Richardson Electronics (RELL) Earnings Call

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DATE

Thursday, April 9, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Edward J. Richardson
• Chief Financial Officer — Robert Ben
• Chief Operating Officer — Wendy Diddell
• General Manager, Power and Microwave Technologies and Green Energy Solutions Group — Gregory Peloquin
• General Manager, Canvas — Jens Ruppert

TAKEAWAYS

• Consolidated Net Sales -- $55.5 million, a 3.1% increase; excluding healthcare, up 6.0%.
• Backlog -- $151.2 million at quarter end, an 11.4% increase, supported by both PMT and GES segments.
• Gross Margin -- 31.9%, a 90 basis point improvement, driven by higher margin in PMT and partially offset by lower margin in GES and Canvas.
• PMT Segment Sales -- $38.7 million, up $3.4 million or 9.7%; excluding healthcare, PMT net sales up 14.5%.
• Canvas Segment Sales -- $8.0 million, down $1.2 million due to project timing in North America; gross margin 32.2%.
• GES Segment Sales -- Down 5.4% to $8.0 million, primarily due to project timing and component supply constraints; year-to-date bookings for key PEM and multibrand products grew at a high double-digit rate.
• Operating Expenses -- $16.2 million, up from $14.5 million, reflecting additional salaries, incentives, and travel; prior period operating expenses were historically low.
• Operating Income -- $1.5 million, up from a loss of $2.7 million; non-GAAP operating income in prior year was $2.2 million.
• EBITDA -- $2.2 million, versus negative $2.1 million in the prior-year quarter.
• Adjusted EBITDA -- $2.8 million in prior year; not stated for current quarter.
• Earnings Per Diluted Share -- $0.07, compared with a net loss of $0.15, and non-GAAP earnings of $0.11 in prior year.
• Cash and Cash Equivalents -- $29.5 million at quarter end, used primarily for inventory build related to final buys from a critical supplier.
• Dividends -- $900,000 paid in quarterly cash dividends; $0.06 per common share declared for next quarter.
• Inventory -- $45 million attributed to Talos inventory, with purchases now complete and expected utilization through 2030.
• Debt -- No outstanding debt on revolving line of credit at quarter end.
• PMT Backlog -- $75.4 million, growth driven by semiconductor wafer fab, satcom, radar, and aerospace/defense customers.
• GES Backlog -- $38.2 million, remaining stable as new orders offset shipments; annual contract structure cited as key dynamic.
• New Product Launches -- Initial shipments of BES program began in Q4, with further products for 20 newton-meter turbines and accessory solutions set for 2027.
• Healthcare Segment Transition -- Ongoing consolidation into PMT post-2025 divestiture, with key focus now on Siemens CT tube repairs and MX beta tube builds.
• AI Investments -- Entered 90-day period with enterprise-wide AI steering committee targeting high-ROI efficiency use cases.

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RISKS

• Gross margin improvements were partially offset by lower margin in GES and Canvas segments.
• GES sales declined 5.4% due to project timing and longer lead times resulting from component supply constraints, especially for precious metals.
• Operating expenses increased by $1.7 million as a result of higher salaries, incentives, and travel costs, reversing previously low levels from the prior year.
• Company noted continued uncertainty from developments in Iran, energy markets, and tariffs, although no current material impact was reported.

SUMMARY

Richardson Electronics (NASDAQ:RELL) stated this is the final quarter that year-over-year comparisons are affected by the 2025 healthcare divestiture, after which sales and profitability baselines will align more directly with core operations. The company reported high double-digit growth in key GES bookings and expanding market adoption of PEM and multibrand solutions, supported by new contract wins in Europe, Asia, and the Americas. A $570,000 shipment marked the first fulfillment under the BES program, while the Illinois BES demo center's opening moved to fiscal 2027 due to utility delays. Operating cash flow is expected to benefit from completed critical supplier inventory purchases, with $45 million in Talos inventory providing supply through 2030. Richardson Electronics emphasized continued expansion in semiconductor wafer fab, RF, and wireless components, with positive customer feedback and backlog gains in end markets tied to AI, data centers, and green energy—forecasting double-digit revenue growth for GES and ongoing growth for PMT into fiscal 2027.

• Management indicated substantial progress in recurring revenue initiatives through project-based sales, recurring tube life-cycle replacements, and expanding the installed base in legacy and new product categories.
• The company disclosed active participation with artificial diamond substrate manufacturers, supplying microwave generators for cooling solutions in advanced semiconductors—a market with emerging technical momentum.
• Product and geographic diversification intensified with exclusive partnerships for wind turbine owners, new launches for Suzlon, Senvion, Nordex, and SSB platforms, and expansion into Brazil, Australia, India, France, and Italy.
• Enterprise-wide cost-control efforts now include a 90-day milestone-driven AI initiative to identify efficiency gains and reduce manual workload, aiming at improved cash generation and operational flexibility.
• Leadership noted that the existing $151.2 million backlog, built largely on products not present four years ago, demonstrates rapid innovation-to-commercialization capabilities and a foundation for future sales stability.

INDUSTRY GLOSSARY

• PMT: Power and Microwave Technologies — Segment delivering power grid and microwave tubes, RF components, and related consumables.
• GES: Green Energy Solutions — Business unit focused on engineered solutions for power management, including wind, rail, and battery energy storage applications.
• PEM: Pitch Energy Module — Technology used in wind turbine platforms for energy storage and pitch system operation.
• BES: Battery Energy Storage — Large-scale storage systems for grid, commercial, and industrial power applications.
• EDG: Electron Device Group — Core recurring revenue business supplying electron tubes for industrial customers.
• Canvas: Custom display solutions segment serving OEMs in medical, industrial, financial, and commercial sectors.
• Talos inventory: Strategic inventory build of key components for long-term production continuity, targeting supply issues through 2030.
• Straton Z tubes / MX series: Diagnostic imaging tube products in development, notably for Siemens CT systems.

