate changing trade environment.

Over time, if higher conventional energy prices persist, that could further improve the economic case for certain alternative energy solutions. In any event, we are continuing to invest in and support a number of programs tied to global wind, EV and other related power management markets. We believe initiatives underway can support attractive long-term growth opportunities for Richardson Electronics.

I'll now turn the call over to Bob Ben, our Chief Financial Officer; who will provide a detailed review of our third quarter results and capital positions. Following Bob's remarks, Greg and Jens will provide updates on our business units and then Wendy will follow up with the progress we're making executing against our multiyear growth strategies.

Thank you, Ed, and good morning. I will review our financial results for our third quarter and first 9 months of fiscal year 2026, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. A reconciliation of non-GAAP items to the comparable GAAP measures is available in our third quarter fiscal year 2026 press release that was issued yesterday after the market closed. Consolidated net sales increased 3.1% to $55.5 million compared to net sales of $53.8 million in the prior year's third quarter. When excluding health care, for which the majority of assets were sold in January 2025, net sales increased by 6.0%. Please note that health care results, including prior periods, are consolidated into the PMT segment beginning in fiscal 2026. This was our seventh consecutive quarterly year-over-year increase in sales. Third quarter net sales growth was led by a 9.7% increase in PMT sales driven by significant increases in semiconductor wafer fab and RF and microwave products.

Excluding Healthcare, PMT net sales increased by 14.5%. Sales for GES were $0.5 million below the third quarter of fiscal 2025 due to project timing. Canvys sales decreased $1.2 million, which primarily reflected project timing in North America. Consolidated gross margin for the third quarter improved to 31.9% of net sales compared to 31.0% during the third quarter of fiscal 2025. The 90 basis point increase in consolidated gross margin was due to higher margin in PMT, partially offset by lower margin in GES and Canvys.

Operating expenses were $16.2 million compared to $14.5 million in the third quarter of fiscal 2025. The increase in operating expenses resulted from higher salaries and incentives associated with critical adds to staff and in support of our existing employees as well as related medical benefits and travel expenses. Also, the operating expenses in the third quarter of fiscal 2025 were historically low. Operating income was $1.5 million for the third quarter of fiscal 2026 compared to an operating loss of $2.7 million and non-GAAP operating income of $2.2 million in the prior year's third quarter.

Net income was $0.9 million for the third quarter of fiscal 2026 compared to net loss of $2.1 million and non-GAAP net income of $1.6 million in the third quarter of fiscal 2025. Earnings per common share diluted were $0.07 in the third quarter of fiscal 2026 compared to net loss per common share diluted of $0.15 and non-GAAP earnings per common share diluted of $0.11 in the third quarter of fiscal 2025. EBITDA for the third quarter of fiscal 2026 was $2.2 million versus negative $2.1 million in the prior year's third quarter. Adjusted EBITDA was $2.8 million in the third quarter of fiscal 2025.

Turning to a review of the results for the first 9 months of fiscal year 2026. Net sales were $162.4 million, an increase of 3.4% from $157.0 million in the first 9 months of fiscal year 2025, which reflected higher sales across our business segments. When excluding health care, consolidated net sales increased by 7.2% and PMT net sales increased by 8.2%. Gross margin was 31.2% of net sales, which was a 40 basis point increase from the first 9 months of fiscal 2025. As a percentage of net sales, operating expenses for the first 9 months of the fiscal year improved to 29.6% from 29.7% for the first 9 months of the prior fiscal year.

Operating income for the first 9 months of fiscal year 2026 was $2.6 million as compared to an operating loss of $3.1 million and non-GAAP operating income of $1.8 million for the first 9 months of fiscal year 2025. The company reported net income of $2.7 million or $0.19 per diluted common share for the first 9 months of fiscal year 2026 versus a net loss of $2.2 million or $0.16 per diluted common share and non-GAAP net income of $1.4 million or $0.10 per diluted common share for the first 9 months of fiscal year 2025. EBITDA for the first 9 months of fiscal 2026 was $6.2 million versus negative $0.5 million in the prior year's first 9 months. Adjusted EBITDA was $4.5 million in the first 9 months of fiscal 2025.

Turning to a review of our cash position. Cash and cash equivalents at the end of the third quarter of fiscal 2026 were $29.5 million compared to $33.1 million at the end of the second quarter of fiscal 2026. This use of cash primarily related to higher inventory associated with final buys from a critical supplier. Capital expenditures of $0.8 million in the third quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements and IT systems versus $0.5 million in the third quarter of fiscal 2025. We paid $0.9 million in the third quarter for cash dividends. 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 fourth quarter of fiscal 2026. As of the end of the third quarter of fiscal 2026, the company had no outstanding debt on its revolving line of credit with PNC Bank.

Now I will turn the call over to Greg, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. GES and PMT remain key components of our multiyear growth plan and the progress we are making is encouraging. Coming out of FY '25, we had a number of strategic imperatives, including developing a strong backlog, launching several new products, expanding our customer base and advancing multiple development programs from beta testing to preproduction. I'm pleased to report that we continue this momentum through the first 3 quarters of FY '26.

Starting with GES backlog for our core PEM products include the Ultra 3000 multi-brand offerings grew 15% in Q3 as more companies adopted our products across a broader set of applications and expanded globally. Year-to-date, bookings from our key products, including PEMs and multibrand solutions had a high double-digit growth rate versus prior year. That booking strength positions us well for Q4 and a strong FY '26 with forecasted double-digit revenue growth as well as supporting continued momentum into FY '27.

Coming out of 39% growth in Q2, GES sales were down 5.4% in Q3 versus the prior year. However, after 3 quarters, with sales and bookings are up versus prior year. And in our most recent second quarter, we had significant sales growth in our core business, including PEMs started modules and global expansion of fee products, which offset softer year-over-year growth results in Q3, mainly in components business as our mix continues to shift towards Engineered Solutions. We are also beginning to experience longer lead times for certain components due to precious metals supply constraints. These factors contributed to sales being down, but in no way indicate the underlying strength of the business.

Within GES, we saw progress across three key growth opportunities. First, we experienced growth adoption of our PEM modules across multiple wind turbine platforms and owner operators around the world. We also booked our first GES program in Q3, which began shipping in Q4. In addition, Q3 was strong for our locomotive products, including starter modules and superstructures. Across these programs, testing continues to progress well with our key customers. As we feel this will help us achieve double-digit growth again in FY '27.

Our GES growth strategy remains centered on power management applications. We've rapidly designed multiple products, secured patents and built a strong global base of customers and partners. Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities tied to evolving power management requirements and significant entity transformation initiatives. We serve dozens of wind turbine owner and operators, including exclusive partnerships with the top 4 owner operators of GE wind turbines, RWE, Infra Energy and now and NextEra. We also saw growth from our new multi-brand PEM platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms, including Suzlon, Senvion, Nordex and SSB. We have now received orders from customers in Brazil, Australia, India, France and Italy in addition to our strong rollout in North America.

Turning to PMT and excluding the legacy Healthcare business, sales were $38 million in the quarter, a 14.5% increase over the prior year. This reflects a slight slowdown in the electron device MRO business more than offset by growth in the RF is components business, which had a strong growth in SATCOM, RADAR and microwave communications and strong growth in the semiconductor wafer fab market. We are excited about the positive feedback from our semi fab customers expressing ongoing optimism and continued growth going into our FY '27. Across both segments, one of the most important priority is accelerating the design to production cycles. We are expanding our design capabilities to move more products more quickly from concept into manufacturing and test in LaFox. We are also adding experienced industry talent to help expedite growth.

Our Illinois-based design center intended to showcase our BS solutions, which we had expected to be operating in Q4 FY '26 is now more likely to come online in Q1 FY '27. Even so, we are still quoting numerous opportunities throughout North America, including shipping our first system this month. More broadly, we're investing in infrastructure, expanding our design and field engineering teams, enhancing our in-house design and manufacturing capabilities to support growing demand and innovation. Our field engineering team continues to identify new customers and opportunities across our end markets. We continue to gain market share by developing new products and solutions that are accepted by our customers. Our Sweetwater, Texas design center is finalizing several new products that we will generate new revenue in FY '27.

