Good day, and thank you for standing by. Welcome to the Richardson Electronics earnings call for the first quarter of fiscal year 2023 conference call. 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 the session, you will need to press star one one on your telephone. 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.
Good morning, and welcome to Richardson Electronics conference call for the first quarter of fiscal year 2023. 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 in our newest business unit, Green Energy Solutions, 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 will be making forward-looking statements. 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 filing for an explanation of our risk factors. We're extremely pleased with the strong performance in the first quarter of fiscal 2023.
This was our ninth consecutive quarter of sequential revenue growth and is a great start to our new fiscal year. Sales in all our business units were up over Q1 of last year. Investments in our growth initiatives continue to pay off as we focus on pursuing exciting market opportunities that we believe will drive long-term growth. Beginning in the quarter, we're reporting a new segment, Green Energy Solutions or GES. Over the last several years, Richardson Electronics has invested in engineering and manufacturing resources to develop solutions that support a healthier, sustainable environment. As an industry-leading global provider of engineered solutions, we listen to our customers and help them solve problems. Today, we offer patented solutions that replace lead-acid batteries in multiple applications such as wind, energy, locomotives, and other critical infrastructure environments. We sell components used in electric vehicles or EV and charging stations.
We're working alongside companies that want to replace fossil fuel by developing hydrogen as a fuel source from methane and other refuse. We're also a leading manufacturer of magnetrons used to produce synthetic diamonds, a growing trend among people who want to buy a product that does not come from strip mines that damage the Earth. With increasing sales from green energy products and customers, we decided it was time to separate the business for reporting and resource allocation purposes. We carefully reviewed our customers and the solutions we sell them, noting which ones provide green solutions. Sales from these customers were previously reported in the Power and Microwave Technologies Group, or PMT. Rest assured, PMT, including EDG and PMG, is still in focus and growing strongly. Through our shared PMT sales and marketing teams, we're confident the sales will grow in green energy solutions as well.
In the 75-year history of the company, we've never been more excited about our future. With nearly $200 million in total company backlog, we believe sales and profits will continue to significantly increase in 2023. With that, I'll turn the call over to Bob Ben, Chief Financial Officer, to review our first quarter financial performance in more detail. Greg, Wendy, and Jens will provide more detail on the quarter, including our new business unit and key growth initiatives.
Thank you, Ed, and good morning. I will review our financial results for our first quarter of fiscal year 2023, followed by a review of our cash position. Net sales for the first quarter of fiscal 2023 increased 25.8% to $67.6 million, compared to net sales of $53.7 million in the prior year's first quarter, due to higher net sales across all four business units, including our new Green Energy Solutions business unit. PMT sales increased by $4.9 million or 12.2% from last year's first quarter, driven by strong growth from manufactured products for our semiconductor wafer fabrication equipment customers. Net sales for our new segment, GES, increased $5.9 million or 230.7% from last year's first quarter.
GES combines our key technology partners and engineered solutions capabilities to design and manufacture products for the fast-growing alternative energy storage market and power management for green applications. Canvys sales increased by $2.0 million or 23.4% due to strong customer demand in North America. Richardson Healthcare sales increased $1.0 million or 45.5% due to increases in all product lines. Total company backlog was $199.2 million in the first quarter of fiscal 2023 versus $206.2 million at the end of fiscal 2022 and $126.5 million at the end of the first quarter of fiscal 2022. The sequential decline was primarily in Canvys, while the significant year-over-year growth we experienced was due to higher orders across our business units over the last 12 months.
Gross margin for the first quarter was 34.1% of net sales compared to 30.3% of net sales in last year's first quarter. PMT's margin increased to 34.3% from 30.1%, and GES margin increased to 35.5% from 28.9%, primarily due to product mix and improved manufacturing efficiencies. Canvys gross margin decreased to 31.4% from 33.4% because of product mix and foreign exchange effects. Healthcare's gross margin was 36.7% in the first quarter of fiscal 2023 compared to 24.3% in the prior year's first quarter, due to improved manufacturing absorption and decreased component scrap expense. Operating expenses were $14.2 million for the first quarter of fiscal 2023 compared to $13.5 million in the first quarter of fiscal 2022.
