Richardson Electronics, Ltd. Aktie

Good day, and welcome to the Richardson Electronics Earnings Call for the Fourth Quarter of Fiscal Year 2026. [Operator Instructions] Please be advised that today's conference is being recorded.

It is now my pleasure to introduce CEO and Chairman of the Board, Ed Richardson.

Good morning, and thank you all for joining Richardson Electronics' Conference Call for the Fourth Quarter and Full Fiscal year of 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power and Microwave Technologies and Green Energy Solutions Groups; 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 are making forward-looking statements, and they're based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors.

I'm pleased to report that Richardson Electronics delivered both a strong fourth quarter and finished the fiscal year 2026. While Bob will provide the detailed financial review shortly, I want to begin by highlighting the broader message from the year.

We delivered significant year-over-year revenue growth, improved gross margin, and strengthened our operating performance. Those results reflect continued execution of the multi-year strategy we've discussed with you over the past few quarters. Our performance was not driven by a single product line, customer, or end market. We saw strength across all 3 of our business units from both new and existing customers. Power and Microwave Technologies continued to benefit from demand in semi-fab equipment, defense, healthcare, and other industrial applications.

Green Energy Solutions continued to advance programs tied to wind, EV, power conversion, and other power management markets. Canvys remained an important and profitable part of the company with customized display solutions serving medical, industrial, and other specialized OEM customers.

Importantly, we also made progress in improving the quality of our revenue. We continue to align our strategic focus on pursuing higher-value engineered solutions, repeatable sales opportunities, and customer programs where our technical knowledge, application engineering, global sourcing capabilities, and inventory position create real value. The more profitable mix of business together with operating disciplines supported the margin [ process ] we achieved during the year.

We've also continued to invest in our current and emerging opportunities with Green Energy Solutions, and we are now advancing our efforts around battery energy storage. We believe this is a natural extension of our capabilities in power conversion and energy-related applications. Customers are looking for ways to manage growing power demand, improve reliability, support renewable generation, and reduce exposure to grid constraints and energy cost volatility. We believe Richardson Electronics is well positioned to support those needs over time.

The opportunity around battery energy storage is still developing and is strategically important. We're working to build the right supplier relationships, technical capabilities, and customer engagement model before scaling the business. We're taking a disciplined approach as we believe the market has attractive long-term potential, particularly as utilities, commercial operators, industrial customers, data centers, and renewable energy developers look for practical solutions to improve power availability and resilience.

From an overall market perspective, the global environment remains mixed, and we're managing the business accordingly. Tariff uncertainty, geopolitical risks, inflation, and uneven industrial demand continue to create challenges for many companies. At the same time, we believe several long-term demand drivers are positive for Richardson Electronics. Electrification, grid reliability, renewable energy integration, AI and data center power requirements, semiconductor capacity investment, defense spending, and the need for customized medical and industrial display solutions all align well with the areas we have experience and technical capability.

We remain disciplined in sourcing, pricing, inventory management, customer commitments, and operating expense control. We believe this discipline together with our strong balance sheet and technical sales organization positions us well to navigate uncertainty while continuing to pursue growth opportunities. Our growth in backlog and improved cash flow from operation highlights this disciplined approach, and we're taking time to manage the business.

The fourth quarter, our results reflected continued positive momentum and a strong close to the year. For the full year, we made meaningful progress against our strategic priorities. We believe the company is entering fiscal 2027 with a stronger operating platform, broader customer engagements, and improved visibility in several attractive end markets.

I'll now turn the call over to Bob Ben, our Chief Financial Officer, who will provide a detailed review of our fourth quarter and full fiscal year results and capital position. Following Bob's remarks, Greg and Jens will provide updates on our business units, and then Wendy will follow with the progress we're making executing against our multiyear strategies.

Thank you, Ed, and good morning. I will review our financial results for our fourth quarter in 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 fourth quarter fiscal year 2026 press release that was issued yesterday after the market closed.

Consolidated net sales increased 27.6% to $66.2 million compared to net sales of $51.9 million in the prior year's fourth quarter. This was our eighth consecutive quarterly year-over-year increase in sales and the highest quarterly net sales since the third quarter of fiscal 2023. The fourth quarter was led by a 28.1% increase in PMT sales, driven by strong growth in semiconductor wafer fab and RF and microwave products.

