Okay, so welcome to the Sidonia Virtual Small Cap Conference, and thank you for joining us today. I'm Anja Soderstrom, a Senior Equity Analyst here at Sidonia. As I mentioned, next up we have Richardson Electronics, ticker RELL, and they're covered by myself here at Sidonia. With me today, I have Edward J. Richardson, the Chairman and CEO. I also have Wendy Diddell, she's the COO. This will be conducted as a presentation followed by Q&A. If you would like to submit a question, you can do so in the Q&A function at the bottom of your screen. With that, I'm happy to hand it over to you guys. Welcome.
Great. I'll kick us off today. As Anja said, welcome and thank you for joining us this afternoon. For those of you who are new to the Richardson Electronics story, I'll spend just a few minutes kind of going through the background and then lead into where we're focused today. We'll leave about 10 minutes or so for Q&A, and Ed will be glad to answer any questions or correct some of the things I may have wrong as we go through this. Let's just dig right in. As most of you know, Richardson Electronics has been around for a long time, and over the years, we have built a very sturdy, stable, robust business. Today, we are proud to say that we are still debt-free, and we'll get into the balance sheet a little bit later in the presentation. We have about 430 employees throughout the world.
The majority of those are either in a sales or engineering or a sales engineering type role. We have people located in more than 60 locations throughout the world. We have 24 legal entities, which makes us a very easy company to do business with, with more than 20,000 OEM and end user customers throughout the world. Having our own legal entities allows us to get product moved around the world very, very easily. You'll also see that our structure gives us some advantages when we talk about some of the challenges, such as the tariff situation. We are headquartered in Lafox, Illinois, which is about 45 minutes west of Chicago. In the picture you see on the right, that's the aerial view of our facility, and it's about 250,000 square feet.
We've got almost an additional 100 acres of property, and this is where we do the majority of our global manufacturing. The company has been built around the concept of engineered solutions. We're proud to say that today, more than 55% of the products that we sell and the revenue that we generate comes from products that either we manufacture ourselves in one of our facilities or that are manufactured for us exclusively by one of our partners. We've been building and now have a very, very strong engineering team. With the sales team, we go out and we talk to customers, and we're able to identify needs in the market and then fill those needs with products we make ourselves. We do everything from design and support, system integration, prototype design.
We do manufacturing, we test, as I already mentioned, we have a global logistics structure, and we also provide aftermarket service and repair. Today, we have three business units. If you've been following us for a while, you know that earlier in calendar year 2025, we sold off our fourth one, which was our healthcare business unit. Today, we have three. The Power & Microwave Technologies group, which is our largest and also our oldest part of the business, includes what we call EDG, or the Electron Device Group, which is power grid and microwave tubes. EDG also includes our semiconductor wafer fab equipment portion of the business. PMG also includes power management, which we refer to as PMG, and that is a lot of the component distribution business that has taken us into our second business unit, which is the Green Energy Solutions business.
That business unit is only a couple of years old. In that business unit, as the name implies, we focus on alternative energy and power management. That alternative energy can be wind, it can be solar, it could be nuclear. We're somewhat agnostic. Today, the majority of our revenue comes from wind and also from EV rail, which is the electric locomotives. We participate in those two markets, and we have been launching our own line of products that support power management applications. I'll show you some pictures here in a minute. The third business unit is Canvas. Canvas is our custom display business unit. We make, as the name implies, custom displays for primarily medical OEMs. Today, we serve the majority of the largest medical OEMs throughout the world.
You're talking companies like Medtronic and Siemens and what used to be Verian and Carl Storz and Stryker, and the list goes on and on. All of the products that we sell through Canvas are customer specific. Think of it as a one-to-one ratio where we design a product specifically around an application, and then we sell it to them. They are the OEM that is buying those products. Those are the three business units that we have today. As I mentioned, all of our business was started by the EDG or the Electron Device Group, and it has all been birthed from those types of products. The EDG business, many, many years ago, Ed said they told him it would not be in business. Today, the EDG alone, so that's the power grid tubes, is still $80 million, and it's very stable.