The increase in operating expenses resulted from higher employee compensation expenses, including incentive expense from significantly higher operating income. Operating expenses as a percentage of net sales decreased to 21.1% during the first quarter of fiscal 2023 compared to 25.1% during the first quarter of fiscal 2022. The company reported operating income of $8.8 million or 13.0% of net sales for the first quarter of fiscal 2023 versus operating income of $2.8 million or 5.3% of net sales in the first quarter of last year. Other expenses for the first quarter of fiscal 2023, including foreign exchange, partially offset by interest income, were $0.3 million compared to other expenses of less than $0.1 million in the first quarter of fiscal 2022.
Income tax expense was $2.1 million for the first quarter of fiscal 2023, or a 25% effective tax rate, versus $0.2 million in the prior year's first quarter due to the use of federal NOLs in fiscal 2022. Net income was $6.3 million, or 9.4% of net sales for the first quarter of fiscal 2023, as compared to a net income of $2.6 million, or 4.9% of net sales in the first quarter of fiscal 2022. Earnings per common share on a diluted basis in the first quarter of fiscal 2023 were $0.45 compared to $0.20 per common share on a diluted basis in the prior year's first quarter. Moving to a review of our cash position.
Cash and investments at the end of the first quarter of fiscal 2023 were $35.6 million, compared to $40.5 million at the end of fiscal 2022 and $36.4 million at the end of the first quarter of fiscal 2022. The company continues to invest in working capital to support its growth initiatives. Inventory grew to $89.1 million from $80.4 million at the end of fiscal 2022. The largest portion of the increase for the first quarter was due to increases in components and work in process for both our PMT and GES businesses, which we expect will be mostly consumed and completed by the end of the third quarter of fiscal 2023. Accounts receivable increased to $32.6 million from $29.9 million at the end of fiscal 2022 due to the high sales growth.
Our DSO was 39 days, the same as in the fourth quarter of fiscal 2022. Capital expenditures were $1.4 million in the first quarter of fiscal 2023 versus $0.8 million in the first quarter of fiscal year 2022. Approximately $0.7 million related to investments in manufacturing, $0.3 million for our facilities, $0.3 million for our IT system, and $0.1 million for our healthcare business. We continue to expect a higher level of capital expenditures in FY 2023 as we make additional investments in our manufacturing capabilities and facility. We paid $0.8 million in cash dividends in the first quarter. 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 second quarter of fiscal 2023.
Now, I will turn the call over to Greg, who will discuss the results for our Power and Microwave Technologies and Green Energy Solutions groups.
Thank you, Bob, and good morning, everyone. PMT had another excellent quarter with 25.2% growth over prior year. Our strategic execution continues to provide consistently improved profitability with top line growth. To enhance and expedite this growth, we have formed a new strategic business unit to capitalize on the exceptional growth and demand for power management products and green energy applications such as wind energy, electric locomotives and vehicles, and energy storage. This new strategic business unit, Green Energy Solutions, or GES, will allow us to apply focus on resources to generate substantial solutions for our customers. Revenues attributed to GES are being transferred from both segments of the PMT business. We moved sales from PMT based on careful review of customer activity and product use. GES sales in Q1 FY 2023 were $8.5 million versus $2.6 million in Q1 of last year.
With a $56.3 million backlog, this unit captured numerous successful products, such as the ULTRA3000, electric locomotive and battery modules, and products used in synthetic diamond manufacturing. Focusing on power management products and green energy applications is key to our long-term success. Recent examples are the launches of our patent-pending shunt resistor and voltage discharge device. These small but critical products are used by all wind turbine service engineers and positions us and the company to aggressively identify ways to help our customers succeed in the green energy market. We are currently in weekly discussions with several major OEMs, and our engineering team is rapidly expanding our product line for energy storage products for various green energy applications. We plan to announce several new products in the second half of FY 2023.
