Q4 2023 Richardson Electronics Ltd Earnings Call
Participants
Edward J. Richardson; Chairman, CEO & President; Richardson Electronics, Ltd.
Gregory J. Peloquin; EVP of Power & Microwave Technologies Group; Richardson Electronics, Ltd.
Jens Ruppert; Executive VP & GM of Canvys; Richardson Electronics, Ltd.
Robert J. Ben; Executive VP, CFO, CAO & Corporate Secretary; Richardson Electronics, Ltd.
Wendy S. Diddell; Executive VP, COO & Director; Richardson Electronics, Ltd.
Anja Marie Theresa Soderstrom; Senior Equity Research Analyst; Sidoti & Company, LLC
Barry M. Mendel; President & Chief Compliance Officer; Mendel Money Management, Inc.
Michael E. Hughes; Principal & Portfolio Manager; SGF Capital Management, LP
Porter Ross Taylor; Partner & Portfolio Manager; ARS Investment Partners, LLC
Unidentified Analyst
Presentation
Operator
Good day and thank you for standing by. Welcome to the Richardson Electronics earnings call for the fourth quarter and fiscal year 2023. (Operator Instructions) Please be advised today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Ed Richardson. Please go ahead.
Edward J. Richardson
Good morning and welcome to Richardson Electronics conference call for the fourth 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 and 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'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.
Fiscal year 2023 was one of the best years in our 76-year history. Operating income increased year-over-year by nearly 57% on a 16.9% increase in net sales, reflecting the power of our financial model. This growth demonstrates the success of our long-term growth strategy, especially considering a fluid global economic environment, supply chain challenges, and significant product and wage inflation. Over the past 3 years, we pursued organic growth strategies, focused on expanding our product lines and leveraging the deep relationships we have with 20,000 customers all over the world. We've also greatly enhanced our engineering and manufacturing resources and capabilities. The success of these strategies has transformed our business by increasing our scale and significantly improving our profitability.
Since fiscal 2020, annual sales have increased from $155.9 million to $262.7 million, representing a compound annual growth of 19%. We've also significantly enhanced the profitability of our business. Our gross margin has remained stable. We've controlled expenses. SG&A as a percentage of annual revenue was 32.9% for the year ended May 30, 2020, compared to 22.4% at May 27, 2023, the year we just finished.
Positive operating leverage has transformed the profitability as we've grown from an operating loss of [$1.7 million] in fiscal 2020 to an operating income of nearly $25 million in fiscal 2023. Most importantly, the growth we've achieved over the last 3 fiscal years and more recently in fiscal 2023 has been driven by new products and applications development, new customer growth, and expanded relationships with our global customer base. The launch of our Green Energy Solutions business this year is a notable example of our successful strategies as GES sales in fiscal 2023 grew by 110%. Not only did this support our performance in fiscal 2023, but our GES segment has further diversified our business and it's helping us insulate from the challenging semiconductor wafer fab market. While we expect the semiconductor wafer fab market to remain challenging over the next several quarters, we're excited by the significant opportunities we're pursuing all over our business units. We continue to develop new products and expand our global customer base. These products include power management systems for wind turbines, electric locomotives, hydrogen power, and synthetic diamonds. We believe our continued growth of our GES business will help offset the expected 2024 decrease in the semiconductor wafer fab equipment business.
Today, nearly 60% of our revenue comes from products we manufacture or have manufactured exclusively for us. Ultracapacitors and lithium iron phosphate battery modules, magnetrons, CT tubes and many other tubes and related products are manufactured by us in LaFox, Illinois. We engineer and manufacture custom display solutions for medical applications in Boston and Germany. To accommodate this growth, we continue to hire talented engineers with a focus on new product development.
We're also adding manufacturing capacity through our LaFox facility renovation, which is expected to be completed this week. Recently, we had key OEM customers joined by their end users visit our operations here in LaFox. Each walked away with a list of products and opportunities they want us to explore in addition to the products they purchased from us today. We're excited to show off our completely renovated building at our upcoming Investor Open House scheduled for August 22.
Now, Greg, Wendy and Jens will provide more details on the quarter and fiscal year, including these key growth initiatives. First, Bob Ben, our Chief Financial Officer, will review our fourth quarter and fiscal year 2023 financial performance in more detail.
Robert J. Ben
Thank you, Ed, and good morning. I will review our financial results for our fourth quarter and fiscal year 2023, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. I refer you to our fourth quarter fiscal year 2023 press release for a reconciliation of non-GAAP items to the comparable GAAP measures.
Net sales for the fourth quarter fiscal 2023 were down 4.5% to $58.8 million, compared to net sales of $61.6 million in the prior year's fourth quarter due to lower net sales in our PMT, Canvys and Healthcare business units, partially offset by higher sales in our GES business unit.
