Hey, thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the second quarter of fiscal year 2022. At 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 that session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host, Ed Richardson, Chief Executive Officer. Please go ahead.
Good morning, and welcome to Richardson Electronics conference call for the second quarter of fiscal year 2022. We hope everyone had a happy and healthy holiday season and New Year. Joining me today are Robert Ben, Chief Financial Officer, Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare, Greg Peloquin, General Manager of our Power and Microwave Technologies Group, and Jens Ruppert, General Manager of Canvys. As a reminder, this call is being recorded and will be available for playback. I'd also like to remind you that we'll be 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 very happy about the positive momentum underway across our business.
Net sales for the second quarter of fiscal 2022 were $54 million, 27% higher than last year's second quarter. The second quarter revenue was our highest revenue quarter in 11 years. It also marked our sixth consecutive quarter of sequential revenue growth, which benefited from exceptional performance by all three business units. Strong revenues combined with higher gross margin produced second quarter operating income of $4.5 million or 8.4% of revenue. We've not experienced this level of profitability since we sold our RFPD in 2011. The business is firing on all cylinders and our backlog continues to increase. The core business is strong and our growth initiatives are creating new revenue streams. We're achieving this level of success in the face of increasing global supply chain and logistics challenges.
We continue to uncover new opportunities that put us in an excellent position for future growth. I'll now turn the call over to Robert Ben, Chief Financial Officer, to review our second quarter financial performance in more detail. Greg, Wendy, and Jens will provide more information on our second quarter performance as well as our new programs.
Thank you, Ed, and good morning. I will review our financial results for our second quarter and first six months of fiscal year 2022, followed by a review of our cash position. Net sales for the second quarter of fiscal 2022 increased to $54.0 million, up 27.3% compared to net sales of $42.4 million in the prior year's second quarter, due to higher net sales across all three business units. PMT sales increased to $8.8 million, or 26.7% from last year's second quarter, driven by strong growth from our new power and microwave technology partners for various power and microwave applications, including power management and 5G infrastructure, as well as increasing shipments of the ULTRA3000. In addition, sales for certain electronics and product lines increased from the second quarter of fiscal 2021.
Canvys sales increased by $2.4 million or 36.4% due to strong customer demand in North America and Europe. Richardson Healthcare sales increased $0.3 million or 10.9% year over year, primarily due to an increase in demand for ALTA750 tubes. In addition to higher revenues, total company backlog increased to $146.9 million in the second quarter of fiscal 2022 from $126.5 million at the end of the first quarter of fiscal 2022 and $81.1 million at the end of the second quarter of fiscal 2021. Backlog increased in all three business units when compared to both second quarter last year and our most recent first quarter.
Gross margin for the second quarter increased versus the first quarter to 32.7% of net sales, coming down compared to 33.8% of net sales in last year's second quarter. PMT margin decreased to 33.5% from 34.2% due to a higher mix of lower-margin PMT sales, partially offset by increased shipments of wind turbine modules. Canvys gross margin decreased to 31.8% from 35.5% because of higher global freight costs. Healthcare gross margin was 24.5% in the second quarter of fiscal 2022 compared to 25.6% in the prior year's second quarter, primarily due to decreased component spare expense. Operating expenses were $13.1 million for the second quarter of fiscal 2022, compared to $13.5 million in the second quarter of fiscal 2021.
This decrease in operating expenses resulted from lower legal fees, partially offset by higher employee compensation expenses. The company reported operating income of $4.5 million, or 8.4% of net sales for the second quarter of fiscal 2022, the highest level since the company sold RFPD business in 2011. In addition, operating income expanded significantly from $0.9 million, or 2% of net sales reported in the second quarter of last year. Other income for the second quarter of fiscal 2022, including interest income and foreign exchange, was $0.2 million, compared to other expense of $0.1 million in the second quarter of fiscal 2021. The income tax provision of $0.6 million for the quarter reflected provision for foreign income taxes and the offset of U.S. tax provision against the valuation allowance.
In addition, state income taxes for Illinois increased due to suspension of net operating loss carryforwards until the end of fiscal 2023. Net income was $4.1 million, or 7.6% of net sales for the second quarter of fiscal 2022, as compared to a net income of $0.7 million or 1.6% of net sales in the second quarter of fiscal 2021. Earnings per common share on a diluted basis in the second quarter of fiscal 2022 were $0.30 compared to $0.05 per common share on a diluted basis in the prior year second quarter. Turning to a review of the results for the first six months of fiscal year 2022.
Net sales in the first six months of fiscal year 2022 were $107.7 million, an increase of 32.6% from $81.2 million in the first six months of fiscal year 2021. Net sales increased by $21.6 million or 34.1% for PMT, $4.2 million or 31.1% for Canvys, and $0.2 million or 15.3% for Richardson Healthcare. Gross margin decreased to 31.5% from 32.9%, primarily reflecting an unfavorable product mix in PMT and higher bill of freight costs in Canvys, partially offset by improved manufacturing efficiencies for Healthcare.
Operating expenses were $26.6 million for the first six months of the fiscal year, which represented an increase of $0.1 million from the first six months of the last fiscal year. The increase was due to higher employee compensation and travel expenses, partially offset by lower legal expenses. Operating income for the first six months of fiscal year 2022 was $7.3 million, or 16.8% of net sales as compared to an operating income of $0.2 million or 0.3% of net sales for the first six months of fiscal year 2021. Other income for the first six months of fiscal 2022, including interest income and foreign exchange, was $0.1 million as compared to other expense of $0.5 million for the first six months of fiscal 2021.