Sales for GES were $1.1 million or 20.4% above the fourth quarter of fiscal 2025 as a result of higher sales of wind products. Canvys sales increased $2.8 million or 29.5%, reflecting higher sales in North America. Consolidated gross margin for the fourth quarter was 31.2% of net sales compared to 31.6% during the fourth quarter of fiscal 2025. The 40 basis point decrease in consolidated gross margin was due to lower margin in PMT and GES as a result of product mix, partially offset by higher margin in Canvys due to improved freight costs as a percentage of net sales.

Operating expenses were $17.6 million compared to $15.6 million in the fourth quarter of fiscal 2025. The increase in operating expenses resulted from higher salaries and incentives driven by the significant sales growth in both the fourth quarter and fiscal year 2026. Also included in operating expenses for the fourth quarter of fiscal 2026 was a $0.4 million unclaimed property state audit settlement.

As a percentage of net sales, operating expenses improved to 26.6% in the fourth quarter fiscal 2026 versus 30.0% in the prior year's fourth quarter. Operating income improved significantly and was $3.9 million and non-GAAP operating income was $3.5 million for the fourth quarter of fiscal 2026 compared to an operating income of $0.6 million and non-GAAP operating income of $0.8 million in the prior year's fourth quarter.

Net income was $3.7 million and non-GAAP net income was $3.0 million for the fourth quarter of fiscal 2026 compared to net income of $1.1 million and non-GAAP net income of $1.8 million for the fourth quarter of fiscal 2025. Earnings per common share diluted were $0.25 and non-GAAP earnings per common share diluted were $0.21 in the fourth quarter of fiscal 2026 compared to earnings per common share diluted of $0.08 and non-GAAP earnings per common share diluted of $0.12 in the fourth quarter of fiscal 2025.

EBITDA was $5.0 million in the fourth quarter of fiscal 2026 versus $2.9 million in the fourth quarter of fiscal 2025. Adjusted EBITDA was $4.2 million in the fourth quarter of fiscal 2026 versus $3.1 million in the fourth quarter of fiscal 2025.

Turning to a review of the results for fiscal year 2026. Net sales were $228.6 million, an increase of 9.4% from $208.9 million in fiscal year 2025, which reflected higher sales across all 3 of our business segments. Gross margin was 31.2% of net sales, which was a 20 basis point increase from fiscal 2025. As a percentage of net sales, operating expenses for the fiscal year improved to 28.8% from 29.8% for the prior fiscal year.

Operating income was $6.5 million and non-GAAP operating income was $6.1 million during fiscal 2026 compared to an operating loss of $2.5 million and non-GAAP operating income of $2.6 million during fiscal 2025. The company reported net income of $6.4 million and non-GAAP net income of $5.7 million for fiscal 2026 versus a net loss of $1.1 million and non-GAAP net income of $3.2 million during fiscal 2025.

Earnings per common share diluted were $0.44 and non-GAAP earnings per common share diluted were $0.40 for fiscal 2026 compared to $0.08 net loss per common share diluted and non-GAAP earnings per common share diluted of $0.22 for fiscal 2025. EBITDA was $11.3 million and adjusted EBITDA was $10.4 million for fiscal 2026 versus EBITDA of $2.5 million and adjusted EBITDA of $7.5 million in the prior fiscal year.

Turning to a review of our cash position. Cash and cash equivalents at the end of fiscal 2026 were $31.8 million compared to $29.5 million at the end of the third quarter of fiscal 2026 and $35.9 million at the end of fiscal 2025. The increase in cash and cash equivalents from the third quarter related to net income, adjusted for depreciation and amortization, and lower inventory, partially offset by higher accounts receivable.

Capital expenditures of $1.0 million in the fourth quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements, and IT systems versus $0.8 million in the fourth quarter of fiscal 2025. Total capital expenditures were $4.4 million in fiscal 2026 as compared to $2.8 million in fiscal 2025. We paid $0.9 million in the fourth quarter and $3.4 million in fiscal 2026 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 the first quarter of fiscal 2027. As of the end of fiscal 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, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. GES and PMT are key components of the corporation's multi-year growth plan, and we are encouraged by the continued progress we are making.