Looking ahead, we are encouraged by the strategic initiatives underway across PMT and GES, including our ESS program, global expansion of our key products and new technology partnerships. Our global capabilities and global go-to-market strategy continue to differentiate us from our competition in power management, RF and microwave and green energy markets. By combining legacy products and new technology partners and engineered solutions, we believe we are well positioned to deliver continued growth.

In summary, we remain optimistic about our growing project-based business, even though quarterly timing can be difficult to forecast. We continue to expand our technology partnerships, design opportunities and engineered resources while addressing technology gaps with new partners and solutions. We believe FY '26 will be another growth year for both PMT and GES with solid momentum going into FY '27.

And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys designs, engineers, manufacturers and sells custom displays to regional equipment manufacturers across global industrial and medical markets. It is our mission to deliver high-quality display solutions tailored for our customers' needs. Canvys reported revenues of $8.0 million in the third quarter of fiscal year 2020 compared with $9.2 million in the same quarter of the previous year. As we have said before, our business remains project focused and can vary from quarter-to-quarter based on customer program timing. On a year-to-date basis, revenues were $25.0 million, up from $23.7 million in the comparable period last year. Our gross margin as a percentage of net sales was 32.2% in the third quarter compared with 33.2% in the third quarter of fiscal year '25. While product mix and freight duty and other supply chain-related costs affected the year-over-year comparison margin remained at a healthy level.

The backlog at the end of the third quarter of fiscal year 2026 increased to EUR 38.2 million, up from $38.0 million at the end of the second quarter, providing a strong foundation as we move into Q4. The quarter unfolded against the backdrop of the global economy that remains resilient overall, but uneven across regions, while trade policy shifts, tariffs and logistics markets continue to create pockets of uncertainty.

In response, we stayed focused on disciplined execution, close customer collaboration and maintaining the operational flexibility needed to support customer schedules. During this most recent quarter, Canada secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation and endoscopy and human machine interface solutions for the control of medical devices. At the same time, our solutions continue to support a broad set of commercial and industrial applications, including passenger information systems in trains and buses as well as HMI technologies used in printing, vending, billing and packaging equipment.

Our initiatives remain centered on increasing Canvys' ability and market leadership by developing new opportunities deepening customer relationships and converting our pipeline into additional design wins and production programs. We have also recently added to our sales leadership team and continue to strengthen our supply chain flexibility and execution capabilities, so we can respond effectively as customer demand patterns evolve.

Looking ahead, while the business remains project focused and can vary quarter by quarter, we are encouraged by the level of customer engagement, our request for quote activity and the quality of our opportunity pipeline. With the backlog now at $38.2 million and our Q4 forecast, looking very promising, we believe we are well positioned to put a strong finish to the fiscal year. Our dedicated sales teams continue to pursue new opportunities, while I remain focused on executing our strategic plans to drive sustainable growth and deliver long-term value for our shareholders.

I will now turn the call over to Wendy.

Thanks, Jens, and good morning, everyone. As a reminder, the remaining portion of our health care business, including the manufacture and repair of certain CT tubes, is now recorded under PMT. Under the January 2025 supply agreement with Direct Med, Direct Med is our sole customer for our CT tubes. Since the health care divestiture closed in Q3 of FY '25, Q3 of FY '26 should mark the end of the year-over-year comparisons. During the quarter, we wrapped up production of our Alta tubes, and we're now focused entirely on repairing Siemens tubes. We shipped a limited number of repaired Straton Z tubes during the quarter. We also completed life testing on the MX series and are now building beta tubes. These must run for at least 60 days in the field without failure before we can launch the rest of the series. With the completion of the Alta build-out and continued expansion of the Siemens repair program, we expect that to translate into a meaningful improvement in our bottom line starting in FY '27.

Stepping back to our multiyear strategy. We remain focused on two primary operating priorities, accelerating growth and improving efficiency. The third quarter, particularly February, was a good indicator of performance. This was driven by the strength we're seeing in the semiconductor wafer fab market as AI continues to lift equipment demand globally. We also launched new programs in our Green Energy Solutions business unit, including the long-waited Sutalon-India program. We're concentrating our new term development efforts on several products that we expect will contribute to sales growth in calendar year 2027. A key example is the battery energy storage solutions Greg mentioned.

Our best strategy is supported by our decades of engineering know-how, bringing emergency applications to market, a world-class battery energy storage design center at our LaFox facility launching in FY '27 and our more recent experience developing power modules for world-class wind and rail customers. We're seeing the commercial and industrial storage market become more attractive as customers put a higher priority on resiliency power quality and managing energy costs at the site level. That's especially true in applications where downtime is expensive and distributed storage can solve an immediate operating issue.

For us, the opportunity isn't just overall market growth. It's turning those real customer needs into a repeatable pipeline of commercial projects. Within our Made-in-America growth strategy, were the incredible evidence that the U.S.-based production and investments have been increasing, particularly around factory construction and reshoring. Initially, we have focused on leveraging our existing customer and supplier relationships along with targeted outbound marketing to highlight our U.S. engineering and manufacturing capabilities. While we've added several small programs that will begin shipping in the coming weeks. We remain actively engaged in the quote and prototype stage on several programs with larger companies, nearing $1 million in potential annualized revenue. We expect our Made-in-America strategy to expand over time. Recent new program wins provide us with growing confidence in the need for our capabilities while also helping us fully utilize our factory and resources over the near term.

Turning to efficiency and cash generation. We're pleased to share that the multiyear inventory investment we made around a single critical supplier is now complete. We believe this investment in inventory will support our business through 2030. We've also identified alternative suppliers with enough lead time to protect continuity, quality and our ability to meet customer demand. More broadly, we remain focused on controlling inventory and improving turns across all our segments. Without this one supplier, our inventory levels are trending down. We've also kicked off a disciplined cost controlled effort to evaluate where AI can help us, including an enterprise-wide AI steering committee with multiple working groups. The intent is to exit a 90-day period with some early wins and a practical road map focused on high ROI use cases across our global operations, driving efficiency improving decision-making and reducing manual work. We're keeping this tightly scoped and milestone-driven, leveraging internal teams so we can capture real benefits without meaningful incremental cost.

Looking further out, we remain focused on driving growth through a mix of organic initiatives and a disciplined approach to acquisitions. We're evaluating opportunities thoughtfully with an emphasis on areas where we can leverage our existing capabilities and global infrastructure. We believe the initiatives we're executing today position us well to accelerate revenue growth and improve profitability over time, and we'll stay patient and selective as we consider longer-term acquisition opportunities.

With that, I'll turn it back to Ed.

Thanks, Wendy. In closing, our third quarter results reflect the continued progress in strengthening the financial profile of the business. We delivered our year-over-year sales growth, improved gross margin and generating operating income. We also believe our exposure to select alternative energy and EV programs provides an additional avenue for long-term growth as market conditions continue to evolve. With a strong balance sheet, increasing backlog, a continued focus on repeatable sales, operational discipline, higher value engineered solutions, we believe Richardson Electronics is well positioned to build on this momentum. We remain committed to improving profitability and creating sustainable value for our shareholders. Customers and employees as we move forward.

We'll now open the call for questions.

[Operator Instructions] And our first question comes from Anja Soderstrom with Sidoti & Company.

This is Justin on for Anja. Following the March launch of your Laser flat Saver solution, can you discuss how customer interest, initial adoption and order activity has trended? .

What do you think. Yes. So right now, there's -- we've identified in our system. So just real quickly, all of our customers on our system are applied 1 to 3 application codes. And so we served our customer base like we do with any new product introduction of any customers that will be working in an application that would need that product. So the team has done that. They've mailed out sales tools to get with them. They're having a show this quarter when they're going to feature it in the booth. So right now, they're getting a lot of requests for more data, more information, but it's in the infancy chase of its launch.

And then can you provide more detail on the project timing dynamics within GES this quarter? And how we should think about revenue contribution and project conversion in the fourth quarter?