The income tax provision of $0.7 million reflected provision for foreign income taxes and the offset of U.S. tax provision against the valuation allowance. In addition, state income taxes for Illinois increased. The company reported net income of $6.8 million or 6.3% of net sales for the first six months of fiscal year 2022 versus a net loss of $0.5 million for the first six months of fiscal year 2021. Earnings per common share on a diluted basis in the first six months of fiscal year 2022 were $0.50 compared to a net loss of $0.04 per common share on a diluted basis in the prior year, prior year's first six months. Turning to a review of our cash position.
Free cash flow for the second quarter of fiscal 2022 was $3.9 million, the same as in the second quarter of fiscal 2021. Cash and investments at the end of the second quarter of fiscal 2022 increased to $39.7 million compared to $36.4 million at the end of the first quarter of fiscal 2022 and $46.0 million at the end of the second quarter of fiscal 2021. Capital expenditures were $0.8 million in the second quarter of fiscal 2022 compared to $0.6 million in the second quarter of fiscal year 2021. Approximately $0.3 million related to investments in our healthcare business, $0.2 million was for our IT system, and another $0.2 million was for our manufacturing business.
We paid $0.8 million in cash dividends in the second quarter of fiscal 2022. 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 2022. Finally, during the second quarter of fiscal 2022, we repatriated $0.3 million to the U.S. from Taiwan, bringing our total year-to-date repatriations to $1.0 million. Also, we plan on additional repatriations in fiscal 2022. Our U.S. domicile cash and cash equivalents balance totaled $23.0 million as of November 27, 2021. Now I will turn the call over to Greg, who will discuss the results for our Power and Microwave Technologies Group.
Thank you, Bob. Good morning, everyone. Sales of the Power and Microwave Technologies Group of P&T in the second quarter of fiscal year 2022 grew 26.7% to $41.7 million versus $32.9 million in Q2 last year. In addition to a strong sales quarter, P&T achieved an excellent book-to-bill ratio of 1.45. Our sales growth and strong bookings mark a solid launch that was shaping up to be excellent for fiscal 2022. Our gross margin decreased in the quarter to 33.5% versus 34.2 in the prior year, which is mainly due to product mix. Both business units in P&T supported the strong growth in bookings and billings in Q2.
Our Electron Device Group, or EDG, had double-digit growth in sales and an even stronger quarter in bookings as we continue to take market share from our competition and new applications for our legacy products. We are excited to see the strong returns in both bookings and billings for the past three quarters. Key tube manufacturers in the industry such as CPI, Thales, NJRC, and Bartanás work with us to manage customer requirements. The second quarter of FY 2022 continued to prove that the demand for our products has remained strong. We are even more excited about the trends in the bookings that will support strong revenue growth in the coming quarter. One of the strongest areas of increased EDG demand is in our microwave product line. Our magnetrons are used in various growing applications, including synthetic diamond manufacturing and the conversion of carbon into green products.
Our semiconductor wafer fabrication business also remains strong. We also continue to have excellent growth in our Power and Microwave Group, or PMG. Our key technology partners, such as Qorvo, MACOM, Millitech, LS Materials, and Fuji Electric, support our global field engineering organization, designing in new products into key markets and applications. The business is benefiting from a growing line of new technology partners and new products targeting RF, wireless, and power management applications. These include 5G infrastructure programs, high growth communications, and SATCOM applications, as well as power management and energy storage applications that support numerous green initiatives. With respect to 5G wireless and power management, revenues increased at high double digits again in Q2. As people continue to work from multiple remote locations, they must be able to send and receive large amounts of data.
In power management specifically, we saw growth in applications for wind energy, solar, electric vehicle, and energy storage. Our products, such as our patented ULTRA3000 heat engine module used in wind turbines, continue to gain traction with increased sales and bookings in the quarter. We are producing the ULTRA3000 with remarkable results in the field and millions of accumulated hours of successful operation. Our growing in-house engineering and manufacturing teams did a great job supporting increased demand for current products and new product designs. Our engineers, in partnership with Battery Street Energy, also developed the ULTRAGEN3000, which is currently in field test with T-Mobile and AT&T. We will continue to identify and develop and introduce new products using ultracapacitor and other technologies for power management applications. In 2022, we will be adding other products to our portfolio.
Our entire team has done an excellent job identifying niche technology partners who collaborate with us globally. We continue to invest in and focus on resources, including design engineers, field engineers, manufacturing, and supply chain capabilities, to support these growth markets. We will also be adding small niche suppliers to meet technology gaps going forward. This strategy has been highly successful, and we continue to use and develop new products, customers, revenue, and profits, capitalizing on existing demand generation infrastructure. Like many businesses today, we remain challenged by longer semiconductor and component lead times. This affects our components business and engineered solutions products. To compensate, we are keeping inventory stance and inventory to fulfill the pipeline, ensuring we can meet our customers' needs, and we're working closely with our customers and suppliers. I cannot stress enough the value of Richardson Electronics' model to our customers and suppliers.
Our unparalleled capability and global market strategy are unique to the power, RF, and microwave industries. We developed a powerful business model, including legacy products and new technology partners that fit well with our engineered solutions capabilities. Through our steep staff and creative focus on our customers, we continue to excel by taking advantage of opportunities when they arise. There is no question customers and technology partners need Richardson's products and support more than ever. With that, I'll turn it over to Wendy Diddell in Richardson Healthcare.
Thanks, Greg Peloquin. Good morning, everyone. Sales for the healthcare group improved in Q2 to $3.1 million, a quarterly record in CT replacement parts business. Sales were $2.3 million last quarter and $2.8 million in Q2 last year. We sold a record number of tubes during the second quarter, led by increased tube sales within the U.S. Sales of parts and P3 agreements also increased year-over-year, while accessory sales declined due to ongoing lack of system availability. Gross margin in the second quarter was 24.5% versus 24.6% in Q2 last year. The gross margin was impacted by our production level and industrial rate. However, gross margin improved slightly over the first quarter as we increased the number of kits produced and continued to address component quality for most suppliers.