As you can see, our new GES segment is benefiting from a large global secular trends that are driving demand for sophisticated power management solutions that help protect the environment. We are successfully capitalizing on these emerging markets through the combination of key technology partners and our engineered solutions capabilities while leveraging our existing global infrastructure. As a result, I'm excited by the current and long-term opportunities we have to grow the GES segment. Looking at our Power and Microwave Technologies Group, or PMT business, in more detail. PMT increased 12.2% in the first quarter of fiscal year 2023 to $45.4 million, compared to $40.4 million in the same period last fiscal year. In addition to a strong sales quarter, PMT's book-to-bill ratio was over 1.1. Our sales growth, bookings, and strong backlog indicate FY 2023 will be another excellent year.
Our gross margin also increased in the quarter to 34.3% versus 30.1% in the prior year, which was mainly due to more profitable sales mix in the quarter and an extremely strong quarter for our semiconductor wafer fabrication equipment business. Both EDG and PMG supported the strong growth we achieved in bookings and billings in our first quarter. Our Electron Device Group, or EDG, had extremely robust quarter as we continue to grow market share and find new applications for our legacy tube products. In addition, we had record shipments to our semiconductor wafer fab customers. We also had excellent growth in our Power & Microwave Group, or PMG. Over the years, we have added new technology partners and new products targeting RF, wireless, and power management applications. This includes programs dedicated to the high-growth power management and energy storage applications.
Our entire team has done an excellent job identifying niche technology partners who collaborate up with us globally. Our engineered solutions strategy is led by our global technology partners, such as Qorvo, MACOM, Anokiw ave, LS Mtron, ECM Greentech, and Fuji Electric. Along with key tube manufacturers in the industry, such as CPI, Thales, NJRC, NISD, and Photonis, work with us to manage our customer requirements. We will continue to add partners to fill technology gaps in our offering as these markets continue to grow. We continue to invest in resources to support the growth we're experiencing in both GES and PMT business. We're adding design engineers, field engineers, as well as expanding our manufacturing capabilities and technical expertise. Our growth strategy has been highly successful over the years, resulting in new products, customers, revenues, and profits by capitalizing on our existing demand creation infrastructure.
We still remain challenged by the long semiconductor lead times and overall supply chain. This affects both our component business and engineered solutions. We are aggressively investing in inventory that allow us to support our backlog and ensure we can meet our customers' needs while we collaborate closely with both customers and suppliers. I cannot stress enough the value of Richardson Electronics model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power management in RF and microwave industries. We focus on the fast-growing energy solutions market. We have developed a strong business model, including legacy products and new technology partners that fit well with our engineered solutions capabilities. Through our steadfast and creative focus on customers, we'll continue to excel by taking advantage of opportunities when they arise. Our backlog remains strong, and the execution of our strategy has never been better.
There's no question our customers, technology partners need Richardson Electronics products and support more than ever. With that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare.
Thanks, Greg. Good morning, everyone. First quarter sales for Healthcare were $3.3 million, an increase of 45.5% over Q1 of FY 2022. Sales were higher for all product lines, including CT tubes, parts, and systems. Gross margin in the first quarter improved to 36.7% versus 24.3% in Q1 last year, reflecting steady production and reduced scrap. Margin was also helped by several credits from our suppliers in response to issues we faced in our most recent fourth quarter. This quarter is proof that it is possible to realize higher gross margins when production is constant and we don't suffer significant equipment or component issues.
The number of used systems available for purchase is also improving, giving us good revenue growth opportunities, particularly in Latin America, where we sell most of our used systems with ALTA tubes. In May of 2022, we completed our second ALTA 750G beta and were able to do a soft launch of the tube. This is the second tube in the Canon series, and it works on newer Canon CT scanner models. Our strategic market approach continues to ensure our tube performance is solid, and we can adjust production processes if needed. We are still waiting to receive CE approval, which is required to sell the G-tube in Europe and Canada. As a result, we expect sales growth will be gradual. We are making steady progress on the Siemens repaired tube program. This is a series of four tube types, including the Straton Z, MX, MXP, and MXP-46.