Net sales for GES increased $5.8 million, or 61.7%, from last year's fourth quarter. GES combines our key technology partners and engineered solution capabilities to design and manufacture products for the fast-growing green energy market and power management applications. PMT sales decreased by $8.3 million, or 20.8%, from last year's fourth quarter, driven by primarily a decline from manufactured products for our semiconductor wafer fabrication equipment customers. Canvys sales decreased slightly by $0.3 million, or 3.2%, due to the timing of shipments in North America. Richardson Healthcare sales also decreased slightly by $0.1 million, or 2.7%, due to decreases in parts and equipment sales, partially offset by higher CT tube sales.
Total company backlog was $160.4 million at the end of the fourth quarter of fiscal 2023 versus $175.1 million at the end of the third quarter of fiscal 2023. Gross margin for the fourth quarter was 27.9% of net sales, compared to 32.7% in last year's fourth quarter. PMT's margin decreased to 29.0% from 35.2%, primarily due to product mix. GES's margin decreased in the fourth quarter fiscal 2023 to 23.4% from 31.1% in the prior year's fourth quarter, also due to product mix. Canvys gross margin increased in the fourth quarter of fiscal 2023 to 32.9% from 30.7% in the prior year's fourth quarter because of product mix and lower freight costs. Healthcare's gross margin increased to 23.7% in the fourth quarter fiscal 2023, compared to 10.8% in the prior year's fourth quarter due to improved manufacturing absorption, partially offset by increased scrap expense.
Operating expenses were $15.0 million for the fourth quarter fiscal 2023 compared to $15.2 million in the fourth quarter fiscal 2022. The decrease in operating expenses resulted from tight expense control and lower incentive expenses from significantly lower operating income, partially offset by higher salaries expense, which included wage inflation.
The company reported operating income of $1.4 million, or 2.4% of net sales for the fourth quarter of fiscal 2023, versus operating income of $5.0 million, or 8.1% of net sales in the fourth quarter of last year. Other income for the fourth quarter of fiscal 2023, including interest income and foreign exchange, was $0.1 million compared to other expense of $0.2 million in the fourth quarter fiscal 2022.
Income tax benefit was $2.6 million and non-GAAP income tax benefit was $0.2 million for the fourth quarter fiscal 2023 versus an income tax benefit of $3.5 million and non-GAAP income tax expense of $0.5 million in the prior year's fourth quarter. The fourth quarter of fiscal 2023 included $0.4 million for an R&D tax credit for the current fiscal year and a one-time total credit of $0.6 million for fiscal years 2020 through 2022. In addition, the fourth quarter fiscal 2023 included a one-time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance.
Net income for the fourth quarter of fiscal 2023 was $4.1 million and non-GAAP net income was $1.8 million compared to net income of $8.3 million and non-GAAP net income of $4.3 million in the fourth quarter of fiscal 2022. Earnings per common share diluted were $0.27 and non-GAAP earnings per common share diluted were $0.11 in the fourth quarter of fiscal 2023 compared to earnings per common share diluted of $0.59 and non-GAAP earnings per common share diluted of $0.31 in the fourth quarter of fiscal 2022.
Turning to a review of the results for fiscal year 2023. Net sales for fiscal year 2023 were $262.7 million, an increase of 16.9% from $224.6 million in fiscal year 2022. Net sales increased by $8.9 million, or 5.7% for PMT, $25 million, or 110.5% for GES, $4.1 million, or 11.8% for Canvys, and $0.1 million, or 0.5% for Richardson Healthcare.
Gross margin for fiscal 2023 was 31.9% of net sales, the same as during fiscal 2022. Operating expenses were $58.7 million for the fiscal year, which represented an increase of $3.0 million from last fiscal year. The increase in operating expenses resulted from higher employee compensation and travel expenses, including additional incentives expense due to strong profitability. Operating expenses as a percentage of sales decreased to 22.4% during fiscal 2023 as compared to 24.8% during fiscal 2022.
Operating income for fiscal year 2023 was $25.0 million, or 9.5% of net sales, as compared to an operating income of $16.0 million, or 7.1% of net sales for fiscal year 2022. Other income for fiscal 2023, including interest income and foreign exchange, was less than $0.1 million as compared to other expense of $0.2 million for fiscal 2022. Income tax expense was $2.7 million and non-GAAP income tax expense was $5.0 million for fiscal 2023. The fourth quarter of fiscal 2023 included $0.4 million for an R&D tax credit for the current fiscal year and a one-time total credit of $0.6 million for fiscal years 2020 through 2022. In addition, the fourth quarter fiscal 2023 included a one-time $1.8 million income tax benefit for the reversal of the foreign tax credit valuation allowance. The income tax benefit of $2.2 million for fiscal 2022 resulted from the $4.0 million partial reversal of the tax valuation allowance due to evidence of profitability for realizing a portion of the deferred tax assets in the future. The non-GAAP income tax expense for fiscal 2022 was $1.8 million.
The company reported net income for fiscal 2023 of $22.3 million and non-GAAP net income of $20.0 million versus net income of $17.9 million and non-GAAP net income of $13.9 million during fiscal 2022. Earnings per common share diluted were $1.55 and non-GAAP earnings per common share diluted were $1.39 for fiscal 2023 compared to earnings per common share diluted of $1.31 and non-GAAP earnings per common share diluted of $1.02 for fiscal 2022.
