Richardson Electronics Ltd

NASDAQ:RELL

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Richardson's Electronics Earnings Conference Call for the first quarter of fiscal year 2025. [Operator Instructions]. 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, CEO. Please go ahead.

[Edward Richardson, executive]

Good morning, and thank you all for joining Richardson Electronics conference call for the first quarter of fiscal 2025. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power & Microwave Technologies Group, which includes 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'll 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 filings for an explanation of our risk factors.

I'm pleased to report that we had a solid start to the fiscal year with net sales exceeding both our internal projections and exceeding our performance from the prior year. Q1 sales were $53.7 million, slightly ahead of the $52.6 million we achieved in Q1 last year. As a note, Q1 last year benefited from an extra week of sales, making the year-over-year growth rate even more encouraging. Sales expanded in our green energy and health care businesses reflecting continued success of our long-term growth strategies. We are particularly pleased to see revenue growth in green energy with sales nearly double what they were in Q1 last year.

Our gross margin was below the prior year, mainly resulting from the product mix and under absorption in our factory. We remain committed to retaining our production resources in anticipation of ongoing recovery in the semiconductor fab equipment market. While our Q1 sales in this segment remained low, we were up 16% compared with the first quarter last year and backlog is increasing. We expect growth in demand throughout the balance of the calendar year 2024 and into calendar year 2025. We also anticipate the launch of several new products in our green energy business, and in the first half of the calendar year 2025. These activities are expected to drive higher manufacturing demand and improve gross margin.

As you can see, we expect demand in key parts of our business to improve over the coming quarters despite global economic uncertainty. This is a direct result of the value we provide our global customers as well as the multiyear growth strategies we're pursuing to diversify our business. In addition, we believe our strong balance sheet, customer base and growing engineered solutions will provide the company with flexibility to navigate the current environment and invest in our long-term growth objectives. So with this introduction, I'll now turn the call over to Bob Ben, our Chief Financial Officer, to discuss our first quarter financial results and capital position. Then Greg, Wendy and Jens will provide more detail on our business unit performance, including an update on our growth strategies, new product development program wins and expanding customer relationships.

[Robert Ben, executive]

Thank you, Ed, and good morning. I will review our financial results for our first quarter of fiscal year 2025, followed by a review of our cash position. In addition, please note that I will be discussing EBITDA, a non-GAAP financial measure. A reconciliation of the non-GAAP items to the comparable GAAP measure is available in our first quarter fiscal year 2025 press release that was issued yesterday. Consolidated net sales for the first quarter of fiscal 2025 were $53.7 million compared to net sales of $52.6 million in the prior year's first quarter, which was a 2.2% increase. It is also important to note that the first quarter of fiscal 2025 comprised 13 weeks compared to 14 weeks for the first quarter of fiscal 2024.

This was our first quarterly year-over-year increase in sales since the third quarter of fiscal 2023. This growth in net sales for the first quarter of fiscal 2025 was due to an 84% increase in sales for GES and a 48.7% increase for health care. Sales growth for the first quarter of fiscal 2025 was partially offset by a 4.3% decrease in PMT sales and a 22.8% decline in canvys sales. Consolidated gross margin for the first quarter was 30.6% of net sales compared to 32.8% during the first quarter of fiscal 2024. The largest component of the 220 basis point decline in consolidated gross margin was due to our PMT business. PMT's gross margin declined to 29.8% from 32.2% as a result of product mix and higher manufacturing under absorption as the company maintains much of its workforce in anticipation of increasing demand for its manufacturing resources. Partially offsetting this decline was higher gross margin at Richardson Healthcare and Canvys compared to the prior year's first quarter. .

Our operating expenses as a percentage of net sales were 30% for the first quarter of fiscal 2025 and remain unchanged compared to the first quarter of fiscal 2024. Operating income was $0.3 million for the first quarter of fiscal 2025 versus operating income of $1.5 million in the first quarter of last year. Income tax provision was $0.1 million or an effective tax rate of approximately 9% versus an income tax provision of $0.4 million or an effective tax rate of 23.7% in the prior year's first quarter.