Yes. So it's a very project-based business, which as we've mentioned, it's very hard to forecast quarter-over-quarter. Prime example of that is in Q2, we grew 39%. And the backlog with GES is very, very strong. It's close to $40 million, but that's a backlog that was generated over the past 4 years. And in those four years, these products didn't exist. We identified the opportunity. We did the design work. We did the manufacturing testing and then the field alpha beta testing. So the backlog is ordered based on annual contracts of 12 months, large quantities, large dollars, and then they pull off of that. So in Q2, they pulled a lot of the issues in terms of they were designing it in in the field, putting it into their turbines. And then in Three, we saw sales not be as high as we would like, but backlog and bookings continue to grow as they pull off of these programs. The good news is the $8-plus million we shipped in GES was pulled off of backlog and current purchase orders. The backlog stayed flat, actually is up a little bit that's new business, new customers and new products that keeps that backlog at $40 million. So we're very confident that we're meeting our objectives in terms of adding sales growth adding increase in backlog, increasing our customer base and increasing the number of products that we've developed in our design centers. We've done all of that this year. And as of the end of the third quarter, sales are up, backlog is up, and we're looking for a Q2 type growth in our Q4 and going into FY '27, looking for, again, double-digit growth. So we're very confident and happy with our backlog and the customers that are adopting these products as we introduce them.

Our next question comes from Bobby Brooks with Northland Capital Markets.

It was great to see the backlog growth exiting the third quarter. Just wanted to dive a bit deeper into that, specifically with the PMT stuff. What specific end market or customers or products drove that strength in the PMT backlog growth.

Yes. In Q3 specifically, on the GES side, it was -- our internet...

PMT, PMT. On the PMT start first.

Well, PMT, it was our semiconductor wafer fab customers. And then RF and wireless components going into SATCOM applications and aerospace and defense. Those two had very nice quarters and also an increase in backlog. So for PMT, it was specific to our semi-fab fab customers and our RF and microwave components business.

Got it. And then on GES, right, it's like up slightly, but core backlog up more, and you gave some color to Justin on the last question. And -- but I was -- what I was kind of confused. So the backlog is ordered based on annual contracts. So like you're getting on order at the beginning of the year from a customer saying, "Okay, we want x amount of [Audio gap] 3,000 this year and then they pull from that. Like do they have to -- like do they have to -- if they order 100 ULTRA capacitors, do they need to take all 100 in the year?

[Audio gap]

Exactly, Bobby. So they give us an order for an annual usage of their forecast, but they could order 1 unit or pull 1 unit off of, let's say, 100 pieces that you talked about at the beginning of the year, and at the end of the 12 months, it could take the other 99 or they could take 25 a quarter. It's very hard because with them, it's all based on the time of year, the weather, the wind speed. That's where we carry such a large inventory because they'll literally look at a web report and find that the wind speeds will be down this certain week in a certain month and asked us to ship that month. So that's kind of how it's really hard to say what the sales will be and then the backlog because of these annual contracts. But Bobby, the good news is when you see $8 million shipments that were pulled off of current orders, if the backlog stays the same, that's new orders from other customers that were coming in. And just overall, a $40 million backlog generated on products that didn't exist 4 years ago, it is a strong backlog, even if it's stayed at $40 million.

Yes. I agree with that. And so one more clarification point. So let's -- we're walking down the road of annual orders, someone orders 100 units and let's say, they pull 20- or they do 25, 25, 25, so then you would be expecting they should be pulling 25 in the fourth quarter. Do they -- like are they -- I guess the purpose of the question is, are they contractually obligated to hit that number that they pledged to, or can they push it over to the next...

Yes.

Okay, so like -- you already know...

To give -- yes, they give us the quantity based on that quantity, we give them a price. Obviously, if 25 is larger to get a better price. And they give us [ appeal, ] and their commitment is to take those products over a 12-month period.

Okay. Got it. And then just like if you had to rank order what would be the 3 most compelling near term, call it, over the next 12 months opportunities you see in the GES segment and why.

Well, the first one is because we're quoting opportunities between $2 million and $20 million is the BES, those bookings would be huge in a given quarter. And the other two going into FY '27 and some in is new products coming out of our Sweetwater design center. We have a new PEM coming out for the 20 new meter turbines throughout the world. We have a number of accessory walk hold accessory products the Turbine Guard and others that will be just -- just finishing up beta testing now, absolutely fantastic performance. We've ordered all the housings and starting to bring in products so we can start shipping that in booking and shipping that in Q1 of FY '27. So the three would be BES and then a handful of new products, mainly the 20 net meter, we see that a very large growth area for us. And then these turbine guards, which go into every turbine that we've ever sold a pitch Energy module in. So we have a captured audience, we have the contacts and that's usually what takes the most amount of time when you're introducing a new product, who are the people that make the decisions on and on and on? Well, we've already worked with most of them for 4 years. So Bobby, the new products and the major big BES strategy that we're implementing, right? We're in the very infant stages of that.

I appreciate the color. And then just last one for me is, just a little bit more color on so that the BES demo plant that time line of the getting up has slid to the right by a quarter. What happened there? And could you just remind us on the CapEx required for that and just the specs of the plant?

Yes. So it has nothing to do with us really. And if you ever built a new house in a rural area, it's getting all the hookups. They have to increase the transformer and getting something like that through ComEd, I don't know who you use, Bobby, but here in Illinois, it's just time consuming. But we do have, and they committed to it. We have a weekly call with them now, but it's just very time consuming to get them to get the the grid set up that we can put in the demo center so we can also then obviously sell back into the grid. But we'll probably proceed without it. We might just put it in place, so people can see it, see how it's hooked up to our facility because obviously, we're going to use it here and then move forward. So that's kind of the status of the BES. We just like the other programs we've done in the past with the RF microwave components and then the -- what we call project turbulence here, which is the engineered solutions. We've identified technology partners. We feel we have a couple of very strong ones for this strategy, one that will support us in the Americas, and another one that will support us globally. And that's what we're using right now to do these quotes. So we're not running in place. We're out looking for opportunities. And as you know, we identified 1 in 16-page proposal, and we won it in December. And I can tell you, it's already been shipped this quarter by about $570,000 or $590,000 our first system.

Congrats on the strong quarter.

Bobby, you're not going to ask me about GE? I waited and waited, I got good news for you. I didn't put it in.

He's already left.

Oh, he's off okay. I will talk to you later, Bobby. So to add to that, we have this program going with GE that they -- for installers that are installers or customers that have service agreements. They needed to test our product because, obviously, right now, they're using lead acid batteries in these service agreements, and they have an installation manual with all the safety characteristics. So they just have to match our product up with their lead acid batteries and make sure the ESR, there's no difference, which you already know there's not, then they can put the design in an installation manual with check off from safety. So anybody that has a GE service contract and uses GE to do the service, they can now tell them which they've been trying to do to use our pitch energy modules and don't replace the lead acid batteries with led acid batteries. So very positive, Bobby. We tested it here at past. I talked to Mike Rodkin yesterday, and he's just going to finish it up. So hopefully, in Q1, knock on wood, that program will be all signed off, and we'll be up and running.

Our next question comes from Ross Taylor with ARS Investment Partners.

Going over your balance sheet, it looks like you've got -- you got north of $11 a share in book value. It looks like over 80% of that book value is current assets, net current assets. And obviously, I'm curious on getting to how much of those -- of the inventory line is the tallest inventory you've built up? And how rapidly do you anticipate converting that inventory into cash.

So we got about $45 million in tales inventory, and we've been communicating over the past couple of years, we will have enough inventory to take us through 2030. So we're in good good shape there. We are done with the purchases. So what you'll start to see now in Q4 and obviously going into the next several years is burning down that inventory level. And as I mentioned, the team has done a phenomenal job of reducing inventory with our other suppliers. So I think you're going to see that the cash generation going forward.

Okay. And the fact that you found qualified replacement suppliers makes you comfortable and should allow you to perhaps do that at a faster pace than might have been the case if you weren't able to find those.

I wouldn't say we're going to sell off the inventory quicker because of that. It gives us comfort that we're never going to be in a position where we lose sales because we don't have product.

Okay. That's important. Can you talk about a couple of areas. One, initiatives you have, you've talked about the idea of getting more recurring business, I think one of the drawbacks stock has suffered from historically as the high volatility in earnings. So can you talk about both the progress on those initiatives and how we should see it as investors, how we could see the fruits of that in a more stable earnings or less downside earnings fondly. And then along with that, would you also talk about the potential opportunities in the idea of artificial diamonds. You're hearing a lot of talk on the leading edge in AI chip space that silicon has limitations to heat transfer and heat absorption and that it turns out that artificial diamonds apparently work quite well in that. And so there's -- from my understanding, there's an initiative to push forward with turning artificial diamonds into substrate, and how you might benefit from your involvement in that space.