Full Conference Call Transcript

Edward Richardson: Good morning, and thank you all for joining Richardson Electronics, Ltd.’s call for 2026. We appreciate your continued support and interest in Richardson Electronics, Ltd. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Gregory Peloquin, General Manager of our Power and Microwave Technologies and Green Energy Solutions Group; and Jens Ruppert, General Manager of Canvas. As a reminder, this call is being recorded and will be available for playback. I would also like to note that we are making forward-looking statements. They are based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different.

Please refer to our press release and SEC filings for an explanation of our risk factors. I am pleased to report that Richardson Electronics, Ltd. has now delivered seven consecutive quarters of year-over-year sales growth, reflecting continued progress in executing our multiyear strategy. Our performance this quarter was led by strong momentum in PMT, particularly in EDG and the semi fab equipment market. Third quarter sales growth was supported by continued discipline around gross margin and operating expenses. Our performance reflects the strengths of our team as we continue to invest across the organization to build depth, technical expertise, and operating performance. I believe our efforts are positioning Richardson Electronics, Ltd. for sustainable long-term value creation.

Looking at our third quarter fiscal 2026 results, total sales were $55.5 million, up from $53.8 million in Q3 of last year, while operating income improved to $1.5 million compared with an operating loss of $2.7 million in the prior-year quarter. Gross margin increased to 31.9%, an increase of 90 basis points over last year. PMT sales increased to $38.7 million, up $3.4 million year over year. Green Energy Solutions performed in line with expectations, although below the prior year due to the timing of sales, and Canvas remained profitable with a 32.2% gross margin despite softer revenue in North America.

It is important to note that this is the final quarter in which our year-over-year comparisons are affected by the sale of much of our healthcare business in 2025. That transaction continued to impact our year-over-year sales and profitability comparisons this quarter, but it will no longer impact going forward. We also remain focused on expense discipline, working capital management, and improving inventory turns. We ended Q3 with $29.5 million in cash and cash equivalents. Our order activity remains solid and total backlog increased to $151.2 million at quarter end, giving us confidence as we move forward into the final quarter of the fiscal year.

We also are closely monitoring the developments in Iran, the related movement in energy markets, and the evolving tariff environment. While these issues are creating real uncertainty for many companies, they have not had a significant impact on our business or markets at this point. We have remained disciplined in how we manage sourcing, inventory, pricing, and customer commitments. We believe that discipline positions us well to navigate the changing trade environment. Over time, if higher conventional energy prices persist, that could further improve the economic case for certain alternative energy solutions. In any event, we are continuing to invest in and support a number of programs tied to global wind, EV, and other related power management markets.

We believe initiatives underway can support long-term growth opportunities for Richardson Electronics, Ltd. I will now turn the call over to Robert Ben, our Chief Financial Officer, who will provide a detailed review of our third quarter results and capital position. Following Robert’s remarks, Gregory and Jens will provide updates on our business units, and then Wendy will follow up with the progress we are making executing against our multiyear growth strategies.

Robert Ben: Thank you, Ed, and good morning. I will review our financial results for our third quarter and first nine months of fiscal year 2026, followed by a review of our cash position. In addition, please note that I will be discussing non-GAAP financial measures. A reconciliation of non-GAAP items to the comparable GAAP measures is available in our third quarter fiscal year 2026 press release that was issued yesterday after the market closed. Consolidated net sales increased 3.1% to $55.5 million, compared to net sales of $53.8 million in the prior year’s third quarter. When excluding healthcare, for which the majority of assets were sold in January 2025, net sales increased by 6.0%.

Please note that healthcare results, including prior periods, are consolidated into the PMT segment beginning in fiscal 2026. This was our seventh consecutive quarterly year-over-year increase in sales. Third quarter net sales growth was led by a 9.7% increase in PMT sales, driven by significant increases in semiconductor fab and RF and microwave products. Excluding healthcare, PMT net sales increased by 14.5%. Sales for GES were $500,000 below 2025 due to project timing. Canvas sales decreased $1.2 million, which primarily reflected project timing in North America. Consolidated gross margin for the third quarter improved to 31.9% of net sales compared to 31.0% during 2025.

The 90 basis point increase in consolidated gross margin was due to higher margin in PMT, partially offset by lower margin in GES and Canvas. Operating expenses were $16.2 million compared to $14.5 million in 2025. The increase in operating expenses resulted from higher salaries and incentives associated with critical adds to staff and in support of our existing employees, as well as related medical benefits and travel expenses. Also, the operating expenses in 2025 were historically low. Operating income was $1.5 million for the third quarter of fiscal 2026 compared to an operating loss of $2.7 million and non-GAAP operating income of $2.2 million in the prior year’s third quarter.

Net income was $900,000 for 2026 compared to a net loss of $2.1 million and non-GAAP net income of $1.6 million in 2025. Earnings per common share diluted were $0.07 in 2026 compared to a net loss per common share diluted of $0.15 and non-GAAP earnings per common share diluted of $0.11 in 2025. EBITDA for 2026 was $2.2 million versus negative $2.1 million in the prior year’s third quarter. Adjusted EBITDA was $2.8 million in 2025.