Net income for the first quarter of fiscal 2025 was $0.6 million or $0.04 per diluted share compared to net income of $1.2 million or $0.09 per diluted share in the first quarter of fiscal 2024. EBITDA for the first quarter of fiscal 2025 was $1.7 million, or 3.1% of net sales versus $2.6 million or 5.0% of net sales in the prior year's first quarter.

Moving to a review of our cash position. Cash and cash equivalents at the end of the first quarter of fiscal 2025 were $23.0 million compared to $24.3 million at the end of the fourth quarter of fiscal 2024. Operating cash flow was $0.4 million compared to $1.0 million in the prior year's first quarter. This was the second consecutive quarter of positive operating cash flow.

Capital expenditures of $0.9 million in the first quarter of fiscal 2025 were primarily related to our facilities and IT systems versus $1.1 million in the first quarter of fiscal year 2024. We paid $0.9 million in cash dividends in the first quarter of fiscal year 2025. 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 2025. As of the end of the first quarter of fiscal 2025, the company had no outstanding debt on its $30 million revolving line of credit with PNC Bank. Now I will turn the call over to Greg, who will discuss the results for our PMT and GES business groups.

[Gregory Peloquin, executive]

Thank you, Bob, and good morning, everyone. We mentioned in our last call that even though our Q4 FY '24 results were challenging. We remain very optimistic about the future, both over the short and long term. Coming out of Q4 FY '24, we had a strong backlog, numerous new product introductions and expanded customer base and development programs transitioning from beta testing to preproduction. Based on this positive momentum going into FY '25, we are pleased to report strong growth in our GES segment and our RF & Microwave components business, also quarter-over-quarter and year-over-year growth in our wafer fab equipment manufacturing business in our Q1 FY '25 results. Starting with our GES business. GES grew 84% to $8.1 million.

Looking at these results in more detail, even our margin was down a little bit based on product mix, our first quarter sales growth benefited from numerous new programs, products and customers. Many of these have been in development since FY '23 and FY '24, and it's good to see them come to fruition. We had strong sales in our electric locomotive battery modules and new products for EV and diesel locomotives, such as our starter modules. In addition, we had a strong growth in our pitch energy modules as we added numerous new customers for our growing portfolio of products.

We now serve dozens of wind turbine owners and operators, including exclusive partnership with the top four owner operators of GE wind turbines such as RWE, [Green Drive] Energy, Enel and NextEra. To date, we have sold over 57,000 units in North America. And as I mentioned on the last call, in Q2 FY '25, we're expanding into Europe with GE and other turbine platforms such as Suzlon, Senvion, Nordex and [SSB]. Our GES growth strategy is still in its early stages. And as our new products mature, we expect to see sales and bookings fluctuate from quarter-to-quarter. However, I'm pleased with the progress we are making, getting GES to scale as we continuously add new customers, products and technology partners.

We expect this trend to continue and contribute to growth throughout FY '25 and beyond. The team continues to excel in identifying customer requirements, establishing design and manufacturing capabilities and launching beta site testing. In a short amount of time, we have designed numerous products, received several patents and developed a growing large customer base of global industry-leading customers. The progress will help create more predictable quarterly revenue and booking streams as our GES business gets to scale. Our customers repeatedly tell us that we have maintained our market share for the core GES powered management applications, suggesting the slowdown in shipments in FY '24 was primarily a timing issue. In fact, our customer pipeline and opportunities continues to increase as we capitalize on significant energy transformation projects globally, including wind turbine repowering.

Turning to Power & Microwave Technologies or PMT which includes the Electron Device Group, EDG, our legacy tube and semiconductor wafer fab equipment business and the RF & Microwave Group or PMG. Sales were $34.2 million, down 4.3% compared to the prior year. However, this decline was offset by growth in our RF & Microwave components business as well as our semiconductor wafer fab equipment business. PMT margin was down in Q1 due to mainly product mix. Our combined GES and PMT backlog remained strong at over $97 million. Given our inventory position, we will continue to ship many incoming orders from stock as we did in the past fiscal year.

We remain focused on managing our business to support our customers' needs when they are ready. Having inventory on hand allows us to capture market share and expedite the MPI process or new product introduction process. We collaborate with our customers and suppliers and use our customers' forecast to help us strategically invest in inventory and ensure we meet their needs. Inventory was up slightly in Q1 FY '25, mainly due to a large purchase of electron device tubes to sport long-term demand and availability. A key component of our growth strategy is selectively expanding our global technology partners. We continue adding new partners who fill technology gaps in our offering and support our growth strategy.