All right. Let me -- that's two very different long questions. Let me start with the second one...

Yes, but you're only giving me two, so I got to get them.

That counts more than two. All right, artificial guidance, we are dealing with a couple of very large customers that make those type of substrates for cooling AI. It's still using, as you call them, artificial diamonds, that's still in its early phases. We have shipped them, I think it's three now microwave generators, large generators that's the great Lakes Crystal technology company that's making those. So we will continue to participate with companies like that using our microwave generators. So it's a good opportunity, and we hear the same thing you do, Ross. Now on recurring revenue, I'm looking around the room here a little bit, I'll start with the easy part of that, which is we consider a lot of our EDG, our core business as being recurring revenue, not in the sense that it's service contract like you might be looking for, so it's recurring in that we basically have the tubes to fit those sockets. And those tubes have a limited shelf life or not shelf life, but usage life. So when those two fail, then they come back to us and they order them again, that's the strength of the MRO business and the EDG business, in particular. Now if you're talking more about service agreements and contracts, I'm going to turn that over to Greg and let him address that.

Yes. Just a couple of things to add also to jump in what Wendy said. Most of our RF and microwave semiconductor customers are looking at diamond substrates for semiconductors. It's becoming a technology of choice going from GaN and silicon carbide now diamond. And so we hope that continues because they're going to need different equipment, which will come from our semi wafer fab customers. that are building this type of equipment and then hopefully using, obviously, our products that we make here. On the recurring revenue, Wendy hit it on the head. We have a very, obviously, very strong base business. We call it legacy, I call it legendary, the tube business. And that is pretty consistent, plus or minus 2% or 3%, obviously very profitable. And so we're using some of those profits, but also that base business, including the customers to bring in new products, and we have forecast for every product we introduced based on the number of customers, TAM, DTAM, all that stuff. And when we introduce a product, we have a very high confidence level that it will go into production and that we can start gaining market share. So it's just a pretty much standard model in that we have a very strong base business. And then we continue to bring into that those similar type markets, power management and RF microwave, which are also tubes and bringing new products with the state-of-the-art technology that we can design manufacture and test here.

And can I throw 1 quick theoretical question in for Ed. I mean, presently, the stock trades at or even under book value. The book value, as I noted, is over 80% current assets. It strikes me as replacement value for your assets is probably a significantly higher number than book value. Does it frustrate you and what do we need to do to get investors to recognize that this company actually should trade at a more meaningful premium to book.

Well, I think we just need to continue the development of the new programs we're talking about. Every quarter, I'm sure this was coming up, our Board talks about whether or not we should buy our stock back, and we've gone through that program in the past. And every time we buy the stock back and reduce our cash, the price of the stock would go down. So there was no benefit to that. And the real answer to your question is to continue to develop these new programs and increase the business and the profit generated by the new programs.

Yes. And I wasn't going to bang my head on the buyback. Even I...

I tried to hit it on you.

Well, we're just in different places. I actually would argue your buybacks haven't been a failure. We can do that intellectually at some other point in time. But no, I do think it just -- it's an area, and I do think that these initiatives to capitate the downside in the earnings numbers will pay tremendous benefit from a shareholder standpoint because it simply will take away that downside risk and might give the sell side a little bit more encouraged to actually value the business more appropriately.

[Operator Instructions] Our next question comes from Chip Rui with Rui Asset Management.

It sounds very, very positive. I mean, it really feels like you guys are tipping to an inflection point. in a dozen areas. And I guess I'll just ask specifically if you could talk about two. One, semi CapEx has been the historical volatility for you guys. It's been a tremendous down cycle for a couple of years, but you've -- industry-wide have seen people like Micron talk about chips sold out for years and massive capital investment by them and others. So what are you seeing on that? How much of it could you play in? And how would that shake out as far as future orders kind of over the next 2 or 3 years if that cycle develops the way some of the larger industry players see? And then secondly, congratulations on that GE warranty, I was going to ask it to. So just to clarify, it's approved, it's baked. Have you actually signed off or you still need to. And just for clarity, that does open about 50% of the market that you haven't been able to touch. So just some more color on how meaningful that could be?

Yes. So the situation we have, the team obviously has done a great job selling to owner operators. As you know, we have exclusive agreements with the top 4. But these owner operators do not have service contracts with GE. They bought a GE turbine, but they service it themselves. So they can do with it whatever they want with determine. There's other customers, and that number has become lower than we originally thought. It's a much smaller percent of the owner operators that actually have GE contracts, but it's still worth this process. And so our part, they're not testing to see if it works. We've sold over 84,000 of these to date with Six Sigma like quality. We're on their website already what this program is, is if you have a service agreement with GE, and you're using GE to do that service. They have to go through and make sure that product that you now want to install meets all the safety requirements of the GE safety manual. And so we're -- the good news is they sent us the spec that they're going to test. We've already tested the product. Every one of them has worked perfectly matched up with that. We are still have sent products to them. They're going through the testing. And again, I hope this is completed by Q1. But just like NDA and this agreement that we have with them and say, gee, anymore, I have to say, a large wind turbine manufacturer, is those companies that are that large, it just takes time, but very positive, working direct with them. They're going to do the final test on the product. And what they're doing is just making sure that the ESR matches up the same with the battery, then they don't have to change the manual because there's no technical changes to the product and in the installation. Plus, as you know, we designed and developed a discharge tool that's becoming more and more popular that actually discharges all the energy in the cells in the ULTRA caps before you put it in and then before you take it out. So that's kind of the scenario with it. It's worth millions of dollars to us, but it's not a 50% increase in our SAM. It's probably about 15% to 20% increase in our opportunity or served available market. Does that explain it a little bit better?

Yes. It's great.

And then your other question was regarding the semi market, the first question.

Yes. Just it's been kind of a down cycle for a few years from kind of the fab guys are talking about really needing to step up. How could that pull through to you over the next 2 to 3 years?

Yes. I think that what you're going to see is continued good growth in that particular part of our business. Okay?

Yes. I think what you're going to see is you're still going to have cycles, but this cycle that we're seeing now, especially in their forecast and what they're putting in the portal that we have with them in terms of their forecast. I think the upside is going to be longer than we've seen in the past just because of all the things that many of you mentioned on the phone with the need for more sec conductors, data centers, the whole thing that this upside should last longer versus the 6- to 12-month cycles that we've seen in the past. So that's the other benefit of this. And then while that's growing before the cyclical part of it, we will hopefully be bringing in new products to balance out the downsize of the semiconductor for fab market. So when it does pick up, we use of a better term, it's gravy to our overall results.

And our final question comes from Andrew Rim with Odison Partners.

Greg, could you give what the backlog for PMT was in the quarter?

Do you have that handy?

I have it. Backlog for PMT at the end of the quarter was $75.4 million.

Okay. So that was up pretty substantially. I mean, I think you guys said in your prepared comments, up 15% or maybe a little bit higher?

Backlog overall -- excuse me, was up 11.4%.

Okay. So total backlog is around 153, 155 somewhere in there?

151.2.

Okay. And then in the past, you commented on what the semi wafer backlog has been. Can you comment on that? Or just maybe even in rough terms?

We'll just tell you it's up.

Okay. And then I guess, you commented on the inventory. I didn't check, but for the sales inventory, will you guys put a footnote in your Q and K as you work that down through time, or what would be the best way to kind of get at like because you said -- excluding sales, overall inventory is down. I think that's kind of an important metric here. So -- if you don't provide it as a footnote, I guess I would encourage you to do so because I think that's pretty important because you guys have worked hard on reducing overall inventory. So I think that's important to this story.

Thanks, Andrew. We'll take that under advisement. Good hearing from you.

This concludes the question-and-answer session. I would now like to turn it back to Ed Richardson for closing remarks.

Well, thanks again for joining us today and your questions. We look forward to talking to you again in July. We're happy to take your calls anytime, so feel we're happy to take the calls, and we're welcome to call us any time. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you, welcome to the Richardson Electronics Earnings Call for the Second Quarter Fiscal Year 2026. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Ed Richardson, CEO. Please go ahead.

Good morning, and thank you all for joining Richardson Electronics Conference Call for the Second Quarter of Fiscal Year 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power & Microwave Technologies and Green Energy Solutions Group 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're 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.