The Siemens install base is considerably larger than Canon's, and there are no third-party replacement options for these tube types. The Straton Z is currently in beta site testing, and we remain on track to release the repaired tube later in calendar year 2022. The Siemens MX series will follow in calendar year 2023. The Siemens program is a critical element to achieving our goal of providing a positive operating contribution to the company by Q4 of FY 2024. Q1 was a good start to FY 2023, which helped improve overall company profitability as a percentage of sales in the quarter. I will now turn the call over to Jens Ruppert to discuss the results for Canvas.
Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures and sells custom displays to original equipment manufacturers in the industrial and medical markets throughout the world. Canvys delivered an outstanding performance and set a new quarterly record with sales of $10.4 million for the first quarter of fiscal 2023. Strong customer demand, primarily driven in North America, drove a 23.4% increase in sales over the same period last year. Gross margin as a percentage of net sales was 31.4% during the first quarter of fiscal 2023, down from 33.4% during the first quarter of fiscal 2022. The decrease in gross margin was related to the product mix and foreign currency effects. Our backlog remains healthy, which we expect to support strong sales through fiscal 2023 and into fiscal 2024.
Given the number of projects currently in the engineering stage, we are well positioned for continued growth. Our expectations assume no impact from current supply chain obstacles and demand is not negatively impacted by recessionary pressures. We continue to deal with extended lead times for selected components from our Asian suppliers. To compensate for this, our inventory on hand increased during the quarter. All our monitors are custom and our inventory is earmarked for specific customers, so we believe there is minimal risk. In some cases, customers are paying us to hold inventory above and beyond their annual usage to avoid supply chain disruptions. During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include cardiac pulse field ablation, refractive surgery, radiation treatment, endovascular imaging, surgical navigation, and robotic-assisted surgery.
In the non-medical space, our products are used in a variety of commercial and industrial applications. This includes teleprompters, talent monitors, and clocks used at TV stations around the world. Human machine interfaces, or HMI, for surface inspection systems, metal 3D and industrial printers, packaging machines, and process automation. I am so proud of our teams around the world, and we are extremely pleased with their exceptional operating performance. Our strong and growing customer relationships, together with the 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 local service. While our sales organization stays focused on new opportunities, I stay focused on improving the operating performance of the division. Maximizing cash flow and improving Canvys's profitability is an ongoing priority.
We continue to work closely with our partners to meet the demand of our customers, particularly with the challenges brought by the industry-wide supply chain delays. I will now turn the call back over to Ed.
Thanks, Jens. Congratulations to you and the team on a new record quarter for Canvys. It's nice to see all of our businesses are performing so well, particularly considering the economic conditions throughout the world. The credit goes to Richardson Electronics' fantastic group of employees. As we celebrate the company's seventy-fifth anniversary, I'm reminded that our employees and our culture make us uniquely positioned for success. As I mentioned in our new book, Never Give Up, it's also our ability to double our efforts and persevere through difficult times. Our team has done just that, and I couldn't be more proud of them. We're off to a great start in FY 2023. We're working with our customers to deliver solutions in a timely manner and working with our suppliers to overcome supply chain challenges. We're focused on the operating performance of the company.
Our year-over-year revenue and profitability will be very strong. The company has never been healthier. At this time, we'll be happy to answer a few questions.
As a reminder, to ask a question, please press star one one on your telephone. Please stand by while we compile the Q&A roster.
Our first question comes from Anja Soderstrom with Sidoti. Your line is now open.
Hi, thank you for taking my questions.
Morning, Anja.
Congratulations. Good morning. Congratulations on the good quarter.
Thank you.
I just wanted to start digging into the opportunities within the new, or not new, but you broke out the GES segment. In your presentation, you're talking about the GE wind turbine opportunity in itself is $370 million. But you're also retrofitting those capacitors, right, to fit other wind turbines as well. The opportunity could be a lot larger than that, or?