Through these partnerships, we'll often identify opportunities for new products that we design and manufacture in-house. This increases the value we provide to customers and allows us to capture more revenue while expanding and diversifying our customer base. These long-term supplier relationships are extremely strong. And when appropriate, we work with them on strategic purchases to maintain proper levels of supply. We negotiate special payment terms, stock adjustment privileges and shipping schedules to help improve cash flow.

In addition, we are a key component of their new product development and new product introduction programs. We also continue to invest in infrastructure to support our growth. We are bringing on talented design and field engineers and making investments to enhance our design and manufacturing capabilities. Our growing in-house design and engineering teams are doing a great job supporting the increased demand in our current products and new product designs. Our field engineering team continues to identify new customers and opportunities. With this team, we will continue to identify, develop and introduce new products and technologies for green energy, power management and RF & microwave applications.

Going into Q2 FY '25, we remain excited about the opportunities within our PMT and GES businesses. Q1 FY '25 bookings exceeded Q1 FY '24 by 35%. We did not lose market share in FY '24. In fact, with the positive outlook in the semi fab market, key customers are forecasting growth in FY '25. And our technology partners are continuing to support our unique global business model and drive our business forward. As a result, we have many reasons to be optimistic about our growth strategies and the future of our business.

I cannot stress enough the value of Richardson Electronics unique model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power management, RF & microwave and green energy markets. We have built a strong business model combining legacy products and new technology partners and capabilities that align with our growth strategy to provide global customers with our engineered solutions and capabilities. This model is unique to the industry and differentiates us from our competition. Through our steadfast and creative focus on customers, we continue to excel by capitalizing on opportunities as they arise. The execution of our strategy has never been stronger, and it is clear, our customers and 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.

[Wendy Diddell, executive]

Thank you, Greg, and good morning, everyone. In the first quarter of fiscal year 2025, the Healthcare division reported sales of $3.8 million, representing a 48.8% improvement compared to the same quarter last year. Additionally, this marks a $300,000 or 8.4% increase over the fourth quarter. All product lines showed growth over the prior year's first quarter with a standout 50.6% increase in our CT tube business. This growth was primarily driven by the repaired Siemens Straton Z Tubes and our proprietary ALTA tubes. The gross margin for the quarter improved to 32.3%, up from 31.6% in the same period last year.

This improvement was primarily driven by a favorable product mix which included higher margin part sales and lower scrap charges. During the quarter, we maintained steady production of the repaired Straton Z tubes. We fulfilled the backlog carried into the first quarter and sold every tube repaired during this period. Progress continued with our repair program for the Straton MX, MXP and MX P46. We remain on track to launch this program later in the fiscal year. As a result of higher sales and gross margin, we were close to breaking even for the quarter. We have significantly reduced our loss compared to the prior year. While our first quarter performance is encouraging, and we remain focused on efforts to improve sales and profitability. The company continues to evaluate strategic options for the health care business. I will now turn the call over to Jens Ruppert to discuss the results for Canvys.

[Jens Ruppert, executive]

Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures and sells custom displays to original equipment manufacturers across global industrial and medical markets. Canvys net sales decreased 22.8% to $7.6 million during the first quarter of fiscal 2025. From $9.9 million for the prior year period due to lower sales in North American and European markets. We ended the quarter with $38.1 million in backlog, providing a strong base of business for the future. Gross margin as a percentage of net sales increased to 34.3% during the first quarter of fiscal 2025 from 34.0% for the prior year period, primarily due to an improved product mix. During the quarter, Canvys received orders from both repeat and first-time medical OEM customers.

Some of these applications include optical tomography, OCT, intravascular imaging, pulse field ablation, computer radiography, lithotripsy, cataract surgery, medical device control radiotherapy, microwave ablation and robotic assisted surgery. Recent design successes illustrate our commitment to providing solutions that meet the evolving needs of our medical clientele. Furthermore, they highlight our ability to cultivate and sustain long-term partnerships with both existing and potential customers who require high standards, supporting our continuous growth in this vital sector.