I'm pleased to report that Richardson Electronics has achieved 6 consecutive quarters of year-over-year growth. underscoring the progress we're making in executing our multiyear strategy. This growth reflects our continued repositioning toward higher growth end markets, and the expanding contribution from our engineered solutions. Equally important, these results are driven by the strength of our people. While investors are familiar with our senior leadership team, we've been intentionally investing across the organization to build depth, diversity and technical expertise throughout our ranks. I believe we have assembled 1 of the strongest and most motivated teams in the company's history, positioning Richardson Electronics for long-term sustainable value creation.

Looking at our Q2 FY '26 results. Total sales were $52.3 million, up from $49.5 million in Q2 of last year driven by sales growth in our green energy and Canvys businesses. Operating income improved to $132,000 versus a loss of $667,000 last year. Within our GES business unit, we're very pleased with the year-over-year growth as well as sequential quarter-over-quarter growth. Both onshore wind and EV sales were up over the prior year in Green Energy segment, reflecting higher sales from existing customers as well as sales from new products and expanded customer base. Canvys revenue exceeded the prior year by 28% on improved demand from our medical OEMs. It's important to note that the sales growth was partially offset by the inclusion of our health care business in both the current year and the prior quarters. As a reminder, we sold the majority of our health care business in Q3 of FY '25. So this will impact our year-over-year comparisons through the end of Q3 this year. We also remain focused on managing expenses and improving inventory turns. Our cash position remains strong at $33.1 million providing us with flexibility to support both our ongoing operations and strategic growth opportunities.

I'll now turn the call over to Bob Ben, our Chief Financial Officer; who will provide a detailed review of our second quarter results and capital positions. Following Bob's remarks, Greg and Jens will provide updates on our business units and then Wendy will follow up with the progress we are making executing again on our multiyear growth strategies.

Thank you, Ed, and good morning. I will review our financial results for our second quarter and first 6 months of fiscal year 2026 and followed by a review of our cash position. Consolidated net sales increased 5.7% to $52.3 million compared to net sales of $49.5 million in the prior year second quarter. When excluding health care, for which the majority of assets were sold in January 2025, net sales increased by 9.0%. Please note that health care results, including prior periods are consolidated into the PMT segment beginning in fiscal 2026. This was our sixth consecutive quarterly year-over-year increase in sales. Second quarter net sales growth was led by a 39.0% increase in GES sales, driven by an increase in power management products. Canvys sales increased 28.1% and which primarily reflected higher sales in North America. Sales for PMT were 4.0% below the second quarter of fiscal 2025. Excluding health care, PMT sales were approximately flat.

Consolidated gross margin for the second quarter was 30.8% of net sales compared to 31.0% during the second quarter of fiscal 2025. The slight decrease in consolidated gross margin was primarily due to lower margin in PMT and GES, partially offset by higher margin in Canvys. Operating expenses as a percentage of net sales improved to 30.5% for the second quarter of fiscal 2026 compared to 32.3% in the second quarter of fiscal 2025. Operating income improved to $0.1 million for the second quarter of fiscal 2026 from an operating loss of $0.7 million in the prior year second quarter. Net loss was $0.1 million for the second quarter of fiscal 2026 compared to $0.8 million in the second quarter of fiscal 2025. Net loss per common share diluted was $0.01 in the second quarter of fiscal 2026 compared to $0.05 in the second quarter of fiscal 2025. EBIT for the second quarter of fiscal 2026 improved to $0.7 million versus breakeven in the prior year second quarter. Please note that EBITDA is a non-GAAP financial measure and a reconciliation of the non-GAAP item to the comparable GAAP measure is available in our second quarter fiscal year 2026 press release that was issued yesterday after the market closed.

Turning to a review of the results for the first 6 months of fiscal year 2026. Net sales were $106.9 million, an increase of $3.6 million from $103.2 million in the first 6 months of fiscal year 2025, which reflected higher sales across our business segments, except for PMT. When excluding health care, consolidated net sales increased by 7.8% and PMT net sales increased by 5.2%. Gross margin was 30.9% of net sales which was a slight increase from the first 6 months of fiscal 2025. As a percentage of net sales, operating expenses for the first 6 months of the fiscal year improved to 29.8% from 31.1% for the first 6 months of the prior fiscal year. Operating income for the first 6 months of fiscal year 2026 was $1.1 million as compared to an operating loss of $0.4 million for the first 6 months of fiscal year 2025.

The company reported net income of $1.8 million or $0.12 per diluted common share for the first 6 months of fiscal year 2026 versus a net loss of $0.2 million or $0.01 per diluted common share for the first 6 months of fiscal year 2025. EBITDA for the first 6 months of fiscal 2026 was $4.0 million versus $1.7 million in the prior year's first 6 months. Turning to a review of our cash position. Cash and cash equivalents at the end of the second quarter of fiscal 2026 were $33.1 million compared to $35.7 million at the end of the first quarter of fiscal 2026. The Capital expenditures of $1.6 million in the second quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements and IT systems versus $0.5 million in the second quarter of fiscal year 2025. We paid $0.9 million in the second quarter for cash dividends. 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 third quarter of fiscal 2026.

As of the end of the second quarter of fiscal 2026, the company had no outstanding debt on its revolving line of credit with PNC Bank. Now I will turn the call over to Greg, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. GES and PMT are key components of our multiyear growth plan. Coming out of FY '25, we had strong backlog. We launched several new products, expanded our customer base and advance multiple development programs from beta testing to preproduction. This momentum continued into Q1 and into Q2. Building on this progress in Q2 of fiscal year 2026, GES grew to $8.3 million, a 39% increase over prior year and a 14% increase over this year's first quarter. As we continue to see the amazing adoption of our pitch energy modules for various wind turbine platforms with owner operators and other related power management products throughout the world. PMT sales were $35.2 million in the quarter. a 4% decrease over prior year. This reflects a slight slowdown in the electronic device MRO business, offset by growth in the RF and Wireless Components business unit. Our GES strategy centers on power management applications. We've rapidly designed multiple products, secured patents and built a strong base of customers and partners.

Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities to support new power management requirements and significant energy transformation opportunities. Our pitch Energy modules and related wind energy products led GES quarter-over-quarter growth. We continue to gain market share by developing new products and solutions that are accepted by our customers, and the team is doing a great job expanding this program globally. We serve dozens of wind turbine owners operators including exclusive partnerships with the top 4 owner operators of GE wind turbines such as RWE, Invenergy, Enel and NextEra. We also saw growth from our new multi-brand PEM turbine platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms such as Suzlon, Senvion, Nordex and SSB. We have now received orders from customers in Brazil, Australia, India, France and Italy in addition to our strong rollout in North America.

We are entering the back half of FY '26 with solid momentum. We recently added key technology partners such as Kiba Goshen and Mulan, who play critical roles in both wind power management and energy storage systems. Key initiatives include faster design to production cycles supported by a new design center in Sweetwater, Texas, Suit water has 1 of the largest concentrations of wind turbine and power management engineers in North America. Expanding our design team to accelerate and enhance design cycles prior to transitioning work to our world-class manufacturing and Test Group in LaFox, Illinois. This is one of our most critical strategic priorities underway. We expect to have the Sweetwater design center fully operational in Q3 of FY '26. We are also adding key people from the industry to help expedite growth. We are on schedule to complete our Illinois-based demo center in Q4 FY '26. This demo site will allow us to showcase our active BES solutions to potential customers. We are currently collaborating with numerous customers on BES systems that we can support with our current technology partners. In fact, we booked our first system at the end of December.

Our GES products and technology partners support our niche product strategies as it appears federal subsidies will be harder to get under the current administration. Looking at our new ESS project and strategies, we are focused on sales in key states, and we'll continue to offer large subsidies such as Illinois, Massachusetts and California. We are also expediting our efforts to expand global market penetration of our power management products for green energy applications focusing on Europe and Asia. Currently, about 70% of our GES sales are in North America. Turning to Power & Microwave Technologies Group or PMT, which includes our Electron Device Group, EDG, and our legacy Tube semiconductor wafer fab equipment business and the RF Microwave Components Group, or PMG. In the quarter, we did see some sales growth, led by increased demand in our RF and microwave components business. as we see growth in RF and wireless applications such as SATCOM and military applications, including radar and drone technology. While semi fab sales were flat in the quarter, we are encouraged by our customers' forecast indicating growth for the rest of the fiscal year.