Yes. The original ULTRA3000 was designed for owner-operators of GE wind turbines. We started with great success with the top three, NextEra, Invenergy and Enel. We are the exclusive supplier to those three owner-operators in North America. Since the inception of it's caught great notice, and we now have 17 different owner-operators of GE wind turbines in North America that are buying our product or testing it. We have weekly calls with Siemens, and we'll be developing a version of the ULTRA3000 for them. In addition, we'll be announcing in Q3 of FY 2023, our multi-brand, which will be used in European manufacturers of wind turbines of Nordex, Siemens Gamesa and Suzlon.
We are in contact with them, and we'll be doing beta site testing sometime before the end of the year. The technology, we're continue to improve on it, and we'll be adding that same product for other wind turbines and other GE owner-operators.
Greg, you might wanna clarify. It's not the capacitors that you're modifying, but the module itself.
Yeah. The capacitor, this capacitor module, we have a technology partnership with LS Mtron for the capacitors, but we're updating and increasing and improving the power supply, the communication board, et cetera.
Okay. Thank you. Appreciate that clarification. Then within the electric locomotives, seems also like you're just scratching the surface there with the order you have. Can you just talk about sort of the opportunity there and have you sort of put a number around that total addressable market potential?
Yeah. Very similar to what you saw with a number of press releases in the past quarter. We now have four different products that we're selling to the owner-operator of GE wind turbines. It started with the ultracapacitor, ULTRA3000. The same strategy is with the electric locomotives. We now are selling and designing four different products into that market. Right now, our partner is Progress Rail, a Caterpillar Company. They're forecasting about 50 trains over the next three years. Within that, we'll be participating in the ultracapacitor, sorry, the lithium iron phosphate modules that we're building here. We're also building superstructures, which includes the balance of the equipment needed for the locomotive.
We're also building a battery management module that works with the batteries on the train to help manage the current and voltage going through them. The biggest win now is the design we're working on with Progress Rail for a starter module that'll be used in their diesel trains. Today they have about 7,000 trains and we'll be producing that design sometime in Q3 or Q4 of this fiscal year. With 50 trains approximately, their forecast and our content with that, we look at this being a $40 million-$50 million business just for the electric locomotives over the next one to three years.
Okay. You're also talking about the growing partnership with Caterpillar, right? Is that beyond the electronic locomotives?
Right. One of the best things about becoming a design partner for a company like Caterpillar, Progress Rail, is you're now involved in all their designs, and they're coming to us with other opportunities for other products within the Caterpillar family. I don't have anything to announce right now other than the four products I just mentioned for their electric locomotives and diesel locomotives. There'll be other products that we'll be de-designing for them in the future, for sure.
Okay. Then in terms of the power base stations, you've been doing some beta testing there with some carriers. What, how are those progressing, and what can we expect from some announcements around that?
Yeah. You know, the product is used for replacement of lead-acid batteries in the generator. Bottom of every cell tower there is a generator. The testing is going well. We're tweaking it as the alpha site and beta site testing goes. We hope to still get production orders in Q3 and Q4 this year. We're also in partnership with Northwestern Medical to build again the ULTRA3000 for their generators and their critical facilities. We're happy with the results so far. You know, with the ULTRA3000, we started on top of the mountain with the largest owner/operator in North America. This one is going probably normal than what we've seen in the past in terms of a new product introduction process.
Results so far are good. They're happy with our support and our design. Again, we hope to get production orders sometime in Q3 or Q4.
Okay, thank you. Moving on to the PMT. In terms of the wafer fab, what do you see there in terms of the demand and people think that maybe we are towards the end of that cycle. What are you seeing with your customers?
Well, Lam hasn't slowed down their forecast or their bookings with us. We look at it to consider growing, you know, pretty much at the same pace it did last year. We haven't seen that from them. They've told us to continue getting inventory and building as they're gonna continue at the growth rate they saw over the last 12 months.