Most of this progress was made in November, the final month of the quarter, reflecting changes made earlier in the fiscal year. We believe Healthcare's gross margin will continue to improve in the third quarter, barring any unforeseen issues. Currently, we still have one Opti 1450 G2 in beta and continues to perform well. We anticipated a full rollout before the end of the calendar year, but we delayed the launch until the second beta site is fully validated. Now planned for end of January. We also worked through various supply chain issues to ensure we have sufficient components for production. Sales growth was gradual as we get Opti 1450 into the market and Canon CT sales come off of OEM service contracts. We made good progress on the Siemens Straton program in the quarter.
While we did not ship any repaired Straton, we are on track to release all four of the Siemens in calendar year 2022, with revenue sliding into fiscal year 2023. Siemens CT installed base is significantly larger than Canon. There are no third-party replacement options for Siemens sites, making this an attractive market. We still have additional production capacity and having a broader range of tubes to offer our customers to have a positive impact on sales and improve gross margin as we leverage our manufacturing operations. Our ongoing goal is to shorten the time it takes for Healthcare to provide positive operating contribution to the company. I will now turn the call over to Jens Ruppert to discuss the results for Canvys.
Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures and sells custom displays to OEM equipment manufacturers in industrial and medical markets. Canvys delivered outstanding performance and set a new quarterly record with sales of $9.2 million for the second quarter of fiscal 2022. Strong customer demand globally drove a 36.5% increase in sales over the same period last year. In addition, we continue to experience a nice pickup in demand after the COVID-related slowdown in the previous year. Gross margin as a percentage of net sales was 31.8% during the second quarter of fiscal 2022, down from 35.5% during the second quarter of fiscal 2021. The decrease in gross margin was related to increased freight costs impacting many companies across the global supply chain.
In addition, extended lead times on several key components and increased freight costs remain an issue. However, our close relationship with customers and partners overseas enables us to procure long lead time components, which has helped us achieve a new record backlog of $43.9 million this quarter. We are optimistic that the high demand for custom monitors, touch screens, and all-in-ones will continue in the foreseeable future. During the quarter, we received several new orders from both existing and first time medical OEM customers. Some of these applications include cryolipolysis, robotic-assisted surgery, medical device control, and fully integrated operating room, surgical navigation, patient monitoring, surgery video documentation, radiofrequency ablation, ophthalmology, and medical training simulators. In the non-medical space, our products are used in a variety of commercial and industrial applications, including CT scanners for inspecting luggage at airports and control rooms.
We are very pleased with the performance of our team. The new sales record, combined with the record backlog, position us for future growth. From the variety of customers and applications, as well as the value of orders from existing and new customers, it is clear we offer our global customers outstanding products and global service. While our sales organization stays focused on new opportunities, we continue to review and adjust our business strategy to improve the operating performance of the division. Maximizing cash flow is an ongoing priority. We continue to work with our partners to help reduce inventory while being able to meet the demands of our customers, particularly during the pandemic and the challenges it brings to our supply chain. I will now turn the call back over to Ed.
Thanks, Jens. Canvys had another phenomenal quarter with excellent growth. You raised the bar for the Canvys team and for the company. Well done. We're very happy with the company's performance. Business has never been stronger. Everyone presenting on today's call played a role in the continued improvement. I thank them and their teams for the years of hard work and perseverance that's now paying off. Now is not the time for us to get comfortable. With this level of growth comes more hard work, investment in people, equipment, and inventory. That's not an easy task given the supply chain challenges and labor shortages. I'm convinced, however, that we'll continue to be creative and strong-willed, and we'll overcome these challenges. I'm also pleased that the company generated cash in the quarter despite ongoing investments to support growth.
We're not quite cash flow neutral for the year, but with our strong second quarter, we're trending in the right direction. We'll continue to closely manage our cash. It will be needed to support the growing backlog and the many growth opportunities we're pursuing. At this point, we'll be happy to answer a few questions.
First question comes from Howard Brous with Wellington Shields. Your line is open.
Thank you.
Morning, Howard.
First, Ed, Wendy, Greg, Jens, all of you, congratulations on a great quarter.
Thank you, Howard.
I thank you. I have a couple of questions. Greg, you mentioned synthetic diamonds and manufacturing of hydrogen. Can you explain what you're doing, what kind of business, what kind of backlog, what kind of opportunities, what kind of contracts in each area? I'll start with you. Because you're doing it.
Yeah. That's a huge growing market, as many people know, is synthetic diamond deposition, growing diamonds with clarity that's better than real diamonds. The technology is looked at closely, but there's legacy tube business that actually supports those applications better. Richardson has an amazing product. It's a YJ1600 that is kind of becoming the product of choice for a number of customers in this industry. We booked a very, very large order with one of the larger companies that do synthetic diamonds in Asia. We also booked a very large order for a company that sells those products also in Europe. It's really a global capability. The YJ1600, Ed, you know that better than anyone in the industry.
Sure. I think, Howard, you mentioned hydrogen production, and that's done with a 915 MHz magnetron. It's 100 kilowatts or 75 kilowatts. There are a number of new startups in the United States that are taking methane gas that's collected from garbage dumps and other locations, and they turn it into acetylene and hydrogen. Acetylene, of course, is used in torches and all kinds of cutting applications. Hydrogen is meant to be the fuel of the future. It's talking about running locomotives and boats and ultimately trucks and cars on hydrogen, which will certainly solve the global warming problem if we stop using fossil fuel. At this point, they are startups. We are working with two companies in the United States that want to buy 100 generators.
The generator we manufacture is about a $75,000-$100,000 unit, and it uses the 915 MHz tube that we also manufacture. That's about a $7,000 unit. Between the three of them, there's an opportunity there for 300 generators and 300 tubes. The tubes last about two years and cost in operation, so it's an ongoing aftermarket. We really think it's a major opportunity. It's interesting. I was told 25 years ago the tube business wouldn't exist, and this year the tube business is growing 20%-30%. A lot of new applications, particularly in microwave.