Coming into FY '26, 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 pre-production. I am pleased to report that we made excellent progress towards our goals throughout all FY '26, and we are accelerating momentum as we experienced in the fourth quarter.

Starting with GES, I'm pleased with both the year-over-year and sequential trends we are seeing as we continue to grow the pipeline of opportunities through both current and new technology partners, products developed by our field sales engineers and design team. GES sales in the quarter grew 20.4% year-over-year, as more companies adopted our key products across a broader set of applications. The strong fourth quarter helped us grow FY '26 sales by 7.3% versus FY '25.

Continued sales growth, coupled with a growing backlog, positions us well going into FY '27. Within GES, we saw continued progress across key growth opportunities. First, we're experiencing growth adoption of our PEM modules across multiple wind turbine platforms. We serve dozens of wind turbine owners and operators, including exclusive partnerships with the top 4 owner-operators of GE wind turbines such as RWE, Invenergy, Enel and NextEra.

We also saw growth from our new multi-brand PEM turbine platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms such as Suzlon, Senvion, Nordex, and SSB. We have now received orders outside of North America from customers in Brazil, Australia, India, France, and Italy, adding to our strong rollout in North America.

Second, we shipped our first BES program in Q4. This milestone highlights the accelerating momentum of our BES strategy, supported by a growing pipeline of nearly 50 active opportunities as of today. We believe we are attracting interest in our BES capabilities as a result of our engineering and manufacturing experience within niche power management markets and our unique technology partners, our U.S.-based footprint, and nearly 80-year corporate history.

Today, our pipeline includes data centers and industrial applications throughout North America, and we believe there are many opportunities to increase our pipeline throughout FY '27 and beyond. We are also focused on converting this growing pipeline into sales, with several exciting opportunities expected to close shortly. In fact, we expect to announce a multimillion-dollar order for our BES systems in Q1.

Our overall GES growth strategy remains centered on power management applications. We rapidly designed multiple products, secured patents, and built a strong global base of customers and technology 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. With these programs, testing and deployment continue to progress well with our key customers, and we feel that this will help us achieve stronger growth in FY '27.

Turning to PMT, excluding the legacy healthcare business, sales were $47.1 million in the quarter, a 31.1% increase over the prior year's fourth quarter. This reflects strong growth in the RF and wireless components product line, specifically in SATCOM, radar, and communication markets, and we again saw very strong growth in the semiconductor wafer fab market.

This continued quarter-over-quarter growth trend in Q4 allowed us to expand sales at a double-digit rate in FY '26, finishing the fiscal year with 14.2% growth versus FY '25. We are excited about the positive feedback from our semi-fab customers who are expressing ongoing optimism and continued growth into calendar year 2027.

Across both GES and PMT, one of the most important priorities is accelerating the design to production cycles. We're expanding our design capabilities to move products more quickly from concept into manufacturing and test in LaFox. Opening our Sweetwater, Texas, location is one of the investments we expect will accelerate product development opportunities. We're also adding experienced industry talent to help expedite growth.

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 customer.

Looking ahead, we are encouraged by the strategic initiatives underway across PMT and GES, including our new BESS program, global expansion of our key engineered solutions products, and new technology partnerships. Our global capabilities and global go-to-market strategy continue to differentiate us from our competition in the 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.

So in summary, we remain optimistic about the growing project-based business. We continue to expand our technology partners, design opportunities, and engineering resources while addressing technology gaps with our new partners and solutions. Coming out of the year with increased sales, new products, increased customer base, and new technology partners, and a 24.8% increase in the combined backlog of the 2 SBUs, we believe FY '27 will be another year of growth for both PMT and GES.

And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys designs, engineers, manufactures, and sells custom displays to original equipment manufacturers across global industrial and medical markets. It's our mission to deliver high-quality display solutions tailored to our customers' needs.

Canvys reported revenues of $12.3 million in the fourth quarter of fiscal year 2026, up 29.5% from $9.5 million in the same quarter of the previous year, setting a new quarterly revenue record for the business. Our business remains project-focused and can vary from quarter to quarter based on customer program timing. For the full fiscal year, revenues were $37.3 million, up 12.4% from $33.1 million in the comparable period last year.