Moving to a review of our cash position. Cash and investments at the end of fiscal 2023 were $25.0 million compared to $24.6 million at the end of the third quarter of fiscal 2023 and $40.5 million at the end of fiscal 2022. Cash generated of $0.4 million in the fourth quarter of fiscal 2023 was primarily due to a decrease in accounts receivable, partially offset by an increase in inventory. The use of cash during the fiscal year related to higher working capital to support significant sales growth. U.S. cash and investments were $7.6 million at the end of fiscal 2023 versus $8.9 million at the end of the third quarter of fiscal 2023 and $25.5 million at the end of fiscal 2022. Capital expenditures were $2.4 million in the fourth quarter of fiscal 2023 versus $1.0 million in the fourth quarter of fiscal 2022. Approximately $2.2 million related to investments in manufacturing, including facility expansion and included the renovation of our office space.
Total capital expenditures were $7.4 million in fiscal 2023 as compared to $3.1 million in fiscal 2022. We paid $0.8 million in cash dividends in the fourth quarter and a total of $3.3 million in fiscal year 2023. 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 first quarter of fiscal 2024. As of the end of fiscal 2023, the company had not made any draws 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 J. Peloquin
Thank you, Bob, and good morning, everyone. In fiscal year 2023, Power and Microwave Technologies or PMT, and Green Energy Solutions, or GES, performed well with excellent growth in all aspects of the business. PMT revenue grew 5.7%, while GES revenue increased 110.5%. The major highlight in the fourth quarter was our GES Group as it continues to drive strong growth with addition of new products, new programs and new customers. Our GES Group had exceptional growth throughout the quarter as the demand for green energy applications such as wind energy, electric locomotives, energy storage and power management greatly increased. We continue to apply focus and resources to this extremely important strategic business unit and the growth opportunity it represents for Richardson Electronics.
GES sales were up 61.7% in Q4 FY '23 at $15.3 million versus $9.5 million last fiscal year. Our backlog is strong at $42.9 million. Revenues in GES include numerous successful products such as the ULTRA3000, EV locomotive battery modules, ULTRAGEN3000 and products used in synthetic diamond manufacturing and other green advancements such as hydrogen production and electric vehicles. In addition, we have numerous products in design, prototype and beta testing.
In the quarter, we continued to sign global technology partners and announced new patents and programs. We continually evaluate technologies to ensure we offer our customers the best, most up-to-date solutions for their applications. In Q4, we announced the ULTRAPEM multi-brand module for several non-GE wind turbine platforms. We received a third patent on ULTRA3000, and we announced that GE Vernova has selected the ULTRA3000 as the exclusive pitch energy module for the GE marketplace, increasing our served available market.
We also announced the ULTRAUPS3000 used in wind turbines and other power management applications. This strategy of developing niche products and technologies is key to our long-term success. The growth of customers and products in GES continues as our design teams are in discussions with several major OEMs weekly regarding the development of energy storage products and other green energy applications.
PMT sales in the fourth quarter of fiscal year 2020 decreased 20.8%, reaching $31.5 million versus $39.8 million in Q4 of last fiscal year. This decline was mainly due to the major slowdown in our semiconductor wafer fabrication equipment business. The team has been supporting this semiconductor wafer fabrication business and its customers for well over 25 years. This business has always been cyclical, and we expected to see a slowdown in 2023. However, in talking to our customers, they expect the business to start recovering in the first half of calendar year 2024.
Our engineered solutions strategy is led by our global technology partners such as Qorvo, MACOM, Nokia Wave, LS Materials, AMOGREENTECH, Navitas Semiconductor and Fuji Semiconductor. Key tube manufacturers and partners include CPI, Thales, the Nisshinbo Micro Devices and Photonis. Each of our global partners help us meet and manage customers' requirements. Our team has done an excellent job identifying and cultivating these relationships. We will continue to add partners who fill technology gaps in our offering and support our growth. In Q4, we added ConductRF, a leader in RF cable assemblies. These key technology partners not only fill technology gaps in our component and engineered solutions offering, but they also give us continued source of supply of new technologies to support all these new opportunities. Often through these partnerships, we identify opportunities for new products that we design to manufacture in-house, increasing the value we provide customers and allowing us to capture more market share and revenue.
We also continue to invest in our infrastructure to support our growth. We are bringing on talented design and field engineers and making investments to enhance our manufacturing capabilities. Our growing in-house design engineering and manufacturing teams are doing a great job supporting increased demand for current products and new product designs. I am pleased with the progress we are making. With this team, we will continue to identify, develop and introduce new products and technologies for green energy and other power management applications.
Our growth strategy has been proven successful over the years, and we will continue to develop new products as well as increase our customer base, revenue and profits by capitalizing on our existing demand creation infrastructure. Our belief in our future based on customer forecast and inputs requires us to strategically invest in inventory that positions us in order to fill the pipeline and ensure we can meet our customers' needs through close collaboration with both our customers and suppliers. There are always headwinds, but we carefully manage these. We are prudently aligning with the business for a slowdown in the semiconductor wafer fab market over the near term, while maintaining our core competencies to support our wafer fab customers, where the market is expected to recover in calendar year 2024.