Even if we lose some units each year, we're picking that up in price increases. It's very predictable. It's an MRO business. We are selling replacement tubes for industrial, medical, aviation, marine, a whole host of products and applications. From there, as I mentioned earlier, we've really now started into the alternative energy space. Several years ago, we launched our first product, which was called the Ultra 3000. It's a replacement for lead acid batteries that goes into wind turbines. Today, nearly all of our business is aftermarket. That'll become important in a couple of minutes. I'll explain that. We utilize our global footprint to take all of the products that we sell to market. We capitalize on what we can make ourselves, whether it's in Lafox, Illinois, or through our strategic partnerships. As I mentioned, power management is really our focus.
That's where, from the legacy Electron Device Group type products, moving forward into what we're doing in green energy, you get an idea on how we start. We've started with some of our technology partners. In phase two, we have developed their components into engineered solutions. What you're seeing there in that middle block is, on the very top, the Ultra 3000. That is the module that replaces lead acid batteries in wind turbines. In the middle, you see a product that we're just rolling out now, which is a starter module for locomotives. It can go into diesel, it can go into hybrid, it can go into electric. We are just starting to ship those units in September to Wabtec. We have another program that we're working on with Progress Rail that'll be similar, but different technology, same function, different technology.
Where we're going and where we're investing is to the right in phase three, and you'll see a large energy storage system, or you'll hear us call it BESS or ESS. That is a container-sized, very large system that is used to store any type of energy. It can be alternative energy, it can be energy from the grid when it's not needed. From there, you can then either use it in other times when perhaps you've got a higher demand for electricity, or you can sell it back to the grid. That third block, phase three, is really where you'll see a lot of excitement and growth coming from the company. We're not done with phase two. There's a lot of products that are in development for various applications.
I think it's important to note that from a power management perspective, we're moving from what was historically being a distributor of components over into controlling our own future with modules and with systems. These are some of the other products. I've mentioned them already. I've mentioned technology. We are in the transportation market. One of the products that we're just launching now is an emergency lighting system. Metra, which is located, it's the commuter line right across the street from our office, is our first customer for that emergency lighting system. The engineer start modules, those are the products like I was discussing for Wabtec and Progress Rail. On the industrial side, using ultra capacitors, using lithium-ion phosphate batteries, we've developed a host of solutions. Right now, the majority of them are used in wind applications. Energy storage is where we're going more into a system approach.
In the wind and solar area, I've already mentioned most of these. We've talked about the energy modules. We also have other products that solve solutions for, primarily right now, the solar farms, turbine guide, inverter modules, and there are several other ones that are in process as we speak. We thought we'd focus a little bit on this wind turbine opportunity just to kind of give you a picture of what's going on in the market. A lot of people are saying, yes, what about the big beautiful bill and the fact that the current government doesn't necessarily support the wind and solar market? A couple of things there. Number one, we don't do anything in offshore wind, so we have zero exposure there. Today, the products that we make are primarily used in an aftermarket application.
In the big beautiful bill, there's an opportunity for companies to repower existing wind turbines. If they do so and spend a certain amount of money within a certain period of time, they can lock in their current tax credits for an extended period of time. We are seeing really nice growth in that wind market. You can see that on the right, you'll see a global TAM. It's about $450 million opportunity for us. Today, the majority of our sales comes from companies in the U.S., but we have been investing in additional engineers and salespeople in Europe and in other parts of the country. Just in the past couple of weeks, we've seen our first order from Australia. In Europe, we've been testing with ERG, and that's going quite well.