We also provide solutions for numerous commercial and industrial purposes. Our products are used for passenger's safety and control rooms directly within trains and buses. Other applications include human machine interface, HMI for printing, wending and packaging machines. Given the considerable market uncertainties such as economic difficulties, regulatory shifts and other near-term trends, we understand that many of our customers have opted for a more cautious approach towards new product development and inventory management. We are cautiously optimistic that customer demand will see an upturn by early next calendar year.

We see positive indicators and anticipate a steady recovery as the market stabilizes, supported by customer feedback. An important sign is a rising projects our teams are handling. Highlighting growth in our markets and acknowledgment of our offerings. Our sales team continues to explore new opportunities, while I concentrate on implementing our strategic plan to ensure sustainable growth to create long-term value for our shareholders. I will now turn the call back over to Ed.

[Edward Richardson, executive]

Thanks, Jens. While we know Q2 will be challenging, we remain optimistic that Canvys will return to growth given the expanding list of blue-chip customers Canvys serves. Despite uncertain economic conditions, we maintain our excitement and commitment to our long-term growth strategies. The list of opportunities within our Green Energy Solutions business unit continues to expand. Even though product deployment and our customer approvals are taking longer than we'd like, our growing list of global customers for our wind energy, transportation and power management sectors support our multiyear growth plan.

Demand for energy is only increasing and a recent McKinsey report forecast demand to increase at an annual rate of 11% to 18% through 2050. While fossil fuels will continue to play an important role in meeting energy demand, renewable energy sources, particularly solar and wind will grow at a much faster rate. These trends are aligned with our strategy to support global energy transformation initiatives, and we intend to leverage our engineered solutions to deliver substantial revenue streams over the coming years. As mentioned earlier, backlog from our semiconductor wafer fabrication assemblies is growing. Growth is being driven by rising semiconductor demand associated with a 1, the need from our data centers, 5G deployment and other factors, including ongoing efforts to localize semiconductor manufacturing. We anticipate the growth in semiconductor wafer fab equipment market will continue over the next several years, giving us time and resources to continue investing and growing our green energy solutions business.

We continue to take a conservative approach to expenses that we remain focused on managing inventory levels and are committed to maintaining a healthy balance sheet. We believe these initiatives will help generate operating leverage as sales expand. Our focus for the remainder of the fiscal year is to continue the positive momentum. We remain optimistic about the opportunities in our pipeline, and we are committed to delivering continued value to our shareholders.

On behalf of everyone at Richardson Electronics, we look forward to updating you on the progress we're making. We'll be happy to answer any of your questions.

[Operator]

[Operator Instructions]. And our first question is going to come from the line of Bobby Brooks with Northland.

[Robert Brooks, analyst]

So in the press release, you specifically called out new program wins and improving demand trends for legacy programs that drove the $3.7 million year-over-year increase in GES sales. So I was just curious what were those new program wins? And then what were those legacy program wins? And just any more color you could provide on that would be appreciated.

[Gregory Peloquin, executive]

Well, the biggest new program is what's going on throughout North America and in Europe is these large repowering sites and wind turbines for all manufacturers of wind turbines. And so in the quarter, we booked and shipped a number of large orders for ULTRA3000, which are being used in this repower program for the wind turbines. In addition to that, we shipped a number of products to 19 other customers specific to replacing their lead acid batteries in their turbines and also the electric locomotive modules and our starter modules had good shipments in the quarter.

[Robert Brooks, analyst]

Got it. Fair enough. And then kind of following up on that is, I think last month, where the team did its first trade show in Europe to introduce the ULTRA3000 family of solutions. So I just wanted to hear how that went. Breaking into Europe would obviously be a major needle mover for Richardson. And maybe if you could then touch on any key differences between the dynamics for selling to wind turbine operators in the Americas versus Europe?

[Gregory Peloquin, executive]

Yes. The need and want for our ULTRA3000 type product is as high in Europe as is in North America. The difference for the most part is the GE -- number of GE turbines in Europe is much, much smaller than North America. So as we've talked about for the past year, we've been able to pretty much dominate the GE wind turbine owner operators with our product. So the four major platforms in Europe are Suzlon, Senvion, Nordex and SSB. We already have customers testing three of those that came from the show. But our booth was pretty full with people like [Bescus] et cetera. Again, going back to this repowering, their comment to me was we do not want to put any more lead acid batteries in our turbines.