Much of the green energy business is project-based and rollouts are dependent on our customers as well as our customers' CapEx requirements. For example, we shipped over $18 million in products in FY '23 to our electric locomotive customers, which they are using to build their prototypes. These trains will be finished and shipped to their customers in Q2 FY '24. New production orders are expected until Q4 FY '24. Also finding enough design and field engineering talent to support this growth continues to be a challenge. However, with Richardson's unique global model, continued growth and with our technology partners and our focused strategy, we will subsidize the project-based business with products we engineer and manufacture to a very diverse customer base to have a more consistent improved profitability with top line annual growth.
We also continue to grow by gaining market share, introducing new products and technology partners and expanding the value we provide to our customers worldwide. I cannot stress enough the value of this electronics model to our customers and suppliers. Our unparalleled capability and global go-to-market strategy are unique to the power and energy, RF and microwave and green energy markets. We have developed a strong business model, including legacy products and new technology partners that fit with our engineered solutions capabilities. Through our steadfast and greater focus on customers, we will continue to excel by taking advantage of opportunities when they arise. The execution of this strategy has never been better. There is no question that our customers and technology partners need Richardson's products and support more than ever. We continue to be very excited about the future as opportunities and our market share for PMT and GES continue to grow.
And with that, I'll turn it over to Wendy Diddell to discuss Richardson Healthcare.
Wendy S. Diddell
Thanks, Greg. Good morning, everyone. Fourth quarter sales for healthcare were $2.8 million, slightly lower than fourth quarter sales last year of $2.9 million. CT tube sales were higher in the quarter versus the same quarter last year. Parts and system sales were both down. On a full year basis, healthcare sales were $11.4 million, just slightly above the prior year. System sales exceeded the prior year where part sales were down. CT tube sales were down less than 5% compared to last year.
Gross margin in the fourth quarter improved significantly to 23.7% versus 10.8% in Q4 of last year, primarily reflecting better factory utilization. Last year, we were forced to stop production for a period due to supplier quality issues. On a full year basis, gross margin was 30.7% and meaningful improvement over 21.2% last year. Much of the growth in gross margin was again due to positive production variances in FY '23, stemming from enhanced operations.
Scrap, while still high for the year, also decreased over prior year. We are pleased with the improvement in gross margin as an indicator that we've ironed out many of the production challenges we've had in the past. We also want to point out that healthcare's SG&A for the year was significantly below prior year. These savings, combined with the improved margin, resulted in reduced operating loss for healthcare compared to both our planned loss and our performance last year.
We continue to make excellent progress on the Siemens repaired tube program. This is a series of 4 tube types, including the Straton Z, MX, MXP and MX P46. The Siemens installed base is considerably larger than Canon's and there are no third-party replacement options for these tube types. The repaired Straton Z is now in full production and performing well in the field. We expect sales to rise gradually in the coming quarters based on early discussions with key customers. We are making excellent progress as well on the repaired Siemens MX series with a high degree of confidence that these will launch in the 2023 calendar year. We know demand is strong based on discussions we've had with our customers. As noted in prior calls, the Siemens program is a critical element for our healthcare business unit to reach its goal of providing a positive operating contribution to the company by Q4 of FY '24.
Several new programs that will further improve CT tube sales and factory utilization are still underway. These programs include reloading tubes in Brazil. We continue to work our way through the local registration process. We are also partnering with an international company to reload and sell several other types in the Americas. We anticipate these programs may have a small yet positive impact on our revenue in FY '24, depending on how quickly we can validate and achieve regulatory approvals.
I will now turn the call over to Jens Ruppert to discuss the results for Canvys.
Jens Ruppert
Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures and sells custom displays to original equipment manufacturers in industrial and medical markets throughout the world. Canvys's performance remains excellent with sales of $9.2 million for the fourth quarter of fiscal 2023. This reflects continued strong customer demand globally.
Sales grew by 11.8% to $39.4 million in fiscal year 2023, the highest revenue since fiscal year 2012 due to increased demand globally and the continued addition of new customers and programs. This was a remarkable accomplishment considering ongoing supply chain and global economic challenges.
Gross margin as a percentage of net sales was 32.9% during the fourth quarter of fiscal 2023, compared to 30.7% during the fourth quarter of fiscal 2022. The increase in gross margin was primarily related to the more favorable mix of higher margin products. Our fiscal year 2023 gross margin as a percentage of sales decreased slightly to 31.5% from 32.0% in fiscal year 2022. The decrease in gross margin was related to product mix and higher component costs, which impacted many companies around the globe, including Canvys.
Our backlog remains extremely healthy, which we expect to support strong sales throughout 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 any potential recessionary pressures.
During the quarter, we received several new orders from both existing and first time medical OEM customers. Some of these applications include ocular biometry, corneal crosslinking, refractive surgery, HMI to control medical devices within the operating theater, prostate biopsy, [isotrepsy], dental treatment chairs, surgical navigation and laparoscopy. In the nonmedical space, our products are used in a variety of commercial and industrial applications. These include flight simulators, displays used in control rooms, human machine interfaces for ticketing machines and teleprompting, talent monitors and clocks.