They'll be buying modules, additional modules for some GE turbines, as well as the Nordex turbines and the Alstom turbines. Suzelan is in India, and that is going to be a large customer for Richardson Electronics. We would expect to start seeing those orders come in after the first of the calendar year. From our perspective, alternative sources of energy are critical. The demand for electricity is like nothing we've ever seen before, and it's only growing. We feel confident that the position we have is just, it's a small start. In GE, for example, in the U.S., our market penetration is less than 15%. We have a lot of opportunity for growth in the U.S. and then on a global basis. That's where we're going to be spending some additional money as well, like I said, in outfitting and putting more engineers elsewhere in the world.
This is the energy storage solution I mentioned earlier. What we've really done there is leverage our relationships and the strength that we've already started to create for ourselves in the alternative energy market. Right now, we are in the process of developing a demo site here in Lafox, Illinois. It's more complex than I imagined. We are in the process of, and I think as of today, we have secured some permitting. It will be after the first of the year when that demo site is ready. Our intent at that time will be to host an investor event, whether it's on site or whether it's virtual, where we'll take you through what this unit looks like, what the financial model looks like. For now, we are deploying our own system that will be a marketing site for customers.
We'll be focusing on companies like Richardson Electronics in Illinois and in states that still provide credits and money towards this type of storage system. If you recently saw our press release that was issued by our governor of Illinois, that was for the REV Illinois program. That allows us to take about $8 million in funding over four years. After that time, we get significant tax credits once we hit that amount. We are using those funds that we've allocated over four years to invest in people, to invest in our demo site, to invest in some additional equipment that's needed. As of right now, we're not knocking down walls. Those of you who have seen our facility know that we have ample room and excess capacity. This is exciting for us. We think it's a very large market opportunity. Again, we are very niche-oriented.
We're not going after the large storage farms, but rather companies that can gain advantage by having their own energy storage solution on site. A lot more to come on that. These are our key customers today that are in this green energy space. You can see that it reads like the who's who of green energy. Very proud of that. Again, haven't seen a downturn in the alternative energy side at this point. We're excited about that. From a financial perspective, we'll switch to that. In FY2025, and again, if you're new to the story, we finished our fiscal year in May. We are now in FY2026. We'll be releasing first quarter in October. Right now, we're still focused on FY2025. We had nice growth in a year that was challenging for many companies. We had a 6.3% year-over-year growth. Our non-GAAP net income also improved nicely over FY2024.
There are some issues that we can get into in Q&A, or you can call us separately regarding the non-GAAP measures that primarily have to do with the sale of our healthcare business unit. On a non-GAAP basis, we are definitely heading in the right direction. I mentioned early on that we are debt-free. We have $35.9 million in cash and cash equivalents. It's important to note that that money is spread out throughout the world. It's in various countries. It's not all sitting in the U.S. We do have a revolving line of credit, but there's no outstanding borrowings there. For the past five quarters, we've had positive operating cash flow. Our capital expenditures last year were fairly low. They were just under $3 million. It'll be a little bit more than that this year. The entire company, the management team, we are focused on protecting the cash.
We are focused on controlling the inventory and seeing that continue to go down or the turns to improve. We are holding that money in order to invest in our growth initiatives. Moving into FY2026, we've already finished the first quarter, which is hard to believe. The tariff situation is certainly raising a lot of questions in everybody's mind. I think with our global structure and we have warehouses throughout the world, less than 5% of the products that we purchase come from China, for example. We can move stuff around, and where we can't, we're able to pass the tariffs back through to the customers. So far, knock on wood, that has not been an extreme headwind. Certainly, it's a headwind on the entire market, but not specifically to us. As I mentioned, we expect to capitalize on current policies, particularly in manufacturing.
We'd like to really focus on finding companies that need to move quickly and move manufacturing to the U.S. and capitalize on that. We recently added a business development person whose sole job is to focus in that area. We talked already about wind turbine modules and the fact that we're seeing increasing and steady sales, which is wonderful. We have these units in stock. When the customers order them, we're able to ship them in quantity the day that they order them. That's a nice benefit for them and for us. The launch of the starter modules for Wabtec is also picking up in FY2026. The semiconductor wafer fab equipment market was much better for us last year. Starting off in FY2026, it looks strong as well.