Can you quantify, synthetic diamonds in terms of magnitude of the business?
Oh, right now we have orders for about 3,400 YJ1600s, and they sell probably average about, you know, $3,000-$4,000 a piece. That'll give you some kind of idea. The 915 MHz at 75 kW and 100 kW is also used in that business. I'd have a difficult time telling you what the world market is, but it's so large we can't produce enough tubes right now. I can tell you that.
You just talked about an opportunity annually of $7 million. Is that something that starts this year or are you talking about in 2022? Say 2022.
Probably 2023. It's in the startup stage right now. You know, we have lots of competition on the generators. We normally get the tube business. The question is, do we get $7,000 a unit or do we get $100,000 a unit? We'll get some of both.
All right. Let me give you another one. Ultra 10,000. Greg, you had mentioned electric vehicles. Are there any other areas for Ultra 10,000?
Yeah. The component business, just the whole Power & Microwave Group with ultracapacitors, but also for other power management type products, has just boomed, especially in the second quarter. We have design wins in five different customers that are electric vehicle. We did get a design win at VinFast, which is a Vietnamese manufacturer of electric vehicles. That's for the DC-DC converter that's in the car. And we booked four very large orders for EV charging stations with five different companies. All three of them, one was in Asia, one was in Europe, and one was in North America. Our global footprint really helps. ULTRA3000, that's just again, as you know, Howard, we introduced that, you know, six months ago.
The bookings and billings continue to grow. We're with great work by our global supply chain and a few old relationships that have new positions in the semiconductor industry. We were able to get the components to each be kitted. We're shipping just over 2,000 units a month out of this facility. We're looking to double that in the third quarter throughout 2022. We have the backlog to support that. We had 4 prototype orders and production orders at the beginning of the quarter. We now have 9 separate customers that either we have a data site order, a prototype order, or a production order in-house. It's going nowhere near as fast as we'd like, but the opportunity is still there.
We seem to be becoming the incumbent with zero to no failures in the field. We're very excited about it. We have new products coming out in 2022 for the wind turbine market using ultracapacitors. As you know, the ULTRAGEN product, we have beta site testing going on with that. We'll also be producing a power supply that's used in wind turbines that's also lead-acid batteries today that they wanna convert to ultracapacitors. As you know, we also got a second patent. The product and the technology we feel is really locked up.
We'll be announcing here sometime in the third quarter, a partnership with one of the largest builders of solar and wind farms in North America, which is kind of a different avenue to get to market, kind of a different customer base. It's definitely a different way to go to market with our products. We're very excited about that. That'll be announced sometime this quarter. Everything's kind of. We're just checking the boxes and increasing our capacity. We'll be rolling out our own internal PCB and conformal coating line right here in LaFox, Illinois, which will increase our capacity by a minimum of 35%-40%. We're looking to literally double our backlog in 2022 calendar year.
A lot of things are going, I would say, well, considering all the conditions associated with COVID, cutting the lead times, capacity, component lead times, and introducing a new product into an industry.
Every time you answer a question, I develop another question. Can you quantify electric vehicles charging stations in terms of orders you've gotten and potential orders? What is the composition?
It's multi-million. The exact number I don't have, and I probably don't wanna share that with our competitors. It's a multi-million-dollar backlog of products going into electric vehicle outside application chargers. Some go into the car itself, and then mainly goes into charging stations.
Two more questions, Greg, and then I'll end up. One, what do you do with Garmin?
Garmin?
Yeah, Garmin.
Oh, yeah. Garmin's EDG is one of the company's largest customers, both on the component level for the radars and the GPS. On the EDG side, we've been a customer for, I don't know, 20 years.
You know, they're used in weather radar systems, both in pleasure boats and commercial boats and also in aircraft. Garmin's business is up about 30% this year, and they're saying next year it'll probably be up 50%. We also sell to Honeywell. Honeywell is primarily aircraft radar, and their business is up substantially with proprietary in those products. We sell to Raymarine, Sperry, anyone that's making marine or weather radar systems. That's pulsed microwave versus the CW microwave that's used in synthetic diamonds and producing hydrogen and things of that nature.
Can you quantify what you talked about up 30% on Honeywell? Is there a dollar amount per unit that we should make assumption to that?
No.
Roughly.
You know, all the business together is probably $10 million, going up 30%, something like that. That's just the weather radar business.
If we can take a look, and this is the last comment and question, then I'll let someone else. If I take a look at this business for this year, you're talking about $23 million in revenue and highly profitable. What can I look for in general terms for 2023 in terms of revenue earnings for what everything comes up?
Well, you know, you can see we went from $177 million last year, and it looks like we'll be $215 or $220 this year. That's 20% increase, something like that. You know, right now we have a $146.5 million dollar backlog, which is the largest backlog in the company's history. We hope to ship a large percentage of that yet in this fiscal year. I think you should look at about 20% growth a year. That's just sort of ballpark.
Thank you. That's all I have.
Thank you.
Thank you. Congratulations, all of you. Thank you very much.
Thank you. Our next person is Brett Davidson. Your question please.
Good morning. This might be a little long-winded here, but eventually I'll get to the point. It's been very entertaining watching the company's products keep crashing, and the employees and management deserve a hearty congratulations. You know, I think some of that goes back to your decision to keep employees on when COVID first hit. Yeah, I don't know if bonuses or grants of shares or something along those lines.
We've got a lot of that. Sure.
Good. You're gonna need them.
Which I am.
I've done the math on the backlog, and it's up over $20 million from the prior quarter. Quarter-over-quarter is a 16% increase. You know, that's unsustainable. At this rate, at the end of the third quarter, the backlog is $171 million. At the end of the fourth quarter, it'll be $198 million.