The gross margin was 32.3% of net sales in the fourth quarter compared with 32.1% in the same quarter last year. For the full fiscal year, gross margin was 32.0%, down from 32.9% in the fiscal 2025. The product mix tariffs, freight and other supply chain costs continued to create pressure, but margins remain solid. The backlog at the end of the fourth quarter of fiscal 2026 increased to $40.8 million, up from $38.2 million at the end of the third quarter. With a Q4 book-to-bill ratio of 1.3, we entered the new fiscal year with a solid order book and improved visibility.

Quarter unfolded in a resilient but uneven global economy, with tariffs, trade policy changes, and logistics conditions creating continued uncertainty. Focused on disciplined execution, customer collaboration, and flexibility to support customer schedules. During the most recent quarter, Canvys secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation, endoscopy, 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 Canvys' visibility and market leadership by developing new opportunities, deepening customer relationships, and converting our pipeline into additional design wins and production programs. We continue to strengthen our supply chain flexibility and execution capabilities so we can respond effectively as customer demand patterns and trade conditions evolve.

If we look to the new fiscal year, we expect custom investment decisions to continue, varying by the market, and be subject to program timing. Even so, we are encouraged by the strength of our customer engagement, the level of request-for-quote activity, and our opportunity pipeline. Our record fourth quarter revenue, $40.8 million backlog, and Q4 book-to-bill of 1.3 provide a solid foundation for continued momentum. Our sales team remains focused on developing new opportunities while I remain committed to executing our strategic plans for sustainable growth, and create long-term shareholder value.

Now I'll turn the call over to Wendy.

Thanks, Jens, and good morning, everyone. Let's begin with a quick CT tube update. As I mentioned last quarter, we're now focused entirely on repairing Siemens tubes. We continue to ship a limited number of repaired Straton Z tubes during the quarter. We also completed life testing on the MX series. At the end of the quarter, we repaired several Siemens MX beta tubes. These have recently shipped, and will be deployed for final review prior to full release.

During the fourth quarter of fiscal 2026, we sold most of our assets dedicated to the ALTA Tube program, completed production on this program in March of 2026. We also downsized our CT healthcare team. We remain optimistic that bottom line results from this program will be significantly improved in FY '27.

Stepping back to our multi-year strategy, we remain focused on 2 primary operating priorities: accelerating growth and improving efficiency. Accelerating growth is evident by our revenue trends and growing backlog. Even though a portion of our revenue is booked and shipped during the quarter, we view backlog as an important indicator of demand and future revenue visibility. A growing backlog is directionally positive because it reflects customer orders that are already committed or scheduled, and it gives us greater confidence in the pipeline.

At the same time, backlog does not convert to revenue on a perfectly linear quarterly basis. The timing of conversion depends on product mix, customer delivery schedules, supply availability, and program schedules. So, while we view backlog as an indicator of underlying demand and future revenue, we do not use backlog in isolation as a precise quarterly sales forecast.

Turning to efficiency and cash generation, in addition to downsizing our CT healthcare team at the end of the quarter, we also closed our Powerlink Dubai operations, with all work being transferred to our Powerlink UK location. Our fourth quarter performance also reflects the culmination of the Thales inventory build and ability to generate cash from on-hand inventory. It also reflects our ongoing efforts to take a conservative approach to new inventory. The entire management team continues to look for ways to free up cash for our critical growth initiatives by becoming more efficient in our core operations.

During the quarter, we completed the 90-day AI Advisory Engagement focused on AI readiness, building internal capabilities, and identifying practical use cases across the company. The engagement included 4 working groups: supply chain, manufacturing and engineering, sales, and finance, and resulted in 47 AI opportunities being identified and triaged. Of those, 32 were classified as ready to execute using our existing AI tools, with no additional technology investment required. 11 were identified as potential future agent build opportunities.

We also saw meaningful AI adoption across the company during the engagement period. Users increased by 46%, message volume increased by 60%, and the use of projects expanded significantly. It is clear employees are beginning to incorporate AI into their daily work. Six initial pilot programs have been validated and are ready for execution, including use cases in at-risk account analysis, RMA tracking, supplier compliance, performance review support, and change log analysis. We believe this work establishes a practical foundation for using AI to improve productivity, strengthen workflow consistency, and support process improvement over time.