Turning to a review of the results for the first nine months of fiscal year 2026, net sales were $162.4 million, an increase of 3.4% from $157.0 million in the first nine months of fiscal year 2025, which reflected higher sales across our business segments. When excluding healthcare, consolidated net sales increased by 7.2%, and PMT net sales increased by 8.2%. Gross margin was 31.2% of net sales, which was a 40 basis point increase from the first nine months of fiscal 2025. As a percentage of net sales, operating expenses for the first nine months of the fiscal year improved to 29.6% from 29.7% for the first nine months of the prior fiscal year.

Operating income for the first nine months of fiscal year 2026 was $2.6 million as compared to an operating loss of $3.1 million and non-GAAP operating income of $1.8 million for the first nine months of fiscal year 2025. The company reported net income of $2.7 million, or $0.19 per diluted common share, for the first nine months of fiscal year 2026 versus a net loss of $2.2 million, or $0.16 per diluted common share, and non-GAAP net income of $1.4 million, or $0.10 per diluted common share, for the first nine months of fiscal year 2025. EBITDA for the first nine months of fiscal 2026 was $6.2 million versus negative $500,000 in the prior year’s first nine months.

Adjusted EBITDA was $4.5 million in the first nine months of fiscal 2025. Turning to a review of our cash position, cash and cash equivalents at the end of 2026 were $29.5 million compared to $33.1 million at the end of 2026. This use of cash primarily related to higher inventory associated with final buys from a critical supplier. Capital expenditures of $800,000 in 2026 were primarily related to our manufacturing business, facilities improvements, and IT systems. Versus $500,000 in 2025. We paid $900,000 in the third quarter for cash dividends. 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 2026.

As of the end of 2026, the company had no outstanding debt on its revolving line of credit with PNC Bank. Now I will turn the call over to Greg. He will provide more details for our PMT and GES business groups.

Gregory Peloquin: Thank you, Bob, and good morning, everyone. GES and PMT remain key components of our multiyear growth plan; the progress we are making is encouraging. Coming out of fiscal 2025, we had a number of strategic imperatives, including developing a strong backlog, launching several new products, expanding our customer base, and advancing multiple development programs from beta testing to preproduction. I am pleased to report that we continued this momentum for 2026. Starting with GES, backlog for our core PEM products, including the Ultra 3000 multibrand offerings, grew 15% in Q3 as more companies adopted our key products across a broader set of applications and expanded globally.

Year to date, bookings from our key products, including PEMs and multibrand solutions, had a high double-digit growth rate versus prior year. That booking strength positions us well for Q4 and a strong fiscal 2026 with forecasted double-digit revenue growth as well as supporting continued momentum into fiscal 2027. Coming out of 39% growth in Q2, GES sales were down 5.4% in Q3 versus the prior year. However, after three quarters, both sales and bookings are up versus prior year.

And in our most recent second quarter, we had significant sales growth in our core business, including PEMs, starter modules, and global expansion of key products, which helped offset softer year-over-year growth results in Q3, mainly in components business, as our mix continues to shift towards engineered solutions. We are also beginning to experience longer lead times for certain components due to precious metals supply constraints. These factors contributed to sales being down but in no way indicate the underlying strength of the business. Within GES, we saw progress across three key growth opportunities. First, we experienced growth adoption of our PEM modules across multiple wind turbine platforms and owner-operators around the world.

We also booked our first BES program in Q3, which began shipping in Q4. In addition, Q3 was strong for our locomotive products, including starter modules and superstructures. Across these programs, testing continues to progress well with our key customers. We feel this will help us achieve double-digit growth again in fiscal 2027. Our GES growth strategy remains centered around power management applications. We have rapidly designed multiple products, secured patents, and built a strong global base of customers and partners. Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities tied to evolving power management requirements and significant energy transformation initiatives.

We serve dozens of wind turbine owner-operators, including exclusive partnerships with the top four owner-operators of GE wind turbines: RWE, Invenergy, Enel, and NextEra. We also saw growth from our new multibrand PEM platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms, including Suzlon, Senvion, Nordex, and SSB. We have now received orders from customers in Brazil, Australia, India, France, and Italy in addition to our strong rollout in North America. Turning to PMT and excluding the legacy healthcare business, sales were $38 million in the quarter, a 14.5% increase over the prior year.

This reflects a slight slowdown in the electron device MRO business, more than offset by growth in the RF and wireless components business, which had strong growth in satcom, radar, and microwave communications, and strong growth in the semiconductor wafer fab market. We are excited about the positive feedback from our semi fab customers expressing ongoing optimism and continued growth going into our fiscal 2027. Across both segments, one of the most important priorities is accelerating the design-to-production cycles. We are expanding our design capabilities to move more products more quickly from concept into manufacturing and test in LaFox. We are also adding experienced industry talent to help expedite growth.

Our Illinois-based design center intended to showcase our BES solutions, which we had expected to be operating in Q4 fiscal 2026, is now more likely to come online in Q1 fiscal 2027. Even so, we are still quoting numerous opportunities throughout North America, including shipping our first system this month. More broadly, we are investing in infrastructure, expanding our design and field engineering teams, and enhancing our in-house design and manufacturing capabilities to support growing demand and innovation. Our field engineering team continues to identify new customers and opportunities across our end markets. We continue to gain market share by developing new products and solutions that are accepted by our customers.