Okay, thank you. In terms of the backlog decline, how can we think about that? Was that due to you getting the inventory, so you were able to ship more of the backlog? Or how should we think about the backlog trending?
Yeah, the backlog specific to PMT and GES actually grew slightly in the quarter. The decline was mainly.
Canvys. A little slight decline in Canvys.
Yeah. Again, very slight decline.
Okay. Moving over to healthcare, for the growth margin there, it seems like you have better absorption and also the scrapping there. What are the puts and takes there, and how should we think about that going forward?
As I mentioned, you know, what worked to our advantage in the quarter obviously is staying in full production. As far as going forward, there were a couple things that we pointed out that benefited the gross margin in the first quarter. Again, the first quarter was 36.7%. There was some benefit from some scrap recoveries that we had in Q1, and that improved the margin by about 3.8%. Then the overabsorption, it improved the margins about 3.2%. On an ongoing basis for modeling purposes, Anja, I'd still keep it, you know, right around that 30% mark.
Okay.
The things that would challenge that number would be, you know, again, if we had any component issues, any issues with the tubes, et cetera. I would feel comfortable in that range.
Okay, thank you.
Mm-hmm.
I'll get back in to queue and let someone else ask questions for now.
Okay. Thanks, Anja. Call us any time.
Thanks, Anja.
Thank you.
Please stand by for our next question. Our next question comes from Ross Taylor with ARS. Your line is now open.
Thank you, and congratulations on what was a really blow away good quarter. My hope is you can-
Thanks, Ross.
Keep that up for the next three this year, and then pick up on it, the following year. Looking at number-
Well, we still have a $200 million backlog, so we hope so.
I hope so as well. I think that you guys have really. It looks like you should be able to build from here, so I'm pretty excited about that. With regard to wind turbines, you initially started out in the replacement business. Is that kinda how we see Siemens working as well as and the other European manufacturers? The idea that you would initiate into their products with replacement of existing components, or do you see an OEM announcement from one of them soon?
It still would be replacement of the lead-acid batteries in the wind turbines. That's what this product does. It replaces that. Obviously the lead-acid battery is like a car battery and only lasts a few years. We are working with Siemens and their fleet in India. It fails every six months, so they really love our product. For now, that's the main focus of the product is to get rid of the lead-acid batteries in wind turbines and other products.
Initially, we would be seeing sales on a repair replacement type cycle or business as opposed to coming out of the factory with the ultracapacitor as part of the original equipment.
That would definitely be Phase 2. Yes, we're in discussions with some major owners, manufacturers of wind turbines to make it an OEM sale as opposed to replacing the lead-acid batteries that are in the field. Yep, absolutely.
Okay, that would be exciting.
Yeah.
Looking at the locomotive business. On the diesel, we saw recently Union Pacific signed a deal to modernize and improve fuel efficiency on about 600 trains, a $1 billion+ deal. It looks like it was done on diesel locomotives. Is the starter module part of what you would see in that type of move on Caterpillar diesel-electric locomotives?
Yes. That's exactly the design we're working on is for that, where they either have a goal or a mandate to take their diesel and reduce the emissions of their existing diesel engines. The current battery is a lead-acid battery. We would replace that with a lithium iron phosphate. Yeah, that's all part of that program that you read about all manufacturers.
Okay. Many of the major U.S. rails are talking about zero emissions by 2050. It would seem that you can't get to zero emissions without electric locomotives, and 2050 seems to be coming up on us reasonably quickly from the life of or the build-out of locomotives. When do you think you really start to see the industry ramp its buy interest, you know, seeing greater activity in the electric as opposed to modifying diesel?
Yeah. I think if I look at the forecast, and we have, you know, weekly calls with Progress Rail's engineering team and our team, also their business team, I think it's gonna expedite greatly at the end of 2023. If I look at their forecast and their deadlines, right now, you know, it's a new product. People are getting used to understanding lithium and ultracapacitors across the board. But I think at the end of 2023, we're gonna see a large spike in the expediting of the building of these electric trains. 'Cause you're right, you won't get to 100% zero emissions without having a huge part of your fleet as electric vehicles.