Looking ahead, we are excited about the strategic initiatives across PMT and GES, including our ESS program, global expansion of our key products and new technology partnerships. While we are navigating a higher degree of uncertainty associated with the impact of tariffs and market conditions, we are pursuing opportunities that may come from these disruptions. We are investing in infrastructure, expanding our design and field engineering teams and enhancing our in-house design and manufacturing capabilities. To support growing demand and innovation, our engineering teams continue to identify new customers and opportunities. Our global capabilities and global go-to-market strategy set us apart from our competition in power management, RF microwave and green energy markets. We have developed a business model that combines legacy products with new technology partners and solutions allowing our growth strategy to deliver engineered solutions to a global customer base. This model differentiates us from our competition.

We are working on these initiatives alongside marketing our manufacturing design services to companies who need partners in the U.S. to manufacture, test and support products currently made in other countries. We acknowledge there are a lot of moving parts but we have successfully used our global resources, infrastructure and capabilities to mitigate the effect of these situations like this in the past. So in summary, we remain optimistic about our growing project-based business, even though it remains hard to forecast. We continue to increase our technology partners, design opportunities and engineering staff. We have a new technology partnerships that fill technology gaps. We have proven strategy of identifying opportunities in the multibillion-dollar markets we serve. As a result, we continue to feel FY '26 will be another growth year for both PMT and GES. And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys Engineers manufacturers and sells custom displays to original equipment manufacturers across global industrial and medical markets. It is our mission to deliver high-quality display solutions tailored to our customers' needs. Canvys reported revenues of $8.8 million in the second quarter of fiscal year 2020 an increase of 28.1% from $6.8 million in the same quarter of the previous year. Our gross margin as a percentage of net sales increased to 32.6% from 31.7% in the second quarter of fiscal '25, primarily due to product mix. The backlog at the end of the second quarter of fiscal 2026 remained strong at $38.0 million, providing a robust foundation for future business. During this most recent quarter, Canvys secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation endoscopy and human machine interface HMI solutions for the control of medical devices. Furthermore, our solutions are widely utilized in various commercial and industrial applications.

For instance, our products enhance passenger information systems in trains and buses and improve HMI technologies used in printing, vending, billing and packaging equipment. Our initiatives focus on increasing Canvys' visibility and market leadership by seeking new opportunities, building customer relationships and collaborating within the industry to drive growth. Looking ahead, while the business is still project focused and can therefore vary quarter by quarter, we are cautiously optimistic about improving demand in our markets. Positive indicators such as increasing request for quotes and encouraging customer feedback suggest steady growth. Our dedicated sales team continues to explore new opportunities while are focused on implementing strategic plans to ensure sustainable growth and deliver long-term value for our shareholders. I will now turn the call over to Wendy.

Thank you, Jens, and good morning, everyone. While the remainder of our health care business, including the manufacturer and repair of certain CT tubes is included in PMT, I want to continue providing key highlights as we go through this transition period over the remaining quarters of FY '26. As a reminder, we sell CT tubes exclusively to Direct mat as part of the January 2025 sale and distribution agreements. Over the last quarter, we continued to make excellent progress finishing production of our Alta tubes. We should wrap this up by the end of third quarter of this fiscal year. We've also made good strides during the recent quarter repairing Siemens Stratton Z tubes. We are preparing to launch the repaired Siemens MX series as early as the fourth quarter of this fiscal year. Given the health care transaction occurred in Q3 FY '25, Q2 and Q3 of FY '26 will continue to show unfavorable comparisons. However, the combination of completing the production of the Alta Tubes and expanding our Siemens program for Direct Med will result in an improvement to our bottom line beginning in FY '27. Switching to an overview of our multiyear strategy. We continue to focus on accelerating growth and improving efficiency.

In the second quarter, we had significant growth in our green energy business unit, reflecting our ongoing investment in this sector and the benefit of new products generating revenue. Today, we are shipping our pitch energy modules for nearly all GE manufactured turbines to an expanded customer and geographic mix. There are several additional products in development and test that should start contributing to revenue growth in calendar year 2027. We also continue to make progress developing a world-class battery energy storage design center at our LaFox facility. As we've mentioned before, the demand for battery energy storage continues to accelerate as our turnkey solutions and technology partners position us to capitalize on that growth. In the quarter, we added several projects to our pipeline, including 1 that closed end of December.

Our made in America activities are also generating interest. We are utilizing existing customer and supplier relationships to promote our engineering and manufacturing capabilities here in the U.S. We've reached the quoting and prototype stage on several programs, primarily taking advantage of our PCB facility as well as our battery knowledge. This isn't a fast process but the upside of new programs will play a key role in fully utilizing our factory and resources. Finally, we are expecting stronger demand for our engineered solutions within the semiconductor wafer fab equipment market, well into calendar year 2026 and beyond. This growth is tied to the ongoing benefit of AI on equipment demand throughout the world. We are well positioned to benefit from growth in memory-related applications. This growth takes advantage of our existing resources and manufacturing facilities as well. We remain focused on efficiency and cash generation. The period of elevated inventory investment relating to a single critical supplier is nearing completion as that supplier prepares to exit production of power grid tubes. We expect final inventory receipts of approximately EUR 1.5 million in the first quarter of calendar year 2026, after which inventory levels should normalize and cash conversion improve.

This inventory provides product coverage through 2030. We have identified alternative supply sources with sufficient time to ensure continuity, quality and fulfillment of customer demand. Outside this area of growth, we continue to focus on controlling inventory and improving turns. We have also initiated a disciplined cost-controlled effort to explore the benefits of AI and by creating an enterprise-wide AI steering committee. This effort is expected to create a road map focused on practical high ROI applications across our global operations. The goal is to drive efficiencies, improve decision-making and reduce manual workload while maintaining strong governance around security, data privacy and responsible AIUs. Importantly, this initiative is designed to leverage our internal teams with clear milestones and tight scope controls, ensuring we capture meaningful benefits without significant incremental cost.

Longer term, we remain focused on driving growth through a combination of organic initiatives and a disciplined approach to acquisitions. We continue to evaluate opportunities thoughtfully with an emphasis on leveraging our existing capabilities and global infrastructure to support sustainable growth. We believe our current strategic initiatives position us well to drive revenue and profitability over time while we remain patient and selective as we consider potential longer-term acquisition opportunities. I'll now turn the call back over to Ed.

Thanks, Wendy. In closing, our results this quarter demonstrate the strength of our strategy and the resilience of our business model. It also reflects the talent of this management team to adjust the constantly changing market conditions. By sharpening our focus on repeatable sales, driving strong cash flow and building on our scale across power management and alternative energy solutions, we're positioning the company for long-term success. At the same time, we remain disciplined in our commitment to improving profitability. These priorities give us the confidence in our ability to deliver sustainable value for our shareholders, customers and employees as we move forward. We'll now open the call for questions.

[Operator Instructions] Our first question will come from the line of Bobby Brooks from Northland.

You mentioned how overall -- you mentioned how overall GS backlog declined, but that core backlog grew. Could you just discuss what would be considered core backlog versus noncore?

Sure, Bobby. This is Greg. So the backlog -- so sales were up 39% and backlog was down $57,000 -- that's not too bad. You go 39% in your backlog going to decrease is 57,000. So when I talk about core backlog, we have the products that you and I have talked about, the pitch energy modules and everything else. We also have a group of customers that are -- we're selling components into that are building green energy products. It's a much smaller portion of GE -- but that's what we call the noncore and that book-to-bill was down. But if you look at the core business, which is 95% of it, the book-to-bill was 1.10 on 39% growth and of course, 15% above that. So we're very excited about the business -- core business that we talked to you about that you know about. Those are the products that are growing.

Got it. That's helpful and really good to hear. And then maybe what's -- what's the right way to think about cadence of orders turning to backlog and then revenues within GES? Like are there certain product lines that can be booked and shipped inter-quarter? And and that maybe was a dynamic that spurred the strong GES sales in the quarter?