Our Sweetwater, Texas design center is finalizing several new products that will generate new revenue in fiscal 2027. Looking ahead, we are encouraged by the strategic initiatives underway across PMT and GES, including our ESS program, global expansion of our key products, and new technology partnerships. Our global capabilities and global go-to-market strategy continue to differentiate us from our competition in power management, RF and microwave, and green energy markets. By combining legacy products and new technology partners and engineered solutions, we believe we are well positioned to deliver continued growth. In summary, we remain optimistic about our growing project-based business, even though quarterly timing can be difficult to forecast.

We continue to expand our technology partnerships, design opportunities, and engineered resources while addressing technology gaps with new partners and solutions. We believe fiscal 2026 will be another growth year for both PMT and GES with solid momentum going into fiscal 2027. And with that, I will turn it over to Jens to discuss Canvas.

Jens Ruppert: Thanks, Greg, and good morning, everyone. Canvas designs, engineers, manufactures, and sells custom displays to original equipment manufacturers across global industrial and medical markets. It is our mission to deliver high-quality display solutions tailored for our customers’ needs. Canvas reported revenues of $8.0 million in 2026 compared with $9.2 million in the same quarter of the previous year. As we have said before, our business remains project-focused and can vary from quarter to quarter based on customer program timing. On a year-to-date basis, revenues were $25.0 million, up from $23.7 million in the comparable period last year. Our gross margin as a percentage of net sales was 32.2% in the third quarter, compared with 33.2% in 2025.

Product mix and freight, duty, and other supply chain-related costs affected the year-over-year comparison; margin remained at a healthy level. The backlog at the end of 2026 increased to $38.2 million, up from $38.0 million at the end of the second quarter, providing a strong foundation as we move into Q4. The quarter unfolded against the backdrop of the global economy that remains resilient overall but uneven across regions, while trade policy shifts, tariffs, and logistic markets continued to create pockets of uncertainty. In response, we stayed focused on disciplined execution, close customer collaboration, and maintaining the operational flexibility needed to support customer schedules.

During this most recent quarter, Canvas secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation, and human-machine interface solutions for the control of medical devices. At the same time, our solutions continue to support a broad set of commercial and industrial applications, including passenger information systems in trains and buses, as well as HMI technologies used in printing, vending, milling, and packaging equipment. Our initiatives remain centered on increasing Canvas’ visibility and market leadership by developing new opportunities, deepening customer relationships, and converting our pipeline into additional design wins and production programs.

We have also recently added to our sales leadership team and continue to strengthen our supply chain flexibility and execution capabilities so we can respond effectively as customer demand patterns evolve. Looking ahead, while the business remains project-focused and can vary quarter by quarter, we are encouraged by the level of engagement, our request-for-quote activity, and the quality of our opportunity pipeline. With backlog now at $38.2 million and our Q4 forecast looking very promising, we believe we are well positioned for a strong finish for the fiscal year. Our dedicated sales teams continue to pursue new opportunities while I remain focused on executing our strategic plans to drive sustainable growth and deliver long-term value for our shareholders.

I will now turn the call over to Wendy.

Wendy Diddell: Thanks, Jens, and good morning, everyone. As a reminder, the remaining portion of our healthcare business, including the manufacture and repair of certain CT tubes, is now recorded under PMT. Under the January 2025 supply agreement with DirectMed, DirectMed is our sole customer for our CT tubes. Since the healthcare divestiture closed in 2025, 2026 should mark the end of the tough year-over-year comparisons. During the quarter, we wrapped up production of our Alta tubes, and we are now focused entirely on repairing Siemens tubes. We shipped a limited number of repaired Straton Z tubes during the quarter. We also completed life testing on the MX series and are now building beta tubes.

These must run for at least 60 days in the field without failure before we can launch the rest of the series. With the completion of the Alta build-out and continued expansion of the Siemens repair program, we expect that to translate into a meaningful improvement in our bottom line starting in fiscal 2027. Stepping back to our multiyear strategy, we remain focused on two primary operating priorities: accelerating growth and improving efficiency. The third quarter, particularly February, was a good indicator of performance. This was driven by the strength we are seeing in the semiconductor wafer fab market as AI continues to lift equipment demand globally.

We also launched new programs in our Green Energy Solutions business unit, including the long-awaited Sudan India program. We are concentrating our near-term development efforts on several products that we expect will contribute to sales growth in calendar year 2027. A key example is the battery energy storage solutions Greg mentioned. Our BES strategy is supported by our decades of engineering know-how bringing emergency applications to market, a world-class battery energy storage design center at our LaFox facility launching in fiscal 2027, and our more recent experience developing power modules for world-class wind and rail customers.

We are seeing the commercial and industrial storage market become more attractive as customers put a higher priority on resiliency, power quality, and managing energy costs at the site level. That is especially true in applications where downtime is expensive and distributed storage can solve an immediate operating issue. For us, the opportunity is not just overall market growth; it is turning those real customer needs into a repeatable pipeline of commercial projects. Within our Made in America growth strategy, we are seeing credible evidence that U.S.-based investments have been increasing, particularly around factory construction and reshoring.

Initially, we have focused on leveraging our existing customer and supplier relationships along with targeted outbound marketing to highlight our U.S. engineering and manufacturing capabilities. While we have added several small programs that will begin shipping in the coming weeks, we remain actively engaged in the quote and prototype stage on several programs with larger companies nearing $1 million in potential annualized revenue. We expect our Made in America strategy to expand over time. Recent new program wins provide us with growing confidence in the need for our capabilities while also helping us fully utilize our factory and resources over the near term.

