Richardson Electronics Ltd. (NASDAQ:RELL) Q3 2019 Earnings Conference Call Transcript

Apr 10, 2019 • 10:00 am ET

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Richardson Electronics Ltd. (NASDAQ:RELL) Q3 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Ladies and gentlemen, welcome and thank you for joining today's web conference, FY '19 Third Quarter Earnings Call for Richardson Electronics. Please note that all participant lines will be muted until the Q&A portion of the call. We will provide you with instructions on how to ask verbal questions at that time. You are welcome to submit written questions during the presentation and these will be addressed during the Q&A. (Operator Instructions)

With that, I'll turn the call over to Ed Richardson, CEO. Please go ahead.

Executive
Edward J. Richardson

Good morning and welcome to Richardson Electronics conference call for the third quarter of fiscal year 2019. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and Acting Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power & Microwave Technologies Group; and Jens Ruppert, General Manager of Canvys.

As a reminder, this call is being recorded and will be available for audio playback. I would also like to remind you that we'll be 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.

Sales declined in the third quarter of fiscal year 2019 versus the third quarter of FY '18. This was due to slower demand in the semiconductor wafer fab equipment market, which we've been discussing throughout the year. Q3 and Q4 of FY '18 were huge quarters for the semi fab industry. We were able to offset some of the decline with continued growth in both the Power and Microwave Group and in Healthcare, which are our two key growth initiatives.

We were also pleased that the sales of our core industrial power tube business did well during the quarter and is showing year-over-year growth. Canvys had a small sales decline quarter-over-quarter, but is up slightly year-to-date and continues to deliver more in operating income than the prior year. Overall, our sales are still above prior year by 5.7% on a year-to-date basis. Gross margin was below prior year third quarter. This was due primarily to product mix in both PMT and Healthcare. Scrap and inventory related charges within our Healthcare Group also contributed to the decline. We made changes in the quarter, including additional headcount reductions. These changes allowed us to exit the third quarter with full absorption of our manufacturing resources and will help improve gross margin on a perpetual basis.

Downsizing our semi fab manufacturing unit took longer than we anticipated and has resulted in more than $1 million in lost margin as compared to the prior year. Excluding the unusual charges incurred in severance and legal, SG&A continues to be well under control. We eliminated several positions in the quarter that will further reduce our annualized expense. Returning the Company to profitability continues to be our priority.

One of our biggest frustration this year has been the slower than anticipated growth in the Healthcare