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
Executive
Edward J. Richardson

business. We've learned that the barriers to entry in the CT tube replacement market are more significant than we thought and will take more time to overcome. After the close of our third quarter, the Board decided to make a change in the Healthcare management.

Both Wendy Diddell and I are serving in general management capacity, supported by an excellent and experienced sales and engineering management team from Varex and Philips. We remain committed to our Healthcare strategy. We're working closely with the team to expedite the launch of an additional CT tube, overcome customer concerns and to improve our operating performance.

Richardson Electronics started out more than 70 years ago, also selling industrial power tubes to the aftermarket in competition with the original equipment manufacturers. This is exactly the same strategy we're employing to perpetuate our success in the diagnostic imaging market of healthcare.

I'll now turn the call over to Bob Ben, who will share the highlights of our third quarter and year-to-date financials. Then Greg, Wendy and Jens will provide more details on their business unit performance.

Executive
Robert J. Ben

Thank you, Ed and good morning. I will review our financial results for our third quarter and first nine months of fiscal year 2019, followed by a review of our cash position.

Net sales for the third quarter of fiscal year 2019 were $39.0 million compared to the prior year's third quarter of $41.6 million, which was a decrease of $2.6 million or 6.3%. Net sales decreased $2.1 million for PMT and $0.6 million for Canvys. Net sales for Richardson Healthcare increased by $0.1 million.

Gross margin for the quarter was 31.5% of net sales compared to 33.8% of net sales on last year's third quarter. This was primarily due to a less favorable product mix, higher costs related to CT tube production and over-absorption in LaFox manufacturing in last year's third quarter that did not repeat. Exiting the third quarter of fiscal 2019, both the CT tube manufacturing area and LaFox manufacturing were fully absorbed and we anticipate this trend to continue, assuming no significant change in demand or production.

Operating expenses were $13.1 million for both the third quarter of fiscal 2019 and the third quarter of fiscal 2018. During the quarter, the Company incurred $0.1 million of severance expense, related to actions taken to reduce costs and $0.2 million in higher legal expenses as compared to prior year. Total legal expenses in the quarter were nearly $0.4 million. These expenses were offset by lower incentive compensation expense. It is anticipated that the reduction in headcount in the first nine months of fiscal 2019 will result in at least $1.6 million in annualized savings, in cost of sales and operating expenses combined.

The Company reported an operating loss of $0.8 million for the third quarter of fiscal 2019 compared to an operating income of $1.0 million in the third quarter of fiscal 2018. Excluding the severance expense and higher legal fees, the Company would have reported a $0.4