Turning to efficiency and cash generation, we are pleased to share that the multiyear inventory investment we made around a single critical supplier is now complete. We believe this investment in inventory will support our business through 2030. We have also identified alternative suppliers with enough lead time to protect continuity, quality, and our ability to meet customer demand. More broadly, we remain focused on controlling inventory and improving turns across all our segments. Without this one supplier, our inventory levels are trending down. We have also kicked off a disciplined cost-control effort to evaluate where AI can help us, including an enterprise-wide AI steering committee with multiple working groups.

The intent is to exit a 90-day period with some early wins and a practical roadmap focused on high-ROI use cases across our global operations, driving efficiency, improving decision-making, and reducing manual work. We are keeping this tightly scoped and milestone-driven, leveraging internal teams so we can capture real benefits without meaningful incremental cost. Looking further out, we remain focused on driving growth through a mix of organic initiatives and a disciplined approach to acquisitions. We are evaluating opportunities thoughtfully, with an emphasis on areas where we can leverage our existing capabilities and global infrastructure.

We believe the initiatives we are executing today position us well to accelerate revenue growth and improve profitability over time, and we will stay patient and selective as we consider longer-term acquisition opportunities. With that, I will turn it back to Ed.

Edward Richardson: Thanks, Wendy. In closing, our third quarter results reflect continued progress in strengthening the financial profile of the business. We delivered year-over-year sales growth, improved gross margin, and generated operating income. We also believe our exposure to select alternative energy and EV programs provides an additional avenue for long-term growth as market conditions continue to evolve. With a strong balance sheet, increasing backlog, and a continued focus on repeatable sales, operational discipline, and higher-value engineered solutions, we believe Richardson Electronics, Ltd. is well positioned to build on this momentum. We remain committed to improving profitability and creating sustainable value for our shareholders, customers, and employees as we move forward. We will now open the call for questions.

Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Ladies and gentlemen, due to time constraints, we ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and a follow-up until all have had a chance to ask a question, after which we will answer additional questions from you as time permits. Please standby while we compile the Q&A roster. And our first question comes from Anja Soderstrom with Sidoti & Company. Your line is open. Good morning. This is Justin on for Anja.

Justin (Sidoti & Company): Hi. Following the March launch of your Laser Slot Saver solution, can you discuss how customer interest, initial adoption, and order activity has trended?

Gregory Peloquin: Yeah. So right now, we have identified on our system—so just real quickly, all of our customers on our system are applied one to three application codes. And so we started our customer base, like we do with any new product introduction, of any customers that would be working in an application that would need that product. So the team has done that. They mailed out sales tools to get with them. They are having a show this quarter where they are going to feature it in the booth. So right now, they are getting a lot of requests for more data, more information. But it is in the infancy stage of its launch.

Justin (Sidoti & Company): Thanks for the color there. And then can you provide more detail on the project timing dynamics within GES this quarter, and how we should think about revenue contribution and project conversion in the fourth quarter?

Gregory Peloquin: Yeah. So it is a very project-based business, which, as we have mentioned, is very hard to forecast quarter over quarter. A prime example of that is in Q2, we grew 39%. And the backlog with GES is very, very strong. It is close to $40 million. But that is the backlog that was generated over the past four years. And in those four years, these products did not exist. We identified the opportunity. We did the design work. We did the manufacturing testing. And then the field alpha, beta testing. So the backlog is ordered based on annual contracts of 12 months, large quantities, large dollars, and then they pull off of that.

So in Q2, they pulled a lot of the issues in terms of they were designing it in the field, putting it into their turbines. And then in Q3, we saw sales not be as high as we would like, but backlog and bookings continue to grow as they, you know, pull off of these programs. The good news is the $8-plus million we shipped in GES was pulled off of backlog and current purchase orders. The backlog stayed flat. Actually, it was up a little bit. That is new business, new customers, and new products that keep that backlog at $40 million.

So we are very confident that we are meeting our objectives in terms of adding sales growth, adding increase in backlog, increasing our customer base, and increasing the number of products that we have developed in our design centers. We have done all of that this year. And as of the end of the third quarter, sales are up, backlog is up, and we are looking for a Q2-type growth in our Q4. And, going into fiscal 2027, looking for, again, double-digit growth. So we are very confident and happy with our backlog and the customers that are adopting these products as we introduce them.

Justin (Sidoti & Company): Great. Thanks. I will turn it back.

Gregory Peloquin: Thanks, Justin.

Operator: Thank you. Our next question comes from Robert Brooks with Northland Capital Markets. Your line is open.

Robert Brooks: Hey, good morning, team. Thank you for taking my question. It was great to see the backlog growth exiting the third quarter. Just wanted to dive a bit deeper into that, specifically with the PMT stuff. What specific end market or customers or products drove that strength in the PMT backlog growth?

Gregory Peloquin: In Q3 specifically, on the PMT side, it was our semiconductor wafer fab customers, and then RF and wireless components that are going into satcom applications and aerospace and defense. Those two had very nice quarters and also an increase in backlog. So for PMT, it was specific to our semi fab wafer fab customers and our RF and microwave components business.

Robert Brooks: Got it. And then on GES, right, it is up slightly, but core backlog up more and you gave some color to Justin on the last question. But I was kind of confused. So the backlog is ordered based on annual contracts. So, like, you are getting one order at the beginning of the year from a customer saying, okay, we want X amount of Ultra 3000s this year, and then they pull from that. Like, do they have to pull—like, do they have to—if they order 100 ultra capacitors, do they need to take all 100 in the year?