We recently had our town hall meeting with our largest customer, and they are nothing but bullish in terms of continued growth, significant growth tied to AI. We're looking forward to having that continue to grow as well. With that, Anja, I'll turn it over. First of all, let me open it up to Ed and see if I forgot anything, and then we can open it up for questions.
All right, thank you. Covered it in glowing detail. Probably there'll be some questions out there.
Yes, thank you. That was a good overview, Wendy. If you would like to participate in the Q&A, you can submit your question at the bottom of your screen, and we'll incorporate them. While those populate, I will kick it off. I'm curious what the starter modules you're doing for Wabtec and soon also for Progress Rail. Are you the only supplier of these, or what's the competition look like for those?
Yes, we are the only supplier to our knowledge, and I'm not aware of anybody who's making one. Ed, are you?
No, they tried for a while, but because of our patents, they couldn't compete with us.
Okay. We have some questions here. I know you provide sales and gross profit metrics for each of your segments. How should we think about operating margins or EBITDA margins for the different segments?
I think you answered the question, Anja. We don't report at that level. If you're looking at what is the operating contribution by SBU, we just don't provide that level of detail. If you're looking at overall SG&A, obviously our goal is to leverage our spend and to grow sales and grow margin at a faster clip than we're expanding the SG&A. I would say in history, if you look at our track record, you'll see that we do a good job of that. Okay.
Another question here. Can you talk about the competitive landscape and your competitive advantages?
Not in 10 minutes, not in 9 minutes, because each one of our business units are different. In the PMT segment, we talked a little bit about EDG, I think, in that our market share is significant in the power grid tube space. We've acquired how many companies, Ed, to get to that level?
About 23 or 24.
Yeah. We've done a nice job there. Our competition in the kind of Electron Device Group power grid space is, we'll call them, you know, smaller companies, very $5 million or less kind of revenue companies. In the Power & Microwave Technologies space, which is where we're a distributor of components for power management, we are competing with Arrow and Avnet. That business is key for us because it helps us get into more of the engineered solutions where we have very little competition. When you look at the wind turbine, the modules that we've created, as Ed already pointed out, those are protected by a number of patents. The competition is very, very small. That's obviously something we look at closely before we dive in, to make sure that the markets that we're pursuing are ones where we aren't going to be a me too.
When we talked about the energy storage, there are a lot of players in energy storage, especially at the larger end. Where we're playing is in a much smaller niche market, where it's, again, companies like Richardson Electronics. It's focusing right now on areas where we know that there are tax credits and other programs still available. The competition isn't something that for us is a showstopper. In Canvas, what we do there, again, is custom displays. There are a number of other companies that make displays. I think the testament there is to look at the longevity. Once you get into a program, you are there for 7 to 10 years. Some of our longest customers, one of our favorite ones, is a Verx customer that we've been selling them a solution for the similar application since 2008.
There is competition, but we are able to compete just based on, in all of those, the common thread is our engineering capabilities. The fact that, you know, we're a very small, relatively small organization. We're flat. We can make decisions quickly, and we can adapt quickly. When people bring us these new opportunities, it's not years and years and years to make those decisions. I think that's a huge compelling reason to do business with the company.
Okay. In terms of the Green Energy Solutions, you have so many different opportunities there and rather large opportunities, but it's been a little bit longer sales cycle than we would have hoped for there. Now they just lowered the interest rate, and it seems like we're up for a couple of more decreases coming up. How much of a driver do you think that would be for your customers to come around rather than more being internal?
The lower interest rates, how much is that a driver? I mean, I think that helps in general, right? I think it gives everybody a boost and maybe makes people feel a little bit better about spending and borrowing money. I think in general, it's going to help our business. In terms of really looking at green energy and the wind and solar business, again, the ability to get cash if they need it is a plus. Our units, once you install them, have a life of almost 10 years, and we're able to show a really nice ROI. If they can get the money up front, I think that just bodes extremely well for our business.