So when they do this repower, at that point in time, they're looking to replace all the lead acid batteries with our now five platforms of ULTRA3000. So we're really excited about the opportunity. We kind of have a lead on the competition with patents and the exclusive design. So the show really just confirmed what we've been being told. And we've come back and we've gotten together here, and we're going to put together an even increased launch of the product to get these customers to know that this product is available. Because it seems once they know it's available, we're already in discussions and doing beta testing with them. So it was a great show. We confirmed a lot of things that we thought, and it looks like we're in a great position to take advantage of this global repower.

[Robert Brooks, analyst]

That's terrific to hear. And just to confirm, the -- it's not -- you guys already have the products to place in these Nordex and in the other three [guys] that you mentioned. It's not -- you're not having to come up with a new solution. It's just kind of a plug and play, right?

[Gregory Peloquin, executive]

Yes. Right now, in all five platforms and products at our booth, there might be little things. I'll give you an example with Suzlon with that large program we have going with Suzlon, India. In the end, they asked for a couple of tweaks, put the handles in a different spot, move over the positive connector which our engineering team is so talented to support the customer. We do these small tweaks. So there might be some small mechanical tweaks, but in terms of electrical performance, they're ready to go and like I said before, they're being tested. I just want to add, Bobby, that this is a lot because of Europe, but there's also a number of farms in North America that have Senvion, Nordex, SSB and Suzlon, we are also selling that there. And in fact, we shipped some of those products about 200 units of the SSB in North America. So it's a kind of a launch of new platforms, but the major launch would be obviously to get us into Europe where we're not today.

[Operator]

Our next question is going to come from the line of Anja Soderstrom with Sidoti.

[Anja Soderstrom, analyst]

Congrats on the nice progress here. I'm just curious, how is the system in India progressing?

[Gregory Peloquin, executive]

The program in India?

[Anja Soderstrom, analyst]

Yes.

[Gregory Peloquin, executive]

It's just fantastic. In fact, we had a long meeting with them also in Europe. So the first phase will be for them to replace those lead acid batteries, other wind turbines that are in the field. In India, there's 9,000 today. We are in the final sign-off. We fully expect production orders this quarter. probably starting at the end of the month with the nice shipments between now and December, but the majority of it will be the rollout will be 2025. But in addition, we also have partnered with KEBA who is the largest producer of pitch controls. That's the type of pitch control that Suzlon uses in their OEM product.

And that design is complete, and they're forecasting about 1,000 new turbines a year starting in 2025, and our product will be in that new turbine. So all the stuff we're doing now is obviously replacing lead acid batteries and existing turbines in the field. Our first OEM order program will be with Suzlon. And every new turbine they build will have our product in it, giving them a jump on the competition.

[Anja Soderstrom, analyst]

Okay. And what other sort of -- what other products you have in the quarter [indiscernible] or beta testing, where you see some near-term maybe orders coming through potentially?

[Gregory Peloquin, executive]

Yes. A number of things are beta and some are beta plus. The starter modules, we have that program going on with two of the largest diesel and electric locomotive manufacturers, the one program, they were here. It's been signed off by their CEO, and we're going to start shipping that product in volume starting January. Also, we have our inverter program that we're doing with them and also the wind turbine manufacturers. Those are -- have moved to -- from alpha to beta to beta plus Again, we expect bookings this quarter or next. We have the other stuff we talked about. We have the emergency lighting program going on with Metro. That's in final signatures. We have the microwave generator program in Korea with that customer.

That's being tested with great success. We have the ULTRA fridge, which replaces the lead-acid batteries and refrigeration trucks. So yes, a lot of things in queue. But one thing, as I mentioned last year was challenging, but at no time did any of these programs stop. We continue to work with them. They continue to do the beta testing. We continue to tweak the product to meet their needs and they're specific specs. And now we're seeing, as you saw in the quarter, shipments and Q2 will be a very strong booking quarter for us compared to the last few quarters. So yes, a lot of things moving, but the good news is they've never stopped. And everything has been going, not on schedule. Of course, we don't have a lot of patients, but the customer is very, very happy with our support.