Wow.
You're talking about, you know, pushing towards a year's worth of sales. It's not a problem of the same magnitude of being cash flow negative, but it's a problem. What I'm looking for is a qualitative ballpark estimate of the impact of creating this backlog. You know, I'm sure labor plays into it. Supply chain plays into it. Strong bookings play into it. What is it that's contributing to this large increase in backlog? Maybe if you could just put like percentages on these impacts in general fashion.
I look at it like we have a table with six legs, you know, and right now five of those legs are hitting on all cylinders, and healthcare is making progress. So that, you know, it's all across the board. I think as we sort of temporarily out of the COVID issue last year, that, for instance, with weather radar, you know, people started running pleasure boats, and so they bought new radar systems, and executive aircraft were used more, and so they bought radar systems. People are spending money on diamonds, so synthetic diamonds have taken off and so forth and so on. I don't think we can anticipate that surge to last forever, but I think 20% growth across all the lines of the business is probably, you know, a good number.
You know, it's a complicated answer, but every one of our businesses is experiencing phenomenal growth right now. We haven't seen anything like this since we sold RFPD in 2011.
What is the primary driver of the increase in the backlog? Is it feature shortage? Is it just the strong bookings alone?
Yeah. Well, it's all across the board. You know, we sell into the semiconductor wafer fab industry. Because of the demand for integrated circuits, you know, there are new wafer fabs going in all over the world. That's in that segment of the business is about $25 million of our business. It's up probably 15%-20% this year and anticipated to continue like that. Every business, the microwave business we talked about is up 20%-30%, you know. The ultracapacitor is new to us, and we have $15 million backlog right now that we'll be shipping in the fiscal year. It looks like we'll do $25 million next year and just go on and on. It's, you know, it's a complicated footprint. We're in so many different businesses.
On the other hand, you know, that makes the company very, very stable. We sell 20,000 customers all through the world, and 60% of our business is outside the United States. It's, you know, the nice part about it is it's very stable. It's only taken us 75 years to get here.
Hey, that's okay. Better late than never.
Yeah.
Correct me if I'm wrong, but in order to have kept backlog back, you guys would have had to have done $75 million in revenue this past quarter. How do you get there?
Well, that's the problem right now. We need more engineers. You know, Greg talked about the YJ1600. In our best year, we produced 800 YJ1600. We have in-house orders for 3,450 of those right now. We're trying to gear up to build them. But I can tell you at the moment, delivery is way out there, and that's all across the board. If we could get more engineers and if we could get more raw material. You know, all the raw material, oxygen-free copper and silver and platinum and gold that we use in tubes, the prices have gone skyrocketed as well as the logistics costs. It's a really unusual period.
Probably our biggest issue is supply chain. Yeah, the shipping product and raw materials.
Based on that, then we can probably expect to see that backlog just keep growing for the rest of the year.
Well, it certainly has in the over the last period. I don't think it's going to grow like that forever, but certainly in the next year, I'm sure that's the case.
Got it. The only other question that I wanted us to address is, six months interest rate is really big at a $4 share price. Don't look quite so big anymore. Cash is going to start to pile up. Has there been any discussions on how to best put that to use?
Well, I think we'll cross that bridge when we get there. Right now, the board is really concerned that we have enough cash to fund the growth of the company. It looks like next year we'll go cash flow positive, and then, you know, we can start to consider what we'll do with that cash. At the moment, let's get there first.
Yeah, well, I'm confident on my side that you're going to get there, but do me a favor, give everybody a hearty pat on the back and a good job. Thanks so much for taking the time to answer my questions.
Well, thank you very much. It takes 450 people to make it work, so.
Great.
Thanks a lot.
Our next question comes from Mike Hughes with SBS Capital. Your line is open.
Good morning. Thanks for taking my questions. First question. Morning. Just high level. You're thinking, you know, 215, around $215 million in revenue this year, and that could potentially grow 10% next year. Is that what you said previously?
Yeah, maybe 15%-20%. I'd rather, you know, under promise and overperform at the end.
Sure, sure. Even 15% growth would be roughly $30 million incremental revenue, and the gross profit dollars incrementally on that would be at least I would think $10 million. If that did happen, how much of the $10 million would fall to the bottom line? I mean, how much does CapEx need to go up to support that type of growth?
Well, it's interesting. You know, when we sold RFPD, we have 24 foreign subsidiaries all over the world, and that infrastructure is required to support the tube business, which is obviously our foundation. It's a $100 million business even yesterday. It took us all these years from 2011 up until last year to finally fully absorb or start to absorb that infrastructure. At about $160 million, we went profitable. $177 million, you can see, you know, what happened last year. At $215 million it really starts to add. What happens is, because we don't have to add infrastructure, a large percentage of that goes to the bottom line. I can't quantify it for you exactly, but, you know, we certainly don't need to add infrastructure to grow the business other than engineers if we can find them.
Usually the estimated OpEx will be your SG&A increase.
Okay.
Yeah.
3%-5% SG&A increase is what we're estimating.
A lot of that is tied to wage increases.
Right.
Okay. Off the top, 5% of SG&A would add about $2.5 million. If the incremental gross profit was roughly $10 million, subtract maybe $2.5 million and then maybe some sales commissions, $6.5-$7 million of it could fall to the bottom line in rough terms. Do you agree with that?
Yeah, that's pretty close.
Okay. Excellent. Hey, on Canvys, which is a business that's performed very well over time. I know everyone's having freight cost issues, but how quickly can you recover those and get the margins back to where they were a few quarters ago, the gross margins?
Jens, would you like to answer that?
Sure. Thank you very much. Yeah, that's a good question. We actually had to pass through our freight cost increase to our customers. Of course, many of our customers do use even their own freight forwarders. They believe we are too expensive. All of a sudden they came back and what we are trying to do is continue. We're passing it on as a line item transparent to our customers. I'm pretty sure that we will get to the gross margin we had before within the next six months or so. Yeah.
