Richardson Electronics Signals Steady Growth and Strategic Shift

Richardson Electronics ((RELL)) has held its Q2 earnings call. Read on for the main highlights of the call.

Richardson Electronics Extends Growth Streak Amid Strategic Shift and Margin Pressure

Richardson Electronics’ latest earnings call painted a broadly upbeat picture, with management emphasizing six straight quarters of year-over-year revenue growth, a return to operating profitability, and strong momentum in its Green Energy and Canvys businesses. While legacy PMT sales were soft and margins felt some pressure, the tone was confident: leadership argued that strategic investments, a solid cash position, and expanding end markets are driving a sustainable improvement in the company’s trajectory despite lingering volatility and noise from the prior health-care divestiture.

Sixth Straight Quarter of Revenue Growth

The company reported Q2 FY26 consolidated net sales of $52.3 million, up 5.7% from $49.5 million a year earlier, marking its sixth consecutive quarter of year-over-year growth. Adjusting for the sale of the majority of the healthcare business, revenue growth was even stronger at 9.0%. Management framed this as evidence that the remaining core portfolio is gaining traction, with growth increasingly driven by higher-value, engineered solutions rather than the divested operations.

Green Energy Solutions Posts 39% Surge

Green Energy Solutions (GES) remained the standout growth engine, with sales climbing 39.0% year-over-year to $8.3 million and increasing 14% sequentially. The strength came from robust demand for Pitch Energy Modules, broader adoption of new products, and a growing international footprint with orders from Brazil, Australia, India, France, and Italy. Management highlighted that GES is not just benefiting from secular energy-transition tailwinds, but also from its expanding customer base and product portfolio, positioning this segment as a key long-term driver.

Canvys Delivers Double-Digit Growth and Strong Backlog

The Canvys custom display business posted a 28.1% year-over-year revenue increase to $8.8 million, while gross margin improved to 32.6% from 31.7%. Importantly for investors, Canvys’ backlog remained robust at $38.0 million, offering good visibility into future revenue. Management underscored that Canvys’ improving margins and sustained backlog support both near-term earnings and the company’s pivot toward higher-margin, solutions-oriented offerings.

Profitability and EBITDA Move in the Right Direction

On the bottom line, Richardson Electronics swung to modest operating profitability in Q2 FY26, with operating income of approximately $0.13 million compared to a $0.67 million loss a year ago. EBITDA improved to $0.7 million from breakeven. For the first six months of FY26, net income reached $1.8 million, or $0.12 per diluted share, versus a $0.2 million loss in the prior-year period. Management stressed that these improvements signal better operating leverage and validate the company’s strategic shift, even as certain segments and markets remain uneven.

Solid Cash Position and Disciplined Capital Allocation

The balance sheet remains a key strength. Richardson ended the quarter with $33.1 million in cash and cash equivalents and no outstanding balance on its revolving credit facility. The company continued returning cash to shareholders via a quarterly dividend of $0.06 per share while also deploying capital into growth initiatives. About $10 million of cash is parked in short-term money market instruments earning roughly 4%, underscoring a conservative but yield-conscious treasury approach that provides flexibility for future investment and cushions against near-term volatility.

Strategic Investments and New Bookings Build Growth Platform

Management highlighted several strategic investments aimed at supporting long-term growth. The Sweetwater design center is expected to be fully operational in Q3 FY26, and a new demo center in Illinois is slated for Q4 FY26. These facilities should accelerate customer engagement and solution development, particularly in power conversion and energy applications. The company also expanded technology partnerships with KEBA, Goshen, and Wulong and reported its first booking for a battery energy storage system in December. Executives emphasized that these moves, along with a push to scale engineered solutions and global expansion, are intended to deepen Richardson’s role in key growth markets.

Operating Expense Efficiency Supports Profitability

Operating expenses improved as a percentage of net sales, falling to 30.5% in Q2 FY26 from 32.3% in the year-ago quarter, and to 29.8% for the first half versus 31.1% a year earlier. This greater expense efficiency was a major contributor to the company’s return to operating profitability, helping offset pockets of margin pressure. Management framed this as ongoing discipline rather than one-off cost cuts, suggesting further leverage as revenues scale.