[Anja Soderstrom, analyst]

Okay. That was helpful. And just one quick one more on the inventory. Do you expect that to go down in dollar terms in the coming quarters or?

[Robert Ben, executive]

Anja, this is Bob Ben. If you're asking about the impact, excluding foreign exchange, yes, it was a slight pickup of about 124,000, I think, if you look at our cash flow statement.

[Anja Soderstrom, analyst]

Okay. You go forward with inventory to decline or you expect it to increase? Because it's sitting on the [indiscernible].

[Wendy Diddell, executive]

Right. We still have a lot of inventory. We would expect that the efforts that we're putting in to control inventory, we're going to continue to do that. As we've discussed before, we have one large vendor that the inventory will continue to grow, and that will happen through calendar year 2025. And as Greg mentioned in his script, that's in support of our long-term demand for our legacy products. That particular location. The factory is ceasing production at the end of calendar year 2025. So we are adding inventory, and that will continue to grow. So the other area that we anticipate will continue to show some growth is in green energy.

As Greg just mentioned, we have a number of programs, and we don't think it's necessarily going to grow substantially, but we are willing to invest in that area as he brings these new products to market. We have plenty of the ULTRA3000s already built in stock. We have plenty of ultra capacitors to build more in stock but there could still be some increases for some of the other programs. So we don't want to rule that out per se. On the other hand, we continue to monitor Greg's group is doing a phenomenal job of going through every order -- every requirement for inventory, making sure it's going to ship when it comes in, and that's where we're seeing some of the offset.

[Operator]

And our next question comes from the line of Chip Rui with Rui Asset Management.

[Unknown Analyst]

Good quarter. It does seem like we're finally inflecting off the bottom and things look good. Can you give a little more detail on the inventory? How much of it is PMT for semis? How much would be green energy and how much kind of everything else? And then maybe just assure us that the inventory is all still kind of state-of-the-art and ready to ship. And because it's so large, there's no aging product life cycle on that side. So that's one question. And second, again, with positive cash, positive operating cash flow in kind of the good forward thoughts on continuing cash seemingly now might be a good time to start repurchasing modest amount, I mean, not huge, but what do you think of that end.

[Wendy Diddell, executive]

Right. Let me start with the inventory question, and then I'll turn it over to either Bob or Ed, and they can talk about what to do with this cash. In terms of inventory, where it kind of breaks out there was 100 -- let's call it, $111 million at the end of Q1. And about 21.5% or so of that is related to green energy. We don't break PMT down by how much of that growth or how much of that inventory is related to the semiconductor market. So I can't tell you that off the top of our head here. What I can tell you is we feel very good about the inventory we have. We don't see any risk there.

Again, as I mentioned, a lot of it is coming, a lot of the growth has come from one of our largest suppliers for tubes, and we've done this in the past where we've had to add extra inventory when we were stopping production, and we've sold through every single tube we have. So we also go through with video every quarter and every year, a very in-depth analysis of our inventory and they question everything we do. They look at every quote that's out there. And we're not seeing, again, any risk there. And then finally, with any of the growth that is associated with our other growth initiatives, including the PMG business, Greg and his team have negotiated inventory balancing, inventory stock returns in all of those programs to make sure, again, that we always have the most current inventory that we need to serve the customer base. So with that, let me let the other guys answer the cash flow question.

[Edward Richardson, executive]

Well, we're always asked at some point, are we going to start to rebuy the stock. One of the things that's occurring is the semiconductor wafer fab business is starting to increase and that takes a lot of inventory and a lot of resources. And as you probably know, in a good year, our semi wafer fab business is over $40 million. And last year, it was below $20 million. So if it turns around and that Liam Research and Applied Materials, these companies are in that business are telling us that 2025 is going to be larger than ever. It will take a substantial amount of our cash to fund that growth.

[Wendy Diddell, executive]

Bob, do you want to talk about where the cash is located?

[Robert Ben, executive]

Yes. In addition to that, we do have -- of our $23 million in cash at the end of the first quarter, approximately $3.5 million was in the U.S. and the rest is spread among 20 or so foreign subsidiaries that we need the cash to operate our foreign subsidiaries. As you know, over 55% of our sales are outside of the United States. So we're constantly managing cash flow, moving money around but we need to manage it very carefully at this point.