Okay, great. Thank you. Just the same question on Healthcare. I think Wendy mentioned that the gross margins there may improve in the current quarter. Can you just speak to that?
Yeah. That's correct. As we stabilize and increase the number of tubes we make each quarter, that will reduce the amount of under absorption we've experienced historically, which has been one of the major drains on our gross margin. As I mentioned, as we exited the second quarter, so December was our last month, it was already much stronger. Just kind of taking a sneak peek into the third quarter, we finished December, things are looking good. You know, which doesn't mean that you know, a piece of equipment or something can't break down. Right now the increase in production quarter-over-quarter is what I think will really help improve gross margin for Healthcare.
Okay, great. I may have missed this, but did you say what the ULTRA3000 revenue was for the just reported quarter?
No, we didn't. I don't want our competition to know what they could do the math. It was shipping about 2000 units a month, which is about, you know, $1.5 million-$2 million a month out the door.
What do you have in backlog right now?
Backlog, we have about $13 million in backlog.
Right.
Okay. On the last call, you indicated that you said business could potentially be $12 million-$14 million in revenue over the next three quarters. Obviously you have the November quarter in the books now. Do you think the $12 million-$14 million is still achievable?
Yes.
Okay, great.
As I mentioned before, the team's done a great job improving our capacity and output. We're gonna have a great Q3 and great Q4 this fiscal year, and that'll get us to that run rate. Absolutely.
Okay. Last question for Ed. You kind of touched on the semiconductor equipment business. I think on the last call, or maybe the one before, you had an expectation of maybe $25 million in revenue from that business. Is that still tracking around that number?
Yes. Yeah, it's probably we may exceed that a little bit. Our largest customer is Lam, and they're talking about, of course, they pointed out to us and all of their vendors, but they're having supply chain issues, and so their growth hasn't gone quite as high as they thought it would. As you know, a public company, and they announce all these figures. They were talking about doing $6 billion a quarter, and I think they're under $5 billion right now. They're saying that's because of supply chain issues. Our business in that area has gone up to about $25 million, $26 million. There are several companies included in that besides, but Lam's the largest.
Okay. I actually just have one last detailed question. How should we think about the tax rate over the next few quarters?
Hi, Mike, this is Rob Ben. Well, we continue to use our NOLs, but you don't see it because they're offset against the valuation allowance, and we anticipate that we'll have enough remaining NOL through the end of the fiscal year to continue to not pay federal tax. However, next year, if things go, keep going along as they are, then we'll be in a federal tax position, which right now is 21%. I also mentioned that Illinois suspended the NOLs, so we're not able to use those through the end of fiscal year 2023. So I'm looking at effective tax rate next year of around 27%. This year, I think you can take the first half tax expense and just double that for this year. Next year, again, we'll be in the 27% effective tax rate position if things continue along as they are.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question comes from Bill Wilson. Your line is open.
Good morning.
Morning, Bill.
I just wanted to try to throw a few things out there. First, I wanted to say that you've exceeded my, you know, my wildest expectations. That may sound good, but I am underinvested. What I'm kind of aiming at is even, you know, better clarity or I shouldn't say clarity, but even more expectations for the future. That kind of brings me to the idea that maybe something would be in order for a spin-off or even a Dutch auction. There's almost free money from the banks right now, and I don't know if Dutch auctions are even considered anymore by anybody. Just a wild idea that I thought I would throw out there.
Then the other thing is, you know, I've read where a lot of the Silicon Valley engineers are moving to New Zealand for various reasons. I would think that, you know, if the infrastructure is there in LaFox, that there would be some outreach to some of that outflow, and the company could command almost overnight that doubling for small investors like myself, that would make it, you know, something really worthwhile being in. That's a lot I threw out there. Just thought I'd keep it up, and you don't even have to comment on the Dutch auction if it's not even something considered.
Well, it's an interesting concept I haven't heard it talked about in a long time. Right now we're trying to conserve cash to grow the business internally and so we haven't thought about those things, but you can certainly bring it up with the board.
They want green cards.
Yeah, we'd like them to be on staff. We'd like to hire some of those engineers. That's our biggest problem right now is attracting engineering talent.
Yeah. I'm just a big fan of organic growth. I always have been. In times like this where there's massive amounts of money sloshing around the world, in search of those few products that are beneficial for our environment, et cetera, and healthcare, obviously. That it would be sounds like a great idea to, you know, because, I just can't imagine with all the balls in the air that the management there would be fully capable of, you know, a stock and aimed at doubling internal and external resources, you know, which-
Mm-hmm.
could be something that would be more easily done than normal, you know?
Mm-hmm.
I just wanted to thank you again because it was you know, a wild explosion of products and innovations, and it looks like it's gonna continue. Thank you.
Thank you.
Okay.
Appreciate the investment.
Okay, bye.
Thank you. Our next question comes from Julian Glass with Story Trading. Your line is open.
Hi. Thank you so much. On behalf of all of us at Story Trading, we're a collaborative group of individuals, a very large collaborative group now. I thank you very, very much. We came to you about half a year ago, and it's been quite a hell of a journey. Well done. You can't judge businesses by share price performance. You've done an amazing job all throughout, but we have to thank you for the last six months. If I could ask two quick questions, one very specific, one much more general.
Of course, one can't have a ball, a stargazing ball, but I'm English and a bit of a Luddite, so my knowledge of ultracapacitors really sent me back to the future with Michael Fox. Look, I heard you mention that it could be converted for use with solar, the ULTRA3000. I got that. Then I heard someone talk about cars, and I'm just trying to work out. I did see some pamphlet which talked about the density of ultracapacitors at some point theoretically being sufficiently possible even to compete with lithium. I suspect I don't really know enough to understand its versatility. If I could also ask what your IP protection looks like here, because I think you mentioned Battery Street's collaboration, and you presumably designed some of this.