Gregory Peloquin: Exactly, Bobby. So they give us an order for an annual usage of their forecast, but they could order one unit or pull one unit off of, let us say, 100 pieces like you talked about, at the beginning of the year, and at the end of the 12 months, they could pick the other 99. Or they could take 25 a quarter. It is very hard because with them, it is all based on the time of year, the weather, the wind speed.

That is why we carry such a large inventory, because they literally look at a weather report and find that the wind speeds will be down this certain week in a certain month and ask us to ship that month. So that is kind of how it is really hard to say what the sales will be and then the backlog, because these are annual contracts. But, Bobby, the good news is when you see $8 million in shipments that were pulled off of current orders, if the backlog stays the same, that is new orders from other customers that were coming in.

Robert Brooks: And just overall, a $40 million backlog generated on products that did not exist four years ago is a strong backlog even if it stayed at $40 million. Yeah. I agree with that. And so one more clarification point. So walking down the road of annual order, if someone orders 100 units, and let us say they pull 20 or they do 25, 25, 25, so then you would be expecting they should be pulling 25 in the fourth quarter. Are they contractually obligated to hit that number that they pledged to, or can they push it over to the next—okay. So, like, you already know how many—

Gregory Peloquin: Yeah. So they give us a quantity. Based on that quantity, we give them a price. Obviously, if quantity is larger, they get a better price. And they give us the PO, and their commitment is to take those products over a 12-month period.

Robert Brooks: Got it. And then just, like, if you had to rank order, what would be the three most compelling near-term—call it, over the next 12 months—opportunities you see in the GES segment and why?

Gregory Peloquin: Well, the first one is—because, you know, we are quoting opportunities between $2 million and $20 million—is the BES. Obviously, those bookings would be huge in a given quarter. And the other two, going into fiscal 2027 and some in fiscal 2026, are new products coming out of our Sweetwater design center. We have a new PEM coming out for the 20 newton-meter turbines throughout the world. We have a number of accessory—what we call accessory—products: the Turbine Guard and others that will be—they are just finishing up beta testing now. Absolutely fantastic performance. We have ordered all the housings and are starting to bring in product so we can start shipping that and booking and shipping that in 2027.

So the three would be BES and then a handful of new products, mainly the 20 newton—we see that as a very large growth area for us—and then these Turbine Guards, which go into every turbine that we have ever sold a pitch energy module in. So we have a captured audience. We have the contacts, and that is usually what takes the most amount of time when you are introducing a new product: who are the people that make the decisions, on and on and on. Well, we have already worked with most of them for four years. So, Bobby, it is new products and then the major, big BES strategy that we are implementing.

We are in the very infancy stages of that.

Robert Brooks: Appreciate that, Colin. And then just last one for me is just a little bit more color on the BES, you know, demo plant. That timeline of the getting up has slid to the right by a quarter. What happened there? And could you just remind us on the CapEx required for that and just the specs of the plant?

Gregory Peloquin: Yeah. So it has nothing to do with us, really, and if you have ever built a new house in a rural area, it is getting all the hookups. They have to increase the transformer. And getting something like that through ComEd—I do not know who you use, Bobby, but here in Illinois—it is just time-consuming. But we do have—and they committed to it—we have a weekly call with them now. But it is just very time-consuming to get them to get the grid set up so we can put in the demo center so we can also then obviously sell back into the grid. But we will probably proceed without it.

We might just put it in place so people can see it, see how it is hooked up to our—because, obviously, we are going to use it here—and then move forward. So that is kind of the status of the BES. We have—just like the other programs we have done in the past with the RF and microwave components and then the—we call Project Turbo internally here—the engineered solutions. We have identified technology partners. We feel we have a couple of very strong ones for this strategy: one that will support us in the Americas, another one that will support us globally. And that is what we are using right now to do these quotes.

So we are not waiting and running in place. We are out looking for opportunities. And, as you know, we identified one and a 16-page proposal, and we won it in December. And I can tell you it has already been shipped this quarter, Bobby. It is about $570,000 or $590,000—our first system.

Robert Brooks: Awesome. I will return it to queue. Congrats on the strong quarter.

Wendy Diddell: Bobby?

Jens Ruppert: You are not going to ask me about GE?

Wendy Diddell: I waited and waited. I have good news for you. I did not put it in.

Gregory Peloquin: He is away now.

Wendy Diddell: Oh, he is off? Okay. I will talk to you later, Bobby.

Gregory Peloquin: So just to add to that, we have this program going with GE that their installers, that are GE installers, or customers that have service agreements, they needed to test our product because, obviously, right now, they are using lead-acid batteries in these service agreements. And they have an installation manual with all the safety characteristics. So they just have to match our product up with their lead-acid batteries and make sure the ESR—there is no difference, which we already know there is not—then they can put the design in and installation manual with check-off from safety.

So anybody that has a GE service contract and uses GE to do the service, they can now tell them, which they have been trying to do, to use our pitch energy modules and do not replace the lead-acid batteries with lead-acid batteries. So very positive, Bobby. We tested it here. It passed. I talked to Mike Rodkin yesterday, and he is just going to finish it up. So, hopefully, in Q1, knock on wood, that program will be all signed off, and we will be up and running.

Wendy Diddell: Hi, Ross. Are you on the phone? Thank you.

Operator: Our next question comes from P. Ross Taylor with ARS Investment Partners. Your line is open.

