Richardson Electronics, Ltd. (RELL) Earnings

Management highlights

- Strategic Direction and Core Priorities * The company continues executing a multi-year growth strategy focused on higher-value engineered solutions, leveraging technical expertise, global sourcing, and inventory positioning to drive profitability. * Two core operating priorities are accelerating sustainable growth and improving operational efficiency and cash generation. * Management maintains disciplined capital allocation, with acquisitions not a near-term priority; cash is prioritized for organic growth in battery energy storage (BES). - Green Energy Solutions (GES) Progress * PEM modules for wind turbines saw growing adoption across global markets, with expansion into Europe, Asia, Brazil, Australia, India, France, and Italy across multiple turbine platforms. * The first BES program shipment was completed in Q4 FY26, with a pipeline of nearly 50 active opportunities, and a multi-million dollar BES order expected to be announced in Q1 FY27. * Approved ultracapacitor replacements for GE service turbines passed testing, with the first commercial order fulfilled in Q1 FY27. - Canvas Operational Updates * Canvas secured new orders from both repeat and new medical OEM customers, with a core focus on robotic-assisted surgery, navigation, and endoscopy applications, alongside broad industrial and commercial deployments. * The segment maintains focus on supply chain flexibility to adapt to changing trade and demand conditions. - Corporate Operational Initiatives * Completed a 90-day AI advisory engagement that identified 47 potential AI use cases, 32 of which are ready to execute with existing tools, with 6 initial pilot programs validated for rollout to improve productivity. * The "Made in America" initiative has moved from prospecting to execution, with multiple commercial opportunities in aerospace, defense, and industrial sectors progressing toward revenue conversion later in FY27. * The legacy CT tube business is now focused exclusively on repairing Siemens tubes; beta testing of MX series tubes is complete, and the Altitude program has been wound down with associated assets sold and the team downsized, expecting improved bottom-line results in FY27. * Closed PowerLink Dubai operations, with all work transferred to PowerLink UK to improve efficiency.

Guidance

- Management expects continued year-over-year growth for both PMT and GES in FY27, driven by growing backlog, expanding product pipelines, and strong customer demand trends. - Semi-fab customers have indicated ongoing optimism and continued growth through calendar year 2027, supporting PMT performance into FY27. - Canvas entered FY27 with a solid backlog and strong request-for-quote activity, providing a foundation for continued momentum, though quarterly results will vary based on project timing. - Management expects to see stronger GES growth in FY27 as BES and wind product programs progress and convert the existing opportunity pipeline to revenue.

Segment performance

1. Power and Microwave Technologies (PMT): In Q4 FY26, PMT sales grew 28.1% year-over-year, with full-year FY26 sales up 14.2% year-over-year. Excluding the legacy healthcare business, Q4 FY26 sales hit $47.1 million, a 31.1% year-over-year increase driven by strong growth in semiconductor wafer fab, RF, and microwave products. PMT backlog grew double digits year-over-year in Q4. 2. Green Energy Solutions (GES): In Q4 FY26, GES sales grew 20.4% year-over-year driven by higher wind product sales, with full-year FY26 sales up 7.3% year-over-year. GES backlog increased 5% year-over-year. Combined with PMT, the two segments saw a 24.8% increase in backlog year-over-year. 3. Canvas: In Q4 FY26, Canvas reported revenue of $12.3 million, up 29.5% year-over-year (a new quarterly record), with full-year FY26 revenue of $37.3 million, up 12.4% year-over-year. Q4 gross margin was 32.3% (up 20 bps year-over-year), while full-year gross margin was 32.0% (down 90 bps year-over-year due to supply chain and cost pressures). Canvas end-of-Q4 backlog was $40.8 million, up from $38.2 million at the end of Q3, with a Q4 book-to-bill ratio of 1.3. In terms of consolidated performance, total Q4 FY26 net sales were $66.2 million, up 27.6% year-over-year, and full-year FY26 net sales were $228.6 million, up 9.4% year-over-year, with all three segments contributing to growth.

Risks & headwinds

- The global macroeconomic environment remains mixed, with ongoing tariff uncertainty, geopolitical risks, inflation, and uneven industrial demand creating ongoing challenges. - Canvas segment results are inherently variable quarter-to-quarter due to its project-focused business model, dependent on customer program timing. - BES opportunity conversion is dependent on customer approval timelines, partner alignment, and regulatory/subsidy program requirements that are outside of the company's direct control. - Backlog conversion to revenue is not perfectly linear, and depends on product mix, customer delivery schedules, supply chain availability, and program timelines, so quarterly results may differ from expectations based on backlog levels.

Analyst Q&A

• Q: Analyst asks about visibility into semiconductor fab demand in Q1 FY27 and PMT lead times for new orders. /

  A: Greg Peloquin states customer feedback for semi-fab demand is very positive, with strong growth in Q3 and Q4 FY26 expected to continue through FY27. To meet demand, PMT maintains an aggressive inventory strategy and holds regular check-ins with customers to ensure required components are in stock awaiting customer order releases.

• Q: Analyst asks management to explain why higher-value engineered solutions growth has accelerated after being a multi-year focus, and asks for details on BES market focus relative to large utility-scale projects. /

  A: Management explains that the shift is driven by growing new opportunities from existing customers, as the company increasingly invests in higher-technology, integrated engineered solutions rather than commodity components. For BES, the firm focuses on small-to-mid sized niche commercial, industrial, and municipal applications (typically 760kW to 5MW, scalable via stacking) rather than gigawatt-scale utility projects. Many smaller niche BES developers are unproven startups, so Richardson's 80-year operating history and strong balance sheet give it a competitive advantage for these opportunities.

• Q: A long-term shareholder asks if the board is considering additional capital return to shareholders via buybacks or increased dividends, given the company's historically conservative approach. /

  A: CEO Ed Richardson states that the board discusses capital allocation every quarter, and has consistently concluded that deploying capital into new high-growth opportunities (like BES) creates more long-term value than repurchasing shares. No changes to this strategy are planned based on current visible business conditions.

• Q: Analyst asks for clarification on the nature of Richardson's partnership with BES battery supplier Goshen, and plans for Goshen's new sodium-ion battery product. /

  A: Greg Peloquin explains that the relationship started as a standard supplier arrangement and evolved into an exclusive technology partnership for smaller-scale BES projects, where Goshen provides batteries and Richardson integrates them into complete systems at its U.S. facilities to meet Made in America requirements for government and utility grants. Goshen plans to eventually move production of its new sodium-ion battery to North America to meet domestic content requirements, but initial production will be based in China while the product is commercialized.