I'm immensely proud of our teams around the world, and I am extremely pleased with their exceptional operating performance. Our strong and growing customer relationships, along with the backlog, position us for future growth in fiscal 2024 and beyond. 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 localized service. While our sales organizations stay 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, and we continue to work closely with our partners to meet the demands of our customers.
I will now turn the call back over to Ed.
Edward J. Richardson
Congratulations, Jens, you and your team on setting another new sales record for Canvys and our custom display solutions. You and your team have aggressively attacked the medical OEM market and provided them with solutions they can't find anywhere else.
As you've heard from Bob, Ben and the business unit leaders, FY '23 was phenomenal. While the semiconductor wafer fab cycle is expected to impact near-term PMT sales, we believe we're well positioned to navigate the challenging market cycle. We continue to pursue organic growth strategies that leverage our global customer and supplier relationships, provide our customers with more engineered solutions, and expand our manufacturing resources and capabilities. As a result, we're excited about the opportunities we have in front us to significantly grow sales over the next 3 years and beyond. In addition, with our talented team and compelling products, I'm more confident about the direction we're headed than at any time as CEO of Richardson Electronics, which, by the way, has been 61 years.
We continue to manage expenses and carefully evaluate every dollar we spend to ensure we're protecting our cash and maximizing our return. Our intent in FY '24 is to use our cash to fund our key growth initiatives while taking advantage of the money we've deployed so far. We firmly believe that developing solutions in a responsible manner alongside our suppliers and our customers is the key to our future success. We're scrutinizing inventory purchases. We review every capital expenditure and approve every add to staff. We'll continue to explore and benefit from our favorable tax programs that support our green energy solutions.
At this time, we'll be happy to answer some questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Michael Hughes with SGF Capital Management.
Michael E. Hughes
Ed, can you talk about the revenue generated from the semi cap equipment business in the just completed fiscal year and what your expectation is for the coming year?
Edward J. Richardson
Yes, it was approximately $40 million, which included Lam Research, Applied Materials, Tokyo Electron, MKS, Thales, a number of firms. If you had heard the press release from Lam, because of the CHIPS Act that Congress passed, they said their business would be down about 30% in the coming year, primarily because they couldn't ship high-tech equipment to China. Since that time, they've come out with a much more optimistic forecast, saying that by the end of 2024, that their business will even be stronger than where it's been in the past. And they've even gone so far to tell their vendors, we'll help support you financially to make sure you have the resources to supply our products when we need them.
Michael E. Hughes
So $40 million in the just completed year. Do you have a ballpark number that we can think about for the coming year?
Edward J. Richardson
Yes, we're forecasting about $20 million. And that may [not true] but right now that's what it looks like.
Michael E. Hughes
So that's about a $20 million headwind. And just my follow-up, at a recent conference I think you talked about a $290 million number potentially for the coming year. That's a pretty stout headwind. That $20 million coupled with -- it doesn't sound like they're going to be in rail orders, additional rail orders until the fourth quarter. Is that what Greg said? So just kind of maybe talk about the top line number for the coming year.
Edward J. Richardson
We think that there's enough business and various projects that we're working on in green energy that will more than compensate for the loss of business in the semi fab area. We have projects going not only for wind turbines, was originally GE wind turbines, now Siemens wind turbines. We've been an approved source for GE for all of their customers. They tell us they have 800 on their electronic systems. In addition, we're making energy storage systems and we're working in the cellular field.
As you know, we're working on the electric locomotives both for Progress Rail and Wabtec, which is the old General Electric facility. Each one of the diesel locomotives has what's called a battery start, and those are lead acid batteries, like 50x what you'd have in a car. And we've developed either an ultra capacitor module or a lithium iron phosphate battery pack to replace those that gives them from 7 to 10 years life. And we're in a prototype beta system on those and project that that could be very substantial in the future.
There's something like 30 million to 40 million diesel engines in use in the United States. So the replacement for those units is $3,000 to $5,000 apiece. You can just imagine what the potential is.
Wendy S. Diddell
We should just clarify [$1,000 million]. We wish there were $30 million or $40 million.
Edward J. Richardson
(inaudible)
Wendy S. Diddell
(inaudible)
Michael E. Hughes
Our next question comes from Anja Soderstrom with Sidoti.
Anja Marie Theresa Soderstrom
Can you just talk about the gross margin opportunity and how we should think about that in the coming years?
Robert J. Ben
I think overall our gross margin will run about 32%, somewhere in that area. And that's a mix with all of our businesses. Certainly the semi fab business, which is very profitable, reduces our margin, but we pick it up on the Green Energy Solutions where the business, particularly for wind turbines and energy storage systems and also the battery starts, is quite profitable.
Wendy S. Diddell
To add on to that, Anja, I think in the FY '24, as Ed mentioned, the semiconductor market has always been very profitable for us. So we'd be looking at a gross margin more in the 30% range for the (inaudible) to recover back into the range that Ed was pointing out.