P. Ross Taylor: Yeah. Thank you very much. Going over your balance sheet, it looks like you have got north of $11 a share in book value. Looks like over 80% of that book value is current assets, net current assets. And, obviously, I am curious on getting to how much of the inventory line is the Talos inventory you have built up, and how rapidly do you anticipate converting that inventory into cash?

Wendy Diddell: We have got about $45 million in Talos inventory, and we have been communicating over the past couple of years we will have enough inventory to take us through 2030. So we are in good shape there. We are done with the purchases. So what you will start to see now in Q4 and, obviously, going into the several years is burning down that inventory level. And, as I mentioned, the team has done a phenomenal job reducing inventory with our other suppliers. So I think you are going to see that via cash generation going forward.

P. Ross Taylor: Okay. And the fact that you found qualified replacement suppliers makes you comfortable and should allow you to, perhaps, do that at a faster pace than might have been the case if you were not able to find those.

Wendy Diddell: I would not say we are going to sell off the inventory quicker because of that. It gives us comfort that we are never going to be in a position where we lose sales because we do not have product.

P. Ross Taylor: Okay. And that is important. Can you talk about a couple areas? One, initiatives you have—you have talked about the idea of getting more recurring business. I think one of the drawbacks the stock has suffered from historically is the high volatility in earnings. So can you talk about both the progress on those initiatives and how we should see it as investors—how we should see the fruits of that—a more stable earnings or less downside to earnings, bluntly. And then along with that, would you also talk about the potential opportunities in the idea of artificial diamonds.

You are hearing a lot of talk on the leading edge in the AI chip space that silicon has limitations to heat transfer and heat absorption and that it turns out that artificial diamonds apparently work quite well in that. And so there is, from my understanding, an initiative to push forward with turning artificial diamonds into substrate and how you might benefit from your involvement in that space.

Gregory Peloquin: Alright.

Wendy Diddell: Let me—that is two very different long questions. Let me start with the second one. Me too, so I have got to get them. That counts to be more than two. Alright. Artificial diamonds. We are dealing with a couple of very large customers that make those types of substrates for cooling AI. It is still using, as you call them, artificial diamonds, but still in its early phases. We have shipped them—I think it is three now—microwave generators, large generators. That is the Great Lakes Crystal Technology company that is making those. So we will continue to participate with companies like that using our microwave generators.

So it is a good opportunity, and we hear the same things you do, Ross. Now on recurring revenue, I am looking around the room here a little bit. I will start with the easy part of that, which is we consider a lot of our EDG, our core business, as being recurring revenue—not in the sense that it is service contracts like you might be looking for—but it is recurring in that we basically have the tubes to fit those sockets, and those tubes have a limited usage life. So when those tubes fail, then they come back to us, and they order them again. That is the strength of the MRO business and the EDG business in particular.

Now if you are talking more about service agreements and contracts, I am going to turn that over to Greg and let him address that.

Gregory Peloquin: Yeah. Just a couple of things to add also, to jump in on what Wendy said. Most of our RF and microwave semiconductor customers are looking at diamond substrates for semiconductors. It is becoming a technology of choice—you know, going from GaN and silicon carbide, now diamond. So we hope that continues because they are going to need different equipment that will come from our semi wafer fab customers that are building this type of equipment, and then hopefully using, obviously, our products that we make here. On the recurring revenue, Wendy hit it on the head. You know, we have a very—obviously—very strong base business. Call it legacy. I call it legendary. The tube business.

And that is pretty consistent, you know, plus or minus 2% or 3%. Obviously, very profitable. And so we are using some of those profits, but also that base business, including the customers, to bring in new products. And, you know, we have forecasts for every product we introduce, based on the number of customers, TAMs, DTAMs, all that stuff. And when we introduce a product, we have a very high confidence level that it will go into production and that we can start gaining market share.

So it is just a pretty much standard model in that we have a very strong base business, and then we continue to bring into those similar type markets—power management and RF and microwave, which are also tubes—new products with the state-of-the-art technology that we can design, manufacture, and test here.

P. Ross Taylor: And can I throw one quick theoretical question in for Ed? I mean, personally, Ed, the stock trades at or even under book value. The book value, as I noted, is over 80% current assets. It strikes me as replacement value for your assets is probably a significantly higher number than book value. Does it frustrate you, and what do we need to do to get investors to recognize that this company actually should trade at a more meaningful premium to book?

Edward Richardson: Well, I think we just need to continue the development of the new programs we are talking about. You know, every quarter—I am sure this was coming up—our board talks about whether or not we should buy our stock back, and we have gone through that program in the past. And every time we buy the stock back and reduce our cash, the price of the stock would go down. So there was no benefit to that. And the real answer to your question is to continue to develop these new programs and increase the business and the profit generated by the new programs.

P. Ross Taylor: Yeah. And I was not going to bang my head on the buyback. You and I—I tried to hit it. Well, we are just in different places. I actually would argue your buybacks have not been a failure. But, you know—okay. We can do that intellectually at some other point in time. But, no, I do think it is an area, and I do think that these initiatives to, you know, capitate the downside in earnings numbers will pay tremendous benefit from a shareholder standpoint because it simply will take away that downside risk and might give the sell side a little bit more courage to actually value the business more appropriately. Thanks.

Edward Richardson: Thank you.

Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone. Again, that is 11 to ask a question. Our next question comes from Chip Rui with Rui Asset Management. Asset Management. Hi. Your line is open.

Gregory Peloquin: Hi, Chip.