We continue to advance our Made in America strategy with a focus on opportunities where U.S.-based manufacturing, engineered solutions, and power management capabilities create a competitive advantage. This position is increasingly relevant to customers seeking a more reliable supply chain, reduced tariff exposure, faster response times, and stronger quality control. During the quarter, we converted several customer discussions into commercial activities across aerospace, unmanned defense systems, defense electronics, and U.S.-based industrial manufacturing. The broader pipeline remains active.

Key opportunities include a U.S.-made self-checkout kiosk program for a major national restaurant chain that is currently under final consideration. Also, we have confirmed competitive pricing and received initial approval to begin work tied to a major U.S. defense program. These opportunities are expected to convert to revenue beginning later in the fiscal year. The key takeaway is that our Made in America initiative is moving from prospecting into execution. We are converting customer interest into sample builds, purchase orders, and supplier onboarding activity.

Our near-term focus is to stabilize early production, close open approvals, and continue building momentum in aerospace, defense, industrial, and power management applications while maintaining the financial flexibility and operating capacity needed to support project-specific purchases, technology partner requirements, and potential facility expansion.

Looking further out, we remain focused on driving growth through organic initiatives while maintaining a disciplined and selective approach to capital allocation. While acquisitions are not a near-term priority, should the right opportunity arise, particularly one that supports growth in power management or expands our engineered solutions capabilities, we would evaluate it thoughtfully.

At this stage, our priority is to maintain a strong cash position to support growth in battery energy storage, including key purchases tied to projects and potential facility expansion to accommodate increased demand with our technology partners. We are encouraged by the direction we are headed and believe initiatives underway position us well to continue revenue growth and improve profitability over time.

With that, I'll turn it back to Ed.

Thanks, Wendy. In closing, fiscal 2026 was an important year for Richardson Electronics. We delivered significant year-over-year revenue growth, improved gross margin, and strengthened operating performance, as well as continuing to invest in areas that we believe can support sustainable long-term growth. We're encouraged by the strength across all 3 business units and by the market trends supporting demand for power management, electrification, energy storage, data center infrastructure, semiconductor manufacturing, defense, and customized display solutions.

We also recognize that the macro environment remains uncertain. We'll continue to manage the business with discipline. With a strong balance sheet, a growing base of higher-value engineered solutions, a continued focus on repeatable sales, and a team that's executing well, we believe Richardson Electronics is well positioned to build on the progress we made in fiscal 2026. We remain committed to improving profitability and creating sustainable value for our shareholders, customers and employees as we move forward.

We'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Anja Soderstrom with Sidoti.

Hi, good morning. Congratulations on the strong quarter. And thank you for taking my questions. I'm just curious for the semi-fab demand. What kind of visibility do you have there? And what do you see now into the first quarter?

Yes, we still have limited visibility. You know, people have a hard time forecasting, but the feedback we're getting from our customers in that space and then their customers' customers is very, very positive. We saw, as you know, excellent growth in Q3 and Q4, and that, according to the customer and their end customers, should continue throughout FY '27.

And sort of what lead time do you have there if something comes up in quarter?

Lead time in terms of building the product for a new order?

Yes.

Yes. The team, we're very aggressive on inventory. We try to make sure we actually have weekly, monthly calls with the customer. So we have the piece parts in stock and just waiting for releases from the customer.

Okay, thank you. And then at Canvys was quite the surprise with a record quarter. What's the price there and do you see that continuing into the first quarter?

So, I mean, I'm really pleased with that record quarter we had and then a book-to-bill of 1.3. When you have a record quarter and the book-to-bill is up, it's really a great momentum. Obviously, our business is project driven. So we have sometimes larger call-offs. It's really project business. So it's really hard to say, but obviously, you know, we all foresee a cross next year.

Our next question comes from the line of Bobby Brooks with Northland Capital.

Hey, can you guys hear me now? Sorry about that.

You must be sleep-deprived, Bobby. That happens.

Yes, I appreciate it. So, Ed, you talked about pursuing higher-value engineered solutions in your prepared remarks. And maybe I'm wrong here, but I feel like that's been a focus for the business for several years. So if that is the case and it seems like this is kind of turning the corner, maybe just like could you expand on like what it can -- it seems like something really kind of clicked in the quarter or over the last several months that's kind of helped unlock growth with that. Just was curious to hear a more expanded view there.