PMT Softness and Margin Pressure Temper Results

The PMT segment, which remains Richardson’s largest business, weighed on the quarter. PMT sales declined 4.0% year-over-year to $35.2 million, and consolidated gross margin edged down to 30.8% from 31.0%, largely due to lower margins in PMT and GES. Within PMT, the electronic device MRO business showed a slight slowdown, though RF and wireless components grew. Management acknowledged that PMT’s mixed performance is tempering overall results and emphasized efforts to stabilize margins while shifting the mix toward higher-value applications.

Healthcare Divestiture Still Distorting Comparisons

The sale of most of the healthcare business, completed in Q3 FY25, continued to complicate year-over-year comparisons. Residual healthcare activities now sit within PMT, pressuring year-ago comparisons for both Q2 and Q3 FY26. Management reiterated that this noise will persist through Q3 FY26 but argued that, on an underlying basis, the remaining portfolio is healthier and more strategically aligned than in prior years.

Inventory Concentration Remains a Near-Term Drag

Elevated inventory investment tied to a single critical supplier of powergrid tubes remains a short-term headwind for cash. The company expects final receipts of about EUR 1.5 million in Q1 calendar 2026, after which inventory levels should normalize. While the inventory build was presented as necessary to mitigate supply risk following the supplier’s exit, it is currently a drag on cash and inventory turns. Management sees this as a temporary but important step to secure supply through the end of the decade.

Project-Based Revenue Mix Adds Volatility

Executives reminded investors that Richardson’s business is heavily project- and program-based, resulting in quarter-to-quarter swings and forecasting challenges. Some GES shipments this quarter were fulfilled from stock because customer forecasts were inconsistent, highlighting the inherent variability in demand timing. While management views this volatility as characteristic of its markets rather than structural weakness, it does add noise to short-term performance and guidance.

Flat Semiconductor and Weaker Synthetic Diamond Exposure

Some end markets remained flat or soft. Semiconductor fabrication equipment sales were stable but showed little growth in Q2, though customer forecasts point to potential improvement in the second half of calendar 2026. Meanwhile, demand for magnetrons used in synthetic diamond production has slowed due to oversupply in that niche market, trimming a previously attractive growth pocket. Management positioned these as cyclical or niche headwinds that are being offset by strength in other areas, particularly green energy and custom displays.

Sequential Cash Decline Driven by Capex and Inventory

Cash decreased sequentially from $35.7 million at the end of Q1 FY26 to $33.1 million, largely due to $1.6 million in capital expenditures, $0.9 million in dividend payments, and elevated inventory purchases related to supply assurance. While this reflects a deliberate choice to invest in capacity and secure supply, it also highlights the importance of management’s stated focus on improving inventory turns and cash generation over the coming quarters.

Guidance: Momentum Into FY26 Back Half and Beyond

Looking ahead, management reiterated that FY26 remains a growth year for both PMT and GES and expressed confidence in continued momentum into the back half of the fiscal year. Key operational milestones include the Sweetwater design center becoming fully operational in Q3 FY26 and the LaFox demo center coming online in Q4 FY26. The company expects to complete ALTA tube production by the end of Q3 FY26 and aims to launch repaired Siemens MX tubes as early as Q4 FY26, with profitability from the Siemens repair program anticipated by early FY27. Richardson also highlighted strong segment metrics underpinning its outlook: GES posted 39% year-over-year growth with a core book-to-bill of 1.10 and roughly 70% of sales in North America; Canvys delivered 28.1% growth with a $38.0 million backlog; and PMT revenue was roughly flat excluding healthcare. The company plans to complete its final major inventory receipts in early calendar 2026, then focus on improving inventory turns and cash generation while maintaining a debt-free balance sheet, ongoing dividends, and selective capex to support growth.

In summary, Richardson Electronics’ earnings call suggested a business steadily reshaping itself around higher-growth, higher-margin opportunities in green energy and custom displays, while managing through legacy headwinds in PMT and certain niche markets. Investors heard a story of disciplined cost control, improving profitability, and a strong balance sheet funding targeted strategic investments. Despite ongoing margin pressure, project-driven volatility, and the last vestiges of healthcare-related noise, management’s tone was optimistic that the company is on a firmer growth footing with clearer visibility into its long-term value creation path.