[Operator]

[Operator Instructions]. Our next question is going to come from the line of Andrew Rim with [Odenton] Partners.

[Andrew Rim, analyst]

I just want to follow up on the inventory question. Wendy, how much is related to the one vendor? Or how much do you expect to increase it with the one vendor?

[Wendy Diddell, executive]

We have that part of the presentation in front of me, Andrew. But I would say that go ahead -- go ahead, Bob.

[Robert Ben, executive]

Okay. We have about $30 million total with the one vendor, and we are forecasting over a $10 million increase this year. Although as Wendy said, this quarter and continuing through this year, we expect to make continued progress on reducing inventory in our other parts of the business.

[Wendy Diddell, executive]

And then also, Andrew, that inventory again, will grow through the end of calendar year 2025 and at which point we will start burning it down.

[Andrew Rim, analyst]

Right. Okay. And then I think you said on the MX series and Healthcare, did you say you're planning to launch those later in calendar '25 or fiscal '25?

[Wendy Diddell, executive]

Fiscal '25.

[Andrew Rim, analyst]

So will those go towards the back end of calendar '24.

[Wendy Diddell, executive]

I don't think so. We want to make sure we get through live test. And right now, we're about maybe through live test, it's going well. But we need to get through that and we need to file all of our work instructions with the FDA. So I think that's going to take us through the end of the year, and you'll see it in our Q3 possibly if there's any issues, it could be as late as our Q4. But right now, it looks good.

[Andrew Rim, analyst]

So is the first quarter, which is not quite annualizing close to a $16 million, is that a reasonable run rate? And maybe you get a bump with the commercial launch of the MX series.

[Wendy Diddell, executive]

We would definitely get above with the commercial launch of the MX series I can't tell you that, that's going to be our run rate going forward. A lot of it, again, is predicated on the market. And so right now, for example, we're seeing a slowdown in our system sales that go to Latin America. More difficulty getting money from our customers there to pay for the systems. So I don't want to say that $3 million, $3.5 million is our run rate. We're not ready to say that. What we can say is that we're in more steady delivery, production and delivery of the repaired Straton Z, and that's going to help move that needle up. But the MX series will definitely be a commercial bump.

[Andrew Rim, analyst]

And then for health care, is the operating expense running at about a $6.5 million annualized run rate. Is that roughly correct?

[Wendy Diddell, executive]

I think it's along -- is that a -- you said $6 million, Andrew? $6.5 million, that's probably a little high, less than that.

[Andrew Rim, analyst]

Okay. So is -- I mean, you said earlier that you're close to kind of breakeven. If you get either a little bit of a lift on the revenue or is there an opportunity with maybe some of the newer -- the MX series, did you get some lift on gross margin and that kind of pushes over the hump to kind of breakeven?

[Wendy Diddell, executive]

Yes. Both of those factors will be in play. The Siemens series, all of them, the [ZM] and the MX series are better margin for us. So we'll definitely provide some upside there.

[Andrew Rim, analyst]

All right. And then maybe one for Greg. On the PMT and GES backlog, you said it was $97 million. So that was a sequential decline. Was all of the decline, was that all GES?

[Gregory Peloquin, executive]

Most of it was. And most of the reduction in inventory was also GES. Sales were up 27%. So the book-to-bill was below one. So that lowered our backlog a little bit, but it's still so strong at $97 million, and I think GES is up over $40 million. But what we're seeing so far, and I think we're over the halfway point of Q2 looks to me that, that backlog will be back. Very strong book-to-bill right now and very strong bookings this quarter.

[Andrew Rim, analyst]

So -- and on the gross margins, I mean, you noted they were a little bit below. But if we think about kind of the historic 30, 32 are you guys still kind of comfortable goal with that on a more of a trailing 12 months basis?

[Wendy Diddell, executive]

For the total company, Andrew?

[Andrew Rim, analyst]

No, just for those two segments, EMT and GES.

[Gregory Peloquin, executive]

It's really quarter-to-quarter in terms of product mix. Obviously, we make more margin -- strong margin on our engineered solutions products and lower margin on our components business where we're just designing in the components to a separate customers design versus when we use those components and then design to manufacture our own products here. So that will be kind of moving around as the percent of our sales as components and the percent of our sales that's engineered solutions, but it will be 30-plus margin overall.