Anja Marie Theresa Soderstrom
Okay. But since the GES is a little bit lumpy, right, that could pressure the margin in the near term as well. But as that revenue comes in, that should help the margins, right?
Edward J. Richardson
The issue is not a matter of if, it's obvious these programs are all in progress, it's a matter of when and how quickly they'll be rolled out.
Anja Marie Theresa Soderstrom
And that will also help the gross margin.
Edward J. Richardson
That's right.
Anja Marie Theresa Soderstrom
So it should be improving sequentially. Okay. And then in terms of the inventory, is there any way you -- is there any risk to that inventory or can you get help from your customers in terms of financing that?
Edward J. Richardson
Well, we've worked out programs with our suppliers. Greg, you might mention the 1 program you have where we have 180-day terms.
Gregory J. Peloquin
Yes. With all of our technology partners, we have zero liability. We have complete stock rotation of the product for the components. On the engineered solutions side, we've developed great payment terms because as we're all dealing with, it's project based, and due to leadx, we're collecting inventory. But there might be 1 or 2 parts that have, to this day, 30-week lead times. And so they've been very good in working with us because we are designing disruptive technology for them. And so we've gotten good payment terms. So even though the inventory might be up in a certain situation, if it is, we usually have signed either special terms or some sort of stock rotation capability if the product does not move at a certain date.
Operator
Our next question comes from P Ross Taylor with ARS Investment Partners.
Porter Ross Taylor
A couple of quick questions, 1, you talked about the idea of seeing semi cap equipment revenues drop from $40 million to $20 million. We own, in our larger cap products, a number of the semi cap equipment companies, and pretty universally they see the quarter we're currently in as the trough revenue quarter. So would you explain to me why we should see revenues dropping meaningfully over coming quarters when they actually see revenues, or they're expecting revenues to ramp over the next 3, 4 quarters pretty sequentially?
Edward J. Richardson
Well, we based that on the first 2 quarters. And you're right. We've heard that they think the trough is in the next quarter or 2, and if that happens, then it'll turn up much faster. But we'd rather under promise and over perform than to tell you that it's going to be $30 million, $40 million and it comes in at $20 million.
Porter Ross Taylor
Yes. I think the Street is a little nervous about that number. And I think it does make -- and part of what I want to highlight is that you have a pretty tight correlation between how AMAT and Lam and the like do. Historically, they've had a pretty close tracking, and so that one would expect that they turn up if this is the nature of their performance, that this quarter that we're in currently should be the nature of yours. Away from that, can you talk to us about green energy? You saw a 60-plus percent, 62% rise in revenues, but only about a 22% increase in operating profit from that business it appears. That's a pretty wide margin spread. Can you give us an idea of which margin? Is this a 30-plus percent margin business, or is this a low mid 20s margin business?
Edward J. Richardson
Yes, the products altogether in our green energy group is 30-plus percent margin overall. What you saw in the fourth quarter was large shipments of the battery management systems that we shipped to our largest electric locomotive customer. And again, this is prototype build. So this is prototype quantities, prototype products. And that was shipped at a lower margin until we get to economies and scale when we get into the production.
And so what we do is, in support of these large customers making us exclusive, we'll give them the production pricing for the, in essence, prototype shipments with a letter of intent. So what we saw was huge shipments to our electric locomotive customers in the fourth quarter, which was a little more, less margin than our overall margin (inaudible).
Porter Ross Taylor
But we should expect that margin then to kick back up into the low 30s as we push forward. And you're seeing substantial growth overall in the GES space in the coming year as well, correct?
Edward J. Richardson
Yes, correct. The balance of the business is in the mid 30s.
Porter Ross Taylor
Okay. So basically, this is kind of an aberrational quarter. So the hit we saw this current quarter is really kind of a confluence of events, but it should self-correct it going forward.
Edward J. Richardson
We believe so, absolutely.
Porter Ross Taylor
Okay. And can you talk about backlog? Has the drop in backlog been tied in heavily to semi cap equipment?
Edward J. Richardson
Yes. We were running with a backlog in the semi equipment business, over $40 million. And as the downturn -- 2 things have happened. Lam, for instance, they took everything they had on order, everything we were manufacturing for them. So we filled their supply chain. And so now you get [a last] in that. But as we did that, our backlog went down and we don't have new orders to replace it.
Porter Ross Taylor
But at the same time, they're indicating to you to be prepared to ship everything you can ship.
Edward J. Richardson
In the second 6 months, right?
Porter Ross Taylor
Yes. And they're covering costs. They're doing a lot of -- they see a substantial ramp as we push over the next 12, 18 months in a bigger business -- a bigger business than you saw last year, you think, from them out 18 months.
Edward J. Richardson
That's what they're telling us. That's correct. Lam, in particular, has a vendor conference call once a month. In the last conference call, they had over 300 vendors and they were very optimistic about the second half of calendar 2024 being very strong, even stronger than what they've seen in the past. We've also seen indications from the automotive industry that they still have a shortage on chips. And so that tells you that this semi fab business has to pick up.