Exactly, Bobby. So as these products come out, they go from alpha beta to production, and then once that happens, you see we have new customers every quarter, new sales. And so that business is what led to the growth. And as you know, we're expanding that model, which is about 85% North America expanding it into Europe. So we had wins in Europe that we booked and then wins in Asia that we booked. So that core business that we talk about -- that's growing quite heavily, and we continue to get new customers and backlog. So we're starting to understand what the annual usage is. And so we're trying to get ahead of the game and build products for stock. It's a guessing game. They do give us a forecast, but they're terrible forecast. So in Q2, we did ship a lot of product from stock. So that's a book-to-bill of 1 that's flat bookings or backlog, and that's where you saw it. So the team has done a great job working with these key customers, trying to develop their annual needs. And then when they come in, for 1,000 units, just kind of out of the blue Bobby, I know a couple of those were able to ship from stock. So that's how it's working. And we're continuing to try to make sure we have inventories so we can ship from stock. But in a very positive way, we're seeing higher demand than what we're building.

Our next question will come from the line of Anja Soderstrom from Sidoti.

I'm just curious with the approval list for the Alpha-1 we -- and what kind of opportunity could that present?

At again, Ana. For the what product?

The out 1,000 for the GE approval list.

I think is asking about the GE, where do we stand with GE getting approval. -- for the -- for your Ultra 3000.

Yes. So Anja, we have GE approval. We're the featured product on their Internet site or their marketplace product. What -- we're not driving this. This is being driven by their customers. So NextEra and InverEnergy, has been pushing GE because they have a handful of sites where they're using GE services to do maintenance and service. And so -- all we need to do is have GE. We're going to send them some product, and they're going to try to literally blow it up. I mean it's all about what this product will do so they can improve it from a safety point of view. From a performance point of view and working in their turbines, that's already been approved, that's already done. So we've been going back and forth with an NDA, I've worked for a $30 billion company -- for the $30 billion company before, and it just -- it takes time. So we have an agreed NDA. We signed it, we sent it back to them. We're expecting it back. But I will tell you, Anja, these people aren't waiting. In fact, we booked a large number of business that they said, "You know what, will outsource this ourselves. We won't use GE services to install these Ultra3000s, which we've been buying for other sites for 3 or 4 years.

So it really right now, I don't see it being a slowdown of any sort. We have more than enough business right now. It will be an upside. But I wouldn't doubt if they just say, "You know what, we're not going to use your services to do our pitch energy modules because -- these things are such a cost savings to these owner operators and the eliminate a huge problem that they have, I don't think they're going to wait for this. So this is being driven by GE's customers. We're just supporting it. But again, we finally have an agreed NDA because I'm not sending them any product without an NDA. We're going to send them products here this quarter, they'll test them, and then they'll say, okay, their service group can install these into the turbines. But it's interesting, some of these owner wrappers aren't waiting for them. They're just doing it themselves and installing it themselves or outsourcing it.

Okay. That was helpful. And then what's kind of margin impact does the medical have. What kind of opportunity do you see there as you conclude that supply agreement?

Okay. So this is Wendy. Year-to-date, the overall hit to the gross margin in PMT has been almost negligible. It's about a 0% gross margin, so we're not experiencing a huge hit there. It's the addition of the SG&A. And on a year-to-date basis, while we're doing better than we anticipated with that, we still are losing money. As we mentioned in the call, we anticipate finishing up the Alta 2 production in the third quarter. And when we conclude that, and we're focusing them strictly on the repair of the Siemens tube, we expect that to turn to a profitable bottom line contribution. So I'm estimating, we're estimating at this point that, that will begin in Q1 of FY '27. And but we're going to do everything we can to pull that into Q4.

Okay. And then you're sitting on some cash, and we expect cash flow to improve as you are finishing building up the inventory for the powergrid tubes. What do you -- what do you plan to do with all the cash?

Well, I'll jump in first and then Ed and Bob can also contribute. The first thing we always remind everybody on yes, the cash is spread out throughout the world. And I believe today, about 70% of it sits outside the United States in various legal entities. And that cash has to stay there. So while it looks like -- I mean, $33 million is a great number, and we're going to continue to focus on growing that. Please do remember that some of that is not in the United States. So we're going to continue investing in the growth initiatives primarily in the alternative or green energy solutions part of the business. Greg mentioned the Sweetwater, Texas facility and improving our new product development cycle. We're looking at some additional both sales and engineering resources that support that business. So we really want to hold that money that we have in the United States for those type of investments. We are continuing to be very opportunistic and open-minded about small acquisitions. Those would be ones that would be easily bolted on. Again, focused primarily in alternative or power management and focused in areas where they bring in engineering or some type of product that is unique or exclusive to the market. So those are the areas where we're really holding our cash. Ed and Bob may want to add to that.

I can add to that. Anja, it's Bob Ben. Just to let you know, we do -- the cash that we have on hand that we're not necessarily using on a daily basis. We have invested in various money markets, and we're getting an average yield of about 4% right now, just under $10 million of our total cash is invested in that. And so we are we are doing that, and that's what you see on the income statement as investment income, which is located in the other income section of our income statement.

Okay. And then a last question in terms of the summer conductor. What do you see there? And do you still expect that to pick up in the second half of 26

In the semi fab equipment market. Is that your question Anja?

Yes.

Absolutely. For all of our customers in that market segment, they are anticipating solid growth through the rest of calendar year 2026 and beyond. And we're starting to see some of that in our more near-term forecast.

Our next question will come from the line of Chip Rui from Rui Asset Management.

I want to follow up on the semi question that was just asked. I mean it seems memory has gone from debt on arrival of the hottest being out there. I know you've not exclusively memory, but you both sides. But has there been a cadence shift with what your customers have talked about. I know last quarter, Ed said you would finally kind of worked through kind of end customer inventory. Can you just give us a little bit more visibility on perhaps a cyclical recovery there? It seems you're still a little low from a revenue and earnings point of view, but historically a large contributor for the company -- so kind of when you say there's a better outlook, is it inflected positively? Or are you still hoping it will positively A little more color on that would be great.

So I'll start on that, Chip. So as I mentioned, we're starting to see stronger forecast for our Q3 and Q4. Bear in mind that the forecasting is not always the best and it tends to bounce around a lot as we've been discussing really for the last couple of years. But we do see, again, across multiple customers within that channel their input to us is get ready. We are ready. We have the resources. We have the space. It's not going to cost us a lot of money in terms of realizing upside. I also want to point out that on a year-to-date basis, Q1, Q2, we're still up considerably over prior year's first 2 quarters. So we are cautiously to more than cautiously optimistic about Q3 and Q4, and we're ready. So I don't know if that answers your question, maybe you could follow up if you have anything more you want to know.

No, that's helpful. I just -- I know it's up a little bit, but we're still -- it seems like the industry is gearing for a pretty big upcycle, even though you're up, you're still nowhere near where you were a couple of years ago. So hopefully, it's some upside. And then I'll just make a comment on the buyback. I've never pushed you guys to buyback. I understand where your cash is globally. But everybody on the call was bullish across the board this morning. From pitch energy, not only with GE to global, it seems semi is getting better. You've got new product development. It seems to me the enterprise is inflecting positively on multiple levels. Yet your stock is once again down and the analysts are focused on backlog and sequential margin I know you don't have a lot of cash, but $3 million or $4 million of that cash could be a couple of percent of your market cap. You also have an undrawn revolver, which would be in the U.S. My recommendation is carpedium. I mean, if there's a time to buy stock, it's when it's down. And when people don't see the vision that you guys see, it seems to me if -- what you're saying comes to fruition, this is just an incredible opportunity. So I'll leave that as a comment.

Thanks, Chip. We appreciate the input.

[Operator Instructions] Our next question will come as a follow-up from Bobby Brooks from Northland Capital.

Could we maybe just discuss the growth initiatives that you guys launched a couple of quarters ago and kind of how those are progressing in a little bit more detail. Just curious to hear more on that.

Are you referring specifically to the Maiden America program or specific products than to Green Energy?

Just kind of broadly any growth initiatives that came that kind of step from the cash that you got from some of the health care business.

I can talk a little bit about the PMG and and GES business. So as you know, Bobby, the growth initiatives were: one, to expand internationally, the product to implement our energy storage system program and continue to add new products. And all of those were successful the past 2 quarters. So on the global expansion, as I think we've talked about, we now have orders and have shipped orders into Asia and Europe. We are coming out 3 new products -- I'm sorry, 2 new products in Q2 from our new Sweetwater design center that are already in beta testing with a couple of very large owner-operators. So we'll introduce those and we fully expect to start receiving bookings for that. And on the ESS side, we rolled it out. We have technology partners. And in December, we booked our first order for energy storage system with the town of the city or City of Goleta, California for their water waste treatment facility. We will also be supplying the solar panels for that and the energy storage system. Through that process, it kind of confirmed that our niche approach going after utility and small -- comparatively small, very large to us, 2-megawatt type systems that was booked in December.