I'm trying to work out where your proprietary long-term future lies in it, because this is a huge field really. Even if I could defy constraint this week or next week, looking two, three, four, five years out, this is just the future, really.
No, we agree. Go ahead, Greg.
Yeah. I mean, the design of the ULTRA3000 was specifically designed, phase one, for wind turbines, specifically manufactured by GE. You're exactly right. The world wants to get rid of lead-acid batteries. We see numerous applications where that needs to be done for clean energy and those needs. We designed the ULTRA3000, introduced it to market, and we've done a very good job in North America. We're expanding into Europe. In North America, introducing this product, getting beta site testing done. As we talked about, the backlog continues to grow and the shipments continue to grow. The next application, as you know, we have a very large 5G organization in terms of sales and technology partners, and that business is growing quite fast also.
With the ULTRAGEN3000, which is the same concept, it replaces lead-acid batteries and generators. Now, your end customers today are people like T-Mobile and AT&T, but also people like Generac and Kohler and other manufacturers. There's a timeframe of grabbing market share. We have well over 15-20 years of ultracapacitor knowledge of building these modules. Our design team is deploying and doing that. To expedite it, we formed a partnership with Battery Street Energy, who had a design started, and it was down the path, and they worked with our engineers here, and we did some key designs to it.
That is, I think I mentioned in my update that we have at the middle of December, beta site testing at 3 locations, one for T-Mobile in Phoenix, AT&T, Northern California, and Verizon in Utah. That is how we're introducing that. It is in a partnership with ESG, we will be the exclusive manufacturer, and we are looking at some patents for that. What we did after the ULTRA3000 design was done, we put out a patent for that. The patent overall is for the product. We have about 20 embodiments, various things that if you do any of those embodiments, you are infringing on a patent. In working with some of these large owner-operators of wind turbines in North America, we have done a number of revs, specifically for them.
The product, as I mentioned before, works great technically in the field, but there's some unique bells and whistles that they've requested. When we did those, we realized those are also patentable. We applied for those patents, and we got that second patent, which has about the same number of embodiments on it in our Q2. We're very comfortable that we have this product from a patent point of view and a competitive point of view lined up to grab market share and be the incumbent for this product. Now, there's a number of applications that use ultracapacitor technology, and those will be some new products we're introducing here in 2022. One of them is a power supply that's currently runs on lead acid batteries.
The other one is a bridge unit that bridges the power level when a critical facility or any other type of facility loses power. Yes. Now, on the automotive side, the capacitors, the ultracapacitors we're working with are much higher power. The ultracapacitors that go into these electric vehicles, they're looking at that technology. Our involvement right now is on the component level. IGBTs, DC to DC converters, and other components that go into charging stations, and in this case, the pin start into the vehicle. I think, and we all believe, that there'll be a number of applications globally that will be in place to remove lead-acid batteries in any type of equipment or function, again, based on the fact that they're like a car battery.
Anything that you have to change remotely or go up 300 feet like a wind turbine is a huge cost because these things fail every 18 months to twp years. The demand for this type of product, and we definitely have a lead technically, cost-wise, et cetera, is gonna be huge for this company. We've already seen that just in literally the first six months that we've introduced the product to market.
I mean, thank you for that. That adds a lot of flavor. It's just pushing the boundaries further, and I hate to be Don Quixote and storming at windmills, pardon the pun, but if every house ends up with solar panels and charging the car, would it be potentially or is it too small for these capacitors being installed in every house?
Well, the technology will be there eventually. I think ultracapacitors, you know, will pretty much eliminate your, you know, car batteries and those functions. We have another huge application that we're working on, and we do have a prototype order for ultracapacitors in locomotives. Same thing. They have lead-acid batteries, that's all backup power. They wanna convert because of technologies there. Richardson has the capabilities to design application-specific modules using ultracapacitors, and we're currently working with Caterpillar on that. That'll be something we'll see in terms of large shipments and revenue in the second half of 2022.
I wasn't trying to.
Sorry.
I wasn't trying to pin you down to the actual day because this is about a business, not about dollars and cents and this next week, but I understand the path. I appreciate that. Thanks for hearing me. If I could just come back to the nitty-gritty of now, and I think one of the people who previously asked the question, I think we've gotten to the point where the fulcrum point of earnings comes through. If you kindly telegraph what your revenues would be a few weeks ago, and the earnings, I think, probably surprised us all. It just seems to have reached that point where the costs are almost suddenly fixed, and every dollar earned is marginal profit.
I think you already said that, but if I've got it right, most of the revenue coming through from here on, at least in some of the divisions, will flow through directly to profits, 70% of it. Did I get that right, or is that the feel, or did I mistake?
Margin, yes. You know, obviously we're, we have incentives. Everybody here is incentivized on performance, and they should be. They're doing a great job. The overall infrastructure is large enough to handle a lot more business. A large percentage falls to the bottom line.
Given the supply constraints. Well done. Amazing time. Hopefully the future, COVID needn't. Hopefully COVID will disappear, and everything will return to normal. Hopefully you'll be the fulcrum of new technology. I hope one day to be able to invite you to get pats on the back from all the investors at Story Trading . I know that I appreciate your time, and thank you very much.
Thank you very much. Thank you.
You as well.
Appreciate the investment.
Thank you. Our next question comes from Eric Landry with BML Capital. Your line is open.
Good morning.
Good morning, Eric.
Fantastic work all around. I know you've heard it from everyone, but we really appreciate it. Jens, especially you. You don't hear much from anybody on these calls, but we appreciate what you're doing. Thanks to everyone.
Thank you. Al, thank you. You've hung in there with us, Eric, when we weren't doing so well. Thank you for the-
Yeah.
The staying power.