Porter Ross Taylor
It seems like this has been a tough year, particularly a tough year for shareholders in RELL, but it seems like this is pretty much we're at a (inaudible) in that in fact, if what you see happening happens, if we get the profitability that the upside here should be explosive and quite honestly, probably justifies better than the 12 PE.
Edward J. Richardson
Absolutely.
Porter Ross Taylor
So I know you won't do it, but I'm going to ask for it. Can you guys buy back stock? I mean, can you -- you got cash. I understand that you have cash needs outside the US. But I myself might argue that it would make sense to have a net zero cash position or something of that nature and use that as a chance to do a Dutch auction in this market and buy back 1 million, 1.5 million shares. I don't think you'd get it bluntly.
I just don't see -- I think once you highlight and people start to actually think about where you're going to be in 12 or 18 months on an earnings power basis, it seems that you should get back on track with where we thought you were going to be at the beginning of this year, which should be enough even to 12x earnings to make the stock 50%, 60% higher than it was but -- at a higher than 12 multiple. It seems that this is a great place to buy stock.
Edward J. Richardson
Well, every Board meeting we consider it. As a matter of fact, when we sold RFPD in 2011, we bought $65 million worth of stock back at about $8.
Porter Ross Taylor
Yes. And this strikes me as another opportunity of that nature that you've got a total -- the market is punishing you, equity market is punishing you for things that are self-correcting. And the next 2 years should be a real home run for you guys. So I'll pass that to the Board and I will --
Edward J. Richardson
(inaudible) price of the stock. We'll see.
Porter Ross Taylor
Well, today it's down. So when you have your Board meeting, you can.
Edward J. Richardson
Yes.
Porter Ross Taylor
Okay.
Operator
Our next question comes from Barry Mendel with Mendel Money Management.
Barry M. Mendel
How are you guys doing?
Edward J. Richardson
Well, we'd be better if the price of the stock was higher.
Barry M. Mendel
Yes, I hear you. There was no mention of magnetron. I know you guys are increasing capacity substantially at magnetron. Can you talk a little bit about the capacity expansion and what you're seeing there?
Edward J. Richardson
Yes, the demand for the YJ1600 for synthetic diamonds is far in excess of how many we can manufacture. We have improved our manufacturing process substantially and our yields are back up to normal. And we think as we go along, we can ship. I think we were still back order done like 5000 of those. Of course, that's all dependent upon the quality of the product, which we think we've improved, but the demand is certainly there.
Barry M. Mendel
What's your backlog? Do you have a dollar amount that looks in your backlog for that?
Edward J. Richardson
I don't know. Wendy, do you know the total backlog for magnetron?
Wendy S. Diddell
I don't have that handy.
Edward J. Richardson
It used to run about $15 million to $20 million. I'm not sure where it is today, but the YJ1600 sells for average price of about $3,000. And there's roughly 5000 of those in backlog.
Barry M. Mendel
Okay. And what kind of gross margins on that product?
Edward J. Richardson
It runs about 35%.
Barry M. Mendel
So I would expect to see a substantial increase then in shipments this fiscal year in the magatron versus last year.
Edward J. Richardson
Yes. That's correct, yes. As long as we don't lose the formula. There's a lot of black magic in tubes
Barry M. Mendel
And I assume, Wendy, in healthcare, that you still expect break even by the fourth quarter.
Wendy S. Diddell
We see the path to that. We're really excited about the progress we're seeing with the repaired Siemens program, not only from our own internal development perspective, which is going very well, but from the customer response. We've talked to a large number of some of the larger companies that aren't even necessarily buying the Canon tubes from us because they don't service Canon equipment and those can be, obviously, game changers for us. So, lots of interest, making really good progress on the development of the repaired program. So, yes, we still feel good about Q4 at a break-even level.
Barry M. Mendel
Okay. Great.
Operator
Our next question comes from [David Schneider] who's a private investor.
Unidentified Analyst
Just a comment or 2, then a question. Regarding semiconductor demand, there was a news release from Stellantis automotive OEM a day or 2 ago. They're scrambling to ensure supply of semiconductors globally for the next several years. So, just to put a little thought in people's heads is that as vehicles go from internal combustion engine to electric, the semiconductor content increases dramatically. So that's a tailwind for you. Maybe not today, but it's there. And then on a potential buyback, because you do have a small dividend, when you buy back a share, obviously you don't have to pay from after tax cash flow dividend on the buyback shares. So I'm trying to give a little push for that.
And wondering on the move towards silicon carbide for automotive for high voltage applications, if what you do with semi cap equipment has anything special with that? And then on the Siemens wind turbines, it's common knowledge that they've been having some problems with a decent percentage of their installed base because they have some real crappy parts in there. So does that actually make them more interested in putting you in as, let's say, an OEM supplier, as opposed to pulling out the lead acid batteries? That's about it for me.