Thank you. Another question here is actually about how you think about your return on capital.
I think we look at every opportunity on its own. You know, is it going to return its money in one year or two years, three years? That's our goal. Honestly, we have not, healthcare is a good example. That wasn't a good return for us. We acknowledge that we probably waited too long to take action. In general, we're looking for much shorter return on investment times. Okay.
Another question here. What application or applications is the new ESS system intended to serve? Is it for solar? Also, does it entirely use ultra capacitors, or does it also use batteries? Finally, what is the capacity range for the system? That's a lot of one.
Let me see if I can remember all the individual pieces of the question and answer the ones that I can. Technically, I'm probably the least technical person in the company, and I'd rather have the technical questions answered when we do our demo day for the investors, or even before then. Happy to get other people on the call that have more technical knowledge than me. Those units, again, they store electricity from, it can be wind, it can be solar, it can be ComEd. What we're able to do, what that unit does is store it. You can either use it during peak times when you need more electricity, or you sell it back to the grid. In the state of Illinois, for example, when we put that in, we get a rebate from ComEd.
The issue is that the infrastructure is not sufficient to really meet the demand. The ComEds, I'm using them as an example because that's who we deal with, are looking for companies to store this electricity and sell it back to them. Solar, we'll have solar panels attached to ours. We won't have a wind turbine, I don't think, attached to ours, but certainly you could store wind, or you can store natural energy. There are no limits to that. The size is, it really is variable. Ours is going to be on the smaller end. We're working on a program right now up in Canada that is small, but they can also be very, very large. I'm going to defer that question to another session.
Okay. Fair enough. In terms of the pockets of your growth, you have the Green Energy Solutions that seems to be building up a pretty nice bottleneck for you. You have the semi-cap business that should also accelerate. We're waiting for that to kick in. Canvas seems to be a pretty steady business as well. How should we think about the growth and margins going forward for Richardson Electronics?
I think in general, you know, we don't set a lot of guidance, but what we have said is still true. We would expect year over year 10% to 15% growth every year, with the majority of that coming from the green energy area where we're making the biggest investment. Ed, did you want to add anything to that?
No, I think that covers it pretty well. You know, some of the areas like the old tube business, which is still an $85 million business for us, gives us a much better return than the discrete semiconductor business, for instance. Some of the new green energy products are going to come close to what the tube business returns.
That's a good point, Anja, and that is that the more our green energy business grows and the more that the semi-market business grows and the more Canvas grows, the better our margin will be. Our gross margin will improve.
Thank you. You have a pretty strong balance sheet, as you mentioned. Can you just, you touched on it in the presentation, go over your capital allocation priorities once more?
As we noted, we are holding that cash and investing it in the various energy or green energy programs that we have working, the energy storage solutions, the expansion of our sales and engineering force throughout the world so we can capture larger market share. We do, like I said, have a little bit more in CapEx that will be spent over the next few years for those programs, as well as for infrastructure throughout the company that has to be upgraded. You know, we are open-minded, as we've mentioned on our last call, to acquisitions if they are in the power management space, if they are accretive to the business, and if they really, if they would bring us more in the way of technology, engineers, that's what we'd be looking for. Right now, there is nothing imminent.
Okay. Thank you. We're actually out of time. I want to thank you, Wendy and Ed and Richardson Electronics for joining us today and everyone in the audience who participated. I know you have a pretty full one-on-one schedule. To the extent anyone would like to catch up with you, I'm sure we can squeeze them in. If you would like to catch up with the management team, you can reach out to us or to the company directly. With that, I'll hand it over to you, Wendy, for some closing remarks.
Thank you again, and we appreciate everybody's interest in the company. As Anja mentioned, you can reach Ed. Ed is ed@rel.com. I'm wendy.d@rel.com. We're super accessible. We wish you a nice conference, and we hope to hear from you again soon.
Thanks very much, Anja.
Thank you. Thank you, everyone.