And we have a list of other ones that we're pursuing in quoting. These codes are 10 to 15 pages a piece. But we're still very excited about our strategy in terms of technology partners that component business grew, our Engineered Solutions business grew. We've added new products and then the BS thing as we grow it really feel strongly, especially for the state of Illinois. Once that demo center is in place and people can see it, see how it works and c, we would train them and educate them on how to get all these rebates that. The state of Illinois gives the best in the nation, in [indiscernible] California. So those are our main initiatives, and we have traction I'm not a patient person. It's never been one of my attributes to the few I have. But we continue to push, and we continue to, every month get some sort of success and a handful of indications that we have the right strategy, the right technology partners and a real niche that we found in these multibillion-dollar markets.

I was just going to add in terms of other investment areas. When you look at our SG&A, you're going to see that's relatively flat. Our headcount is flat. What we're doing there is as we have normal turnover. We are reallocating those resources to the high-growth areas that Greg just went through. So you're not -- no one should expect a huge pop in the SG&A as a result of these investments. We've talked about the spend on the Thales inventory, and that should be ramping up. So that's one1 area where we've continued to spend some money on CapEx. Bob mentioned in his script that we've made some necessary facility and IT improvements. We also added a second PC board layout facility here, which is playing in nicely with the Made in America initiative that we launched a couple of quarters ago. So in general, I think what you're going to see is us moving some things around, again, rationalizing and gaining efficiency from a lot of the people and the resources that we already have.

That's great to hear. And then just 1 clarification, Greg, in your opening remarks, you kind of mentioned some tailwinds in the P&C business and some -- and what seemed to be some headwinds in the business as well, like that occurred intra-quarter. Could you just expand a talk about that again and maybe expand on it a little bit more? Or -- and maybe I was missing the ball too.

Yes. I mean I don't know of any substantial tailwinds in PMT. We obviously have a good grasp on the semiconductor market. We have seen some strong revenue and bookings on the RF and wireless side. We're seeing -- and just a reminder, Bobby, at 1 time before we sold it, that group was up to $0.5 billion. So we know that market very well, and we have a lot of relationships, and we have probably some of the best RF and wireless suppliers in the world. And we're really seeing some traction again in the quarter from a tailwind point of view in the SATCOM and he actually drone markets. And so that was a nice pickup for PMT anyway in terms of sales. It's a lower-margin business. It's demand creation, but it's components made by our technology partners. So that maybe is somewhat of a tailwind in terms of where we saw some upside in PMT. And then where we'll see some upside going forward.

Wendy, I'm at Mayo Clinic, everybody. I got -- I have to go to meet with my surgeon. However, the last time I was here was 3.5 years ago with a hip replacement, in a half hour after that surgery, I got a call from NextEra with a $10 million order. So I might stay here the weekend and see if I can pick something else up.

Our next question will come from the line of Ross Taylor from ARS Investor Partners.

A couple of quick questions. One, with regard to the semi-cap equipment space, have you guys built prebuilt product for that, it's something on your work in progress or your finished goods inventory line there that you've been -- because you've been preparing for this for some time. It seems that they have been a little slow getting the pull-through.

Ross, yes, we do that where we can. I think we've described the business before as being very high mix, low volume. So it's not the -- it's not like the Ultra PEM or the Ultra 3000s where we can build them. It's all the same products. So we don't have the kind of inventory that maybe you envision of having thousands on the shelf ready to go. -- but we have good exposure and good track record in terms of what the demand is. And we are certainly doing everything we can to make sure that when those orders come in, they go out almost instantaneously. So little bit of a mixed answer there for you.

Okay. And that's still -- should be -- historically, it's been I think about your highest margin business. And I would assume that should you get back to more aggressive run rates, that would return.

It's a good business for us.

Okay. Another quick question. Can you talk about -- give more color on the battery storage opportunities? And what kind of magnitude, what kind of time line are we looking at in that space because it's a fairly -- I mean, it seems to be a very important area we're seeing, whether it's AI data centers or quite honestly, just even factors or others given the nature of the grid.

So Greg, just dropped off, Ross, that would be an area for him to address. But what we can tell you is that his list of opportunities continues to grow. They range right now in size, magnitude anywhere between maybe $0.5 million on the small end to a couple of million or more on the large end. He is focused and the team is focused heavily in the industrial and commercial market, more of the let's look at it as kind of Tier 2, not the data AI centers per se. Those might be a little bit bigger than what we're planning to build. But it's an area where we've seen a lot of strong interest particularly in the states that Greg mentioned where the states are still providing a lot of incentives. But I don't think anybody can pick up anything and read anything without seeing the growth in energy storage requirements. So we fully plan to take advantage of that. And we'll try to bring some more color to that in the next call.

Okay. And do you think One of the philosophical, you and I've had this question, one of the things that this company has struggled with is it's historically been more of a project-based business. Do you see some of these things we're talking about here, becoming basically run rate businesses where we can kind of see a more steady annual flow through in top and bottom line.

I think you see that already. Certainly, you see that in EDG. We've talked about that. I think you're seeing it in the green energy piece with the wind. And I would expect that not only to continue to grow as we expand both the customer base and the geographic area that we cover I think those -- I call those bread-and-butter items. I love them because to your point, they're going out on a regular cadence. Some of the train, the EV rail, the, for example, the starter modules those will be more steady run rate. But we always are focusing on and trying to focus on products that will apply to a much broader market, not simply 1 customer or 1 program.

And obviously, success there would be, I think, important it would take away a lot of the volatility in earnings. And I will offer my comment on buyback. I think my position on it is well known. It's been voiced many times on these calls in the past. What I would say is, I can't believe that your Board doesn't think this company is worth substantially more than book value and you're currently trading at or under book with a substantial 20% of that being cash here or overseas? And so I know what I'd be saying if I sat on your Board, I'd be arguing that this company is worth a lot more than book, and you should be quite comfortable buying it back at or at under and even around book. It got coming from, I think, a long-term shareholder, but someone who really would love to see you guys start to actually become a little more proactive. Don't be so afraid of a tiny little level of debt. So I support the earlier comment that even going into your revolver to buy back $4 million or $5 million worth of stock would be, I think, greatly appreciated by the market and would be reflected in the share price.

And our last question for today will come from the line of Brett Davidson as a private investor now.

I realize Greg has dropped off the line, but I'm hoping somebody can provide some level of update on the electric locomotive product lines and the manufactured diamond product lines.

All right. I'll start with that. So let's take the latter 1 first on the diamond -- what we've seen there in that market, and I think again, everybody has read about is that, that market became very quickly saturated, oversaturated the synthetic diamond market. And as a result of that, we've seen a slowdown in the demand for those magnetrons that are used in the equipment that manufactures the diamond. When Greg referred earlier to some of the other elements of green energy solution being down, that's one of them. So in that area, it's still out there. We're still selling them. It's just again, an overcapacity of equipment already on the market and certainly an overcapacity of the synthetic diamonds. All right, in terms of the EV rail market, I think Progress Rail recently put out some of its own press that they have recently shipped to the large train to Australia. So we're pleased to see that. You may recall in FY '23, we shipped a significant amount of batteries that are used in those trains. So we're going to sit back on the sidelines and see how those 2 trains perform in Australia and what that means for the future.

On a more steady cadence basis, as I just referred to in my answer to Ross Taylor, is that we are now shipping on a regular run rate, the starter modules, and we expect to see some upside there. So in general, I would say that the EV rail market certainly is favoring more of a hybrid approach. This is outside of Richardson. This is the general market. More of a hybrid approach, but our starter modules, they are used in any train, whether it's diesel, electric or hybrid. So we remain optimistic about growth in that segment of the business as well.

Thank you. And I'm not showing any further questions in the queue. I would now like to turn the call back over to Ed Richardson for closing remarks.

Thanks, Victor. Well, thanks again for joining us today and for your questions during Q&A. We look forward to discussing our performance with you in April. And until then, please don't hesitate to call us at any time. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.