We're quite glad we did. Anyways, Jens, I remember speaking of when things weren't so good years ago and you know, all the way up until, I don't know, maybe several quarters ago. You've mentioned many times that healthcare. The tube, the CT tube business was the future of the company. I suspect now, that's got some competition as far as the future of the company goes, correct?
Yeah. I, you know, it's amazing with the green energy business is, you know, with the ultracapacitor leading it right now. It's just a phenomenal business. We've only invested about $1 million in that business, and the first order was $10 million at, you know, a 35% margin. The serviceable addressable market out there for these products is just unlimited. We're still, you know, we believe in healthcare, and it's a huge market. The aftermarket for service and parts is what, $8 billion or $9 billion in the CT space. You know, as we say, we're pregnant. We've invested $35 million, and it looks like by 2024 we'll start making money in that business as well. If you compare the return on investment to the green energy business, there's no comparison.
I've never seen a business like it, frankly.
Yep. Yeah, it's very, very exciting. I guess I kind of wish you wouldn't say that investment number. It's gonna attract all kinds of people to the business. I guess it is.
Yeah.
It is what it is. Yeah.
Well, it's, you know, we have to take advantage of it while we're there. Fortunately, we have patents on what we've done so far that protect us, at least in the wind turbine space. I'm sure there's lots and lots of people looking at green energy. We're not alone, and we just need to move faster. We need engineering talent. That's what we need.
Yeah. Yeah, you and everybody else. Greg, is there anything you can mention about the sort of the timeframe of these cell tower field tests? Are we looking at a year and a half like it took for wind, or is this faster, slower? The overall market just end up being somewhat similar, smaller or bigger? Anything you can sort of mention about the cell tower stuff.
Yeah, I think it's gonna be a similar rollout that we saw with the Ultra 3000. In talking to specifically and by the way, the first test with T-Mobile in Phoenix went fantastic. The product worked great. You know, it is a cell tower, and so any downtime on a cell tower, just like a wind turbine, where they can't charge somebody for using it is $ millions. I think they're gonna be a little bit more cautious. I think the beta cycle will still be six months to a year. I think we're gonna see probably a nice start in terms of a large production order with one of the service providers, potentially the second half or late calendar year 2022.
The market to us is similar in size, but it's expandable, you know, once you get into probably OEMs, like a Generac or a Kohler. You know, the way they do it is, for example, right now we're testing in Phoenix, and they're gonna expand it into another region by expanding to a number of more towers. You know, push it and make sure that it works perfectly, before they convert to ultracapacitor versus lead-acid batteries. I don't see any large revenue coming in 2022, and I'm talking calendar, you know, Eric, but I think we're gonna see some strong bookings in the second half of 2022.
Great. You mentioned nine. Is it nine additional wind customers you're talking to right now?
When I say talking to, we're talking to a lot more than nine. There's nine current customers that we either have a prototype order, a production order, a beta site order with. At the beginning of 2022, I think I can go here because I think you know who they were. We had four4, so we've expanded that in the quarter to five others. They're big-name people. I mean, it's big-name wind turbine manufacturers and wind farm owners.
Got you. Okay. I'll wrap it up here quickly because I know we're running out of time. Ed, you mentioned 20% growth a few times during the call. Not to pin you down, but is that something you expect over the next 1, 2, 3, 4, 10, 20 years? Is there any number of years where you expect 20%?
Well, I think that, you know, our visibility is probably out two or three years, and after that, it's, who knows, you know? I'd say the next two or three years, 20% growth is, you know, something that we anticipate.
Good. Okay. We'll keep you on 20 to 3, and then we'll take it up to 40 for the 3 after that.
Thank you. I hope.
We'll expect an announcement. You guys have a wonderful 2022, and I'm sure I'll talk to you in the interim. Congratulations on your good work there.
Thanks very much, Eric. Hello to Brad.
Yep. Will do. Thanks.
Thank you. We have a last question from the line of John Francis from Francis Capital. Your line is open.
Hi, Greg. Can you provide us with a bit more color on the locomotive market for ultracapacitors, please?
Yeah. We're in long conversations with two companies under the business category. What it is, it's very similar to wind turbine market or the cell site generator market where these locomotives today a lot of their backup power for all aspects of the locomotive are lead acid batteries. Again, same concept, car battery, boat battery, you name it. They sell every 18 months to 2 years, and it's very costly to replace them. They actually contacted us after they saw the ULTRA3000 press release and asked us if we could design a module for a locomotive. We've been working with them and the initial order that we booked in the second quarter was about $300,000. This is for the components.
We're looking at building that module here in LaFox, Illinois. That market opportunity for us right now, just with the two we're talking to, is a $5 million-$6 million market. You know, it's interesting. We're in a lot of stuff, but you know, we don't go outside of our niche. I just think that's another huge attribute of Richardson Electronics. We are 75 years in power management, power applications, and then of course, in the past few years and prior, because we saw this huge participant in the 5G infrastructure market. This is another power management application that in this case we're looking at both Amel Green Tech, which I believe you saw that press release.
We partnered with them in the quarter also, and ultracapacitor modules to replace the lead-acid batteries on their locomotives.
Okay. Thank you very much.
Thank you.
Thanks, Ed.
Thank you. I'll pass it back to Mr. Richardson for his final remarks.
All right. Well, thank you for your interest and investment in Richardson Electronics. We're obviously excited about our future, and we hope you are as well. If you'd like to discuss our results, please don't hesitate to call us. We're a flat organization. You know, Wendy and I and Greg and Jens are available anytime, and hop in. When the timing's right, we'd love to have you visit our facility in LaFox, Illinois. We're about an hour west of O'Hare, and it's much easier to show you what we do than to tell you about it. It's a complicated footprint, so we look forward to discussing our third quarter performance with you in April. Thank you very much. Call us anytime.
Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.