Yeah, it does. It seems like we're right on the cusp of this then, and that obviously would be a major breakthrough for the company, for Richardson, right? $1 million-$3 million or something, depending on the type of locomotive it would be. That's a pretty substantial. You know, those that adds to backlog pretty fast.
Yeah. I mean, the timing could not be better. What's interesting is we've been working with ultracapacitor technology and lithium battery technology for over 15 years. We kinda have a head start internally and obviously, the company has been focused on power management and power products for 75 years, if you will. What we're finding is, you know, we have a lot of inside information that really applies to these type of rollouts, and everything's a rollout, Phase 1, Phase 2, Phase 3. You know, every time we talk to Progress Rail or another owner operator of a wind turbine, they bring another opportunity to us. You know, we don't have a lot of standard products.
I guess at the end of the day, the ULTRA3000 is probably the most standard product we have. Our ability to build niche products that solve a customer's problem is really being well-received right now. We picked a high growth market, and I think the timing's great for this company and definitely our shareholders.
Do these types of products, the ultracapacitors you're working on with Cat, have application to broader markets like the engines, the diesel engines they use for everything from, you know, Class 8 trucks to earthmoving equipment as well?
Yeah. It kinda goes up and down. With the electric locomotives, they're using lithium iron phosphate batteries. On the ULTRA3000 or the wind turbine, they're actually using ultracapacitors. We have signed technology partnerships with the two largest ultracap manufacturers in the world, with LS Mtron is number one for larger cells, and then VINATech is number one for smaller and medium cells. We're seeing all applications literally replacing batteries in the power management application of the product. We're talking to drone manufacturers, you know, lighting, charging stations. As these ultracapacitor modules and lithium modules. Yes, the locomotives higher power, you know, even this current program, as big as it is for commuter trains.
The next step is to build and design a superstructure for freight trains, you know, going across the country, longer distances. One of the things they're talking about is as they go across the country, literally stopping at a charging station in Wyoming to get charged up and keep going across the United States. We're involved in those conversations and, yeah, it's just gonna grow and the opportunities of people replacing every type of battery with an ultracap or a lithium is very, very strong. All this ties into what the highest and largest market is energy storage. We're already looking into that, energy-storing containers that support wind farms and solar farms and other products.
It just kinda all goes together and we just have a unique technology and capability to support these applications as they go forward.
First of all, if you keep this up, you know, Ed's gonna have to write a new sequel.
We hope.
I'd like to do that. Well, the neatest thing is I think it's just a unique story. As you know, if you've read Ed's book, the company started with his father selling batteries in the land mobile radios, I believe. It was walkie-talkies. Progress Rail announced that they have booked an order for three electric locomotives with Metra. The Metra commuter train actually stops in La Fox, Illinois, across the street from our corporate headquarters here. 75 years later, that product, that locomotive superstructure will be built here in La Fox. There'll be an electric locomotive going through the La Fox station, using lithium iron phosphate batteries, that were manufactured and designed here at Richardson in La Fox, Illinois.
It's been quite a trip, but it's kind of a unique story that Ed will have to put in his second.
His second book. Now, with regards to energy.
100-year anniversary.
Well, I won't be around to read that, unfortunately.
I will.
You will, I won't. Different jobs. Looking at the idea of energy storage, what you're talking about is the idea that with a lot of these like solar and other wind, what we have is the problem of how do you make it available around the clock, you know, 365. That's what you're talking about is-
Yeah.
...addressing products that do that?
Yeah. Energy storage, you know, today, you know, the wind turbine, solar farms and other products, they produce energy and then sell it to the market. Well, to store this energy, these sites are gonna need much larger, what we'll call containers, that they can store this energy and use it when there's a hike in need for the energy or the price is better. We're in conversations with companies like ABB and Shell Oil to design and build these energy storage systems using both lithium and ultracapacitors.
Wow.