[Wendy Diddell, executive]

The other thing to add to that, Andrew, is that as these new programs go into production and as the semiconductor market continues to improve and recover we will see an improvement or, let's call it, a reduction in the under absorption, which is a direct hit to the gross margin. And when you look at under absorption for the total company for Q1, I think it was about a 1.5% reduction in our gross margin. So again, as we see those programs go into full production, that's going to pick up the slack and you're going to see a margin improvement from that.

[Operator]

And our next question is going to come from the line of Ross Taylor with ARS Investment Partners.

[Porter Taylor, analyst]

Congratulations on the continued improvement in the business trends. Real quick, you commented and we've talked in the past about how you've been told by your semi-cap equipment customers that 25% was going to be effectively a record year. Question, is that a calendar year? And also a record year you indicated basically somewhat north of -- would be north of $40 million. And it appears that from backing out numbers that this is far and away our most profitable business, perhaps with an operating margin half again what we see in some other parts of the business. So I'm curious, when you're thinking about this, are you looking at '25 calendar being a $40 million-plus run rate potentially in revenues for [indiscernible].

[Edward Richardson, executive]

Yes, in calendar 2025. And you're correct. That's probably our highest margin.

[Porter Taylor, analyst]

Yes. yes, because I mean, to me, it backs out, it looks like as I said, about half again perhaps what you're carrying in perhaps some other parts of the business that we've just talked about. Also, you've commented you have inventory, how much of the semi-cap equipment business you're expecting to do? Do you think you're going to be able to fill by drawing down inventories versus new builds?

[Wendy Diddell, executive]

Ross, we don't have that detail in front of us. That might be something we can discuss offline.

[Porter Taylor, analyst]

Sure. That would be great. Because I would think that, obviously, that will help in cash conversion and help in financing the growth in the space that you were indicating you will need to finance. Additionally, you were talking about battery starter packs and like what are we looking at on a dollar per unit basis for those? And what kind of unit volume are you thinking you're going to be able to do over the next 12, 15 months?

[Gregory Peloquin, executive]

Yes. I can't share. We have NDAs and I'm not going to let my competition knows what I sell for these. But right now, we have an agreement for 1,000 trains, but that's only for one end customer. Right now, the product is being featured -- being featured at their trade show at McCormick Place, and they fully expect to get more trained owner operators to install this great product. But right now on the books, about 1,000 trains next year.

[Porter Taylor, analyst]

Okay. So it's going to be a meaningful driver on the revenue side in the next 12, 15 months than you would expect?

[Gregory Peloquin, executive]

It will be a strong part of it, absolutely.

[Porter Taylor, analyst]

Okay. Great. Because it just looks to me like once again, we're setting up for having gone through a pretty sloppy last 12, 15 months, it looks like we're really setting up for a return to some really meaningful profitability, meaningful revenue growth and setting the stage to really kind of launch you guys into 2025, 2026 and beyond on a strong foot. Is that where you guys see things?

[Edward Richardson, executive]

Absolutely. Yes, absolutely.

[Porter Taylor, analyst]

Okay. Great. I'll leave it back. I would just say, obviously, as you free up cash flow, don't be afraid to put some of it. You can probably afford to have a small amount of leverage. I wouldn't argue putting a lot of leverage on the balance sheet. But perhaps if you do something strategic with the medical imaging business, you can put some of those proceeds towards reducing the share base outstanding because it strikes me as you're setting up, you did around $1.50, it has some onetime items in it. in your peak earnings year recently. And I think that -- so if we look at a return anywhere close to that, you're pretty inexpensive stock here, in fact, a brutally inexpensive stock. And I think investors would be really happy to see even a minor commitment by the company to reducing the shares outstanding.

[Operator]

And I'm showing no further questions at this time. And I would like to hand the conference back over to Ed Richardson for his closing remarks.

[Edward Richardson, executive]

Well, thank you again for joining us today. We appreciate your investment and interest in Richardson Electronics. And you're welcome to call us at any time. We're always free and happy to talk to you, and we look forward to our ongoing discussions and sharing our second quarter results with you in January. Thanks very much.

[Operator]

This concludes today's conference call. Thank you for participating, and you may now disconnect.