Chip Rui: It sounds very, very positive. I mean, it really feels like you guys are tipping to an inflection point in a dozen areas, and I guess I will just ask specifically if you could talk about two. One, you know, semi CapEx has been the historical volatility for you guys. It has been in a tremendous down cycle for a couple years, but you have, you know, industry-wide, seen people like Micron talk about chips sold out for years and massive capital investment by them and others. So what are you seeing on that? How much of it could you play in?

And how would that shake out as far as future orders, kind of over the next two or three years if that cycle develops the way some of the larger industry players see? And then secondly, congratulations on that GE warranty. I was going to ask it too. So just to clarify, it is approved. It is baked. Have you actually signed off, or do you still need to? And just for clarity, that does open about 50% of the market that you have not been able to touch. So just some more color on how meaningful that could be. Okay. Thank you. Yeah.

Gregory Peloquin: Yeah. So the situation we have is the team obviously has done a great job selling to owner-operators. As you know, we have exclusive agreements with the top four, but these owner-operators do not have service contracts with GE. They bought a GE turbine, but they service it themselves. So they can do whatever they want with the turbine. There are other customers, and that number has become lower than we originally thought. It is a much smaller percent of the owner-operators that actually have GE contracts, but it is still worth this process. And so our part—they are not testing to see if it works.

We have, you know, sold over 84,000 of these to date with Six Sigma-like quality. We are on their website already. What this program is, is if you have a service agreement with GE and you are using GE to do that service, they have to go through and make sure that product that you now want to install meets all the safety requirements of a GE safety manual. And so the good news is they sent us the spec that they are going to test. We have already tested the product. Every one of them has worked perfectly, matched up with that. We still have sent products to them. They are going through the testing.

And, again, I hope this is completed by Q1. But just like the NDA and this agreement that we have with them—and I cannot say GE anymore; I have to say a large wind turbine manufacturer—you know, it is just those companies that are that large; it just takes time. But very positive, you know, working directly with them. They are going to do the final test on the product. And what they are doing is making sure that the ESR matches up the same with the battery. Then they do not even have to change a manual because there are no technical changes to the product and the installation.

Plus, as you know, we designed and developed a discharge tool that is becoming more and more popular that actually discharges all the energy in the cells—you put it in before you take it out. So that is the scenario with it. You know, it is worth millions of dollars to us, but it is not a 50% increase in our SAM. It is probably about, you know, 15% to 20% increase in our opportunity or served available market. Does that explain it a little bit better?

Chip Rui: Yes. Yep.

Wendy Diddell: And then your other question was regarding the semi market. The first question.

Chip Rui: Yeah. Just it has been in a bit of a down cycle for a few years. From kind of the fab guys are talking about really needing to step up. How could that pull through to you over the next two to three years?

Wendy Diddell: Yeah. I think that what you are going to see is continued good growth in that particular part of our business.

Gregory Peloquin: Yeah. I think what you are going to see is you are still going to have cycles, but this cycle that we are seeing now—especially in their forecasts and, you know, what they are putting in the portal that we have with them in terms of their forecast—I think the upside is going to be longer than we have seen it in the past just because of all the things that many of you mentioned on the phone with the need for more semiconductors, data centers, the whole thing—that this upside should last longer versus the, you know, six to twelve month cycles that we have seen in the past. So that is the other benefit of this.

And then while that is growing, before the, you know, the cyclical part of it, we will hopefully be bringing in new products to, you know, balance out the downside of the semiconductor wafer fab market. So when it does pick up, for use of a better term, it is gravy to our overall results.

Chip Rui: Okay. Thank you.

Gregory Peloquin: Thanks, Chip.

Operator: Thank you. And our final question comes from Andrew Wrem with Otis and Partners. Your line is open.

Gregory Peloquin: Hi, Andrew.

Operator: Andrew, please check the mute button.

Unknown Analyst: Sorry. Hi.

Andrew Wrem: Greg, could you give what the backlog for PMT was in the quarter?

Gregory Peloquin: Do you have that in front of—Bob? I have—I do not exactly know. Backlog for PMT at the end of the quarter was $75.4 million.

Wendy Diddell: Dollars.

Andrew Wrem: Okay. So that was up pretty substantially. I mean, I think you guys said in your prepared comments 15% or maybe a little bit higher. Backlog overall—excuse me—was up eleven.

Jens Ruppert: Yep. 11.4%.

Andrew Wrem: So total backlog is around $153 million, $155 million, somewhere in there.

Wendy Diddell: $151.2 million.

Gregory Peloquin: Okay.

Andrew Wrem: And then in the past, you have commented on what the semi wafer backlog has been. Can you comment on that or just maybe even in rough terms?

Gregory Peloquin: We will just tell you it is up.

Andrew Wrem: Okay. And then I guess you commented on the inventory. I did not check, but for the Talos inventory, will you guys put a footnote in your Q and K as you work that down through time, or what would be the best way to kind of get at—like, because you said excluding Talos, overall inventory is down. I think that is kind of an important metric here. So if you do not provide it as a footnote, I guess I would encourage you to do so because I think that is pretty important. Because you guys have worked hard on reducing overall inventory, so I think that is important to this story.

Wendy Diddell: Thanks, Andrew. We will take that under advisement. Yeah. Thanks, Andrew. Good hearing from you.

Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Edward Richardson for closing remarks.

Edward Richardson: Well, thanks again for joining us today and your questions. We look forward to talking to you again in July. We are happy to take your calls anytime, so feel—we are happy to take the calls, and we are welcome to call us anytime. Thank you very much.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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