That's all I can announce today. Yeah, that's the next level of our green energy program is the ESS market, which is absolutely huge. It's a billion-dollar market, but we're looking to find niche applications for these energy storage modules and containers going forward. Those will be designed and manufactured here in La Fox, Illinois.
Well, I mean, the story just keeps getting better. I wanna shift to one area where, you know, it's been a struggle looking at the healthcare space. You're talking about the idea of getting to kind of a positive contribution by the fourth quarter of 2024. Is that your fiscal 2024?
Yes, that's correct.
Okay. Do you see that as a ramp, a steady move towards. We lost, what, about $5 million in that business last year?
Yeah, it was closer to six.
Closer to six. Okay. I should've ordered these questions, so the good ones were at the end.
We should tell them about the first quarter.
Yeah. Well, the other stuff is just so, you know, bloody amazing. Now, we're looking at closer to six, which is basically, you know, you're earning this kind of money, losing that kind of money on this business.
Correct.
Looking at that, do you see that being a constant kind of a northwest constant move in getting rid of the loss, or are we going to see that loss disappear faster at the end of the period? I mean, that alone probably adds $0.30+ to earnings. It can add $0.30 to earnings.
Ross, that is absolutely our goal, is to speed up, you know, the timeframe in which we at least break even or even start providing operating contribution. The first quarter was good. We made really good progress towards our goal. If we were to annualize the first quarter, the improvement to the bottom line for the company would be significant. So, yeah, I think it'll be gradual. I can't say, you know, quarter-over-quarter, every quarter is going to be the same as first quarter, but I will say that we're on the right track. When we get the Siemens tubes, then we're gonna start shipping those hopefully in the next quarter or two, starting with the Straton Z. You know, that puts another tool in the salespeople's bag.
It puts another product into production and helps us absorb the fixed cost of the factory, and it'll improve our margins. Everything is looking positive. Yes, I do think, you know, we'll be able to show a steady upward trend. Maybe a little bouncy from time to time, so hang with us, but that's our goal.
This really, what you're talking about as a company here at this point in time, that alone could drive earnings up by, you know, 25% or more from where they were last year. Then we've got all this other stuff that's going on. I mean, I know you're cautious, and I know you're very conservative in how you guide, but it seems that this, we're really sitting on the launchpad for something that that might be a bad analogy considering how some rockets have gone off lately. Really just, you're looking at the next two years, three years, as potentially being years that we don't think. My model tells me you could easily double or more earnings over that timeframe.
You know, we're still saying about 20% growth, something like that. We're projecting about $255 million in revenue for this year. We like to, you know, underpromise and overperform. Certainly we think not just two or three years, the next five years. If you just look at 20% growth every year for the next five years, and healthcare at least breaking even, you can imagine what the bottom line number looks like.
Yeah. I mean, it's, as I say, it's beyond powerful. It's really an exciting story. Okay, I've monopolized enough of your time. I'll let others go, but congratulations and quite honestly, thank you for the way this is setting up.
Yes. Well, call us anytime. We're happy to answer your questions.
Thanks, Ross.
Will look forward to it. Thanks. Take care, guys.
Yeah.
As a reminder, to ask a question, please press star one one on your telephone. I am showing no questions are in the queue. I would now like to turn the conference back to Ed Richardson for closing remarks.
Thanks, Michelle. Well, it's obvious that we're very excited about the future, and we appreciate your support. You know, we're a very flat organization, so anytime you have any questions, give us a call, or if you're in the Chicago area, come and see us. We're actually doing what I call a teach-in. Is it next week, Wendy?
It's on Tuesday.
On Tuesday, we're inviting institutions and individual investors to come in for a tour of the factory and a lunch, and any of you are invited to come. That's Tuesday starting, what?
10:00 A.M.
10:00 A.M. Give us some advance notice, so we make sure we've got a lunch for you. Anyway, we look forward to discussing many of these new programs as well as our fiscal 2023 second quarter performance with you in January. Thanks very much. Call us anytime.
Today's conference call. Thank you for participating. You may now disconnect.