Edward J. Richardson
All right, David, I'll touch on the Siemens question. It has no effect on our discussions with them so far with their network of wind turbines. They also service various wind farms that have different platforms, but we're full speed ahead with them on both the ULTRA UPS, the new product we announced in the fourth quarter, and also the ULTRA3000, our variation of that for their turbines to replace what they currently have in there. So their issues are the same issues as all the owner operators and wind turbine manufacturers have had in terms of replacement costs of batteries that fail every 18 months to 2 years, both in the PEM system and the UPS. And that's what we're focused on. And just today, we shipped over 40,000 ULTRA3000s, and those numbers will be similar as we roll out the UPS to those same customers.
Unidentified Analyst
Okay. And then the other question was on silicon carbide. Any special impact of that migration on your semiconductor equipment business?
Edward J. Richardson
No, in terms of delivery and parts being available, our technology partners -- and as you know, we have numerous silicon carbide technology partners, we've been fine. We have a major win in the electric vehicle market with VinFast out of Vietnam for their electric car. So we haven't seen, David, anything that would slow down or subdue our opportunities for growth.
Unidentified Analyst
Okay. All right, that's all I've got for right now.
Operator
Our next question comes from Michael Hughes with SGF Capital Management.
Michael E. Hughes
You don't get a lot of questions on the legacy tube business, but I think it's roughly 40% of revenue. So how did it perform in the just completed fiscal year, and what's the outlook for the coming fiscal year?
Edward J. Richardson
Well, including the semiconductor wafer fab, which has tubes in it, and wave guides and microwave devices, it went from $100 million to about $120 million last year, so it was up substantially. And the core tube business is very strong. They told me 25 years ago we wouldn't sell tubes in 5 years, and it was up over 20% this year. And we own about half the commercial market. So we wish there were more businesses like the tube business, but we sell 20,000 customers all over the world. Probably 80% of those products are in aftermarket. So it's a very predictable business.
Michael E. Hughes
So the core business continues to perform well. And I think what's happened over time is maybe volume is in decline, but you take enough price each year to offset that. Is that how it works?
Edward J. Richardson
Yes, that's correct.
Michael E. Hughes
Okay. And then on the Green Energy Solutions business, Greg, did you say that the backlog was $43 million? Is that correct?
Gregory J. Peloquin
Yes, the backlog is [$43.-something million]. Yes, correct.
Michael E. Hughes
Okay. I understand that.
Edward J. Richardson
$43 million.
Michael E. Hughes
Okay. I understand that business is rich with opportunities, but that number was down from, I think, $54 million in the prior quarter. Is that just burning through some of the locomotive revenue? And should we expect a little bit of a pullback in the revenue for that division over the next couple of quarters and then a ramp in the back half?
Gregory J. Peloquin
That's exactly what it was. Again, that business, including most of the engineered solutions products in the green energy group is project based. So our bookings were through the roof, as you remember, in the first half of the year and then we designed and built it and shipped it. And so we had huge shipments in Q4 to meet our customers' requirements so they could build their full electric locomotive.
So I don't think we'll see production orders, as I mentioned, until Q3, Q4 of next year, large production orders. But we have some other products, I think, as Ed touched on, with other electric locomotive manufacturers that should keep that top line growth going. But that's exactly it. It's project based. You're going to have that. You're going to have huge bookings 1 quarter and then huge shipments a few quarters after that, and then wait for the production. It's all part of the new product introduction process. And these are all, as you know, new products that didn't exist 2 years ago.
Michael E. Hughes
Do you think the backlog that this was a low point and it can grow from here, meaning the book to bill would be north of 1 over the next few quarters for that division?
Edward J. Richardson
Yes, I think our bookings will be strong in Q1 and Q2 of this fiscal year. And then our top line, I think, will be stronger than any quarter we've seen in the last couple of years in Q3 and Q4.
Michael E. Hughes
Okay. And then last housekeeping question for you. Do you have the backlog for PMT and then Canvys?
Jens Ruppert
The Canvys is about $40 million.
Robert J. Ben
$47 million for Canvys? Yes.
Michael E. Hughes
Okay.
Jens Ruppert
$47 million. Okay.
Wendy S. Diddell
Yes. $47 million for Canvys, PMT in total, but that includes Green Energy Solutions was $111.9 million that we don't have -- I don't have it broken out here on my sheet. And healthcare was $1.7 million.
Michael E. Hughes
Okay. I appreciate it.
Edward J. Richardson
Yes, actually, I do have the backlog for PMT. It was $69 million and then $42.8 million for a total of both groups of $111 million.
Michael E. Hughes
Okay. Great.
Operator
Ladies and gentlemen, that's conclude the Q&A portion of today's conference. I'd like to turn the call back over to Ed for any closing remarks.
Edward J. Richardson
Thanks, Kevin. We appreciate your investment and interest in Richardson Electronics and I'm really pleased with the performance of our teams throughout the entire last year and remain confident we're on the right track for long term growth. We look forward to our ongoing discussions and sharing our fiscal 2024 first quarter with you in October. Please don't hesitate to call us anytime. We're always available to talk to you. Thank you.
Operator
Ladies and gentlemen, that's conclude today's presentation. You may now disconnect and have a wonderful day.