Well, I think the thing that we're seeing is lots of new opportunities in new areas. Let Greg tell you about some of the new products that we're working on.

Yes, I think Ed's comment was based on from an investment point of view going forward, it will be focused on these higher engineered solution type products. And we continue to get, first of all, the existing products that we've introduced over the years are gaining market share globally, as I said in my comments. But in addition to that, we're getting more and more opportunities from customers that we did work for.

For example, on the electric locomotive, we now have gotten a number of opportunities for other products for Progress Rail, Caterpillar. So some of these are different than we've currently done, and they might take a different piece of equipment, maybe a different type of person in terms of engineer, software engineer, mechanical, electrical. So I think that's what we talk about here in terms of long-term 3- or 5-year growth is where do we invest in, and that investment would be in these higher technology and higher integrated type products.

Got it. That makes a lot of sense. Then I know last quarter, your ultracapacitor replacements for the GE turbines, those became an approved product for GE service turbines, right? And so I was just curious to hear how that opportunity developed there during the quarter.

Yes, so as you know, Bobby, we kind of worked with them. They wanted to do some testing. So their GE site installers could use these products. Our product passed with flying colors. In fact, based on the data, it was proven safer than dealing with the discharge of the current lead-acid batteries in the turbine. That was very, very positive.

So what GE decided to do, and we have no control over that, we've done our job, we've created a product that works and is safe and is in high demand by their owner-operators. It's site-specific. And so yes, they've approved a site in Canada for this because it's up to your owner-operators now to go back to GE and say, "Hey, this thing's now been approved by you. We'd like to install it," but it's going to be site-specific and we have no control over that. But anyway, yes, they released an order for a site in Canada to one of our large owner-operators. We did ship that in Q1. It was a nice start to Q1, so it's not even in the fourth quarter numbers.

That's great to hear. And then I just wanted to maybe get a little bit more context around the battery energy storage solutions and its relation to the data center opportunity. It seems like you guys kind of spoke to that a little bit more today than in past quarters.

So is that like, for my context and other people on the call, like you're not necessarily focusing on these like mega projects where it's, you know, folks are looking to secure like 700 megawatts, a gigawatt plus of power, but maybe kind of smaller installations? Or maybe I'm off base, but I was thinking that or under the impression that your battery energy solutions are more like single-digit megawatt or maybe even kilowatt size. Could you just refresh us there and maybe just frame what type of data centers you'd be looking to service there?

Yes, so Bobby, you're correct. The mega data centers is not what we are focused today. It's more the C&I, commercial and industrial type products and applications. Our first offering as we develop these relationships with technology partners such as Gotion and others, will be one product is 760 kilowatts, and the other one is 5 megawatts.

And so somebody wants 10 megawatts, it just stacks up. But it's smaller niche applications that, not surprisingly, the current people involved in this market want nothing to do with. And that opportunity I mentioned that we have now booked is for 17 units, containers, but it's a unique facility. It's actually, the press release will come out. It's for a federal reservation in Alaska, and they'll put 1 or 2 in each of the towns on that reservation to help balance a grid, give them backup power, et cetera.

So the opportunities we have in our pipeline, and we're now over 50, are mainly for municipal buildings. That was the first one we booked, with Goleta in California for their municipal building, but utility applications, commercial applications, and the demo center that we're putting here in LaFox is actually a working unit, and it is for us to use to keep backup power, but also store, balance the grid, and sell it back to the grid, and to make some money that way, which the state of Illinois has the best subsidies and grants.

So you're exactly right. Right now there's more than enough opportunities for these smaller niche, I'll call them niche applications, that we seem to have a fit with our global capabilities, with being around 75 years. A lot of people that go after these smaller opportunities are LLCs. Just in 2025, over 100 LLCs went bankrupt. So these companies are really happy to work with a company that's been around for 80 years, no debt, and will service these niche applications with these products.

That's very helpful, Greg. And I think that's a great point on the niche of where you're playing. And then the competition that you're facing. You have a significant advantage over them, it seems. I'll jump back into the queue and congratulations on a really strong quarter.

And our next question comes from the line of [ Joseph Midkiff ], independent.

Hey, good morning. Congrats on the excellent quarter and really a long-term positive trajectory. I am a long-term retail shareholder. And my question was really about capital and capital deployment. I was curious as to whether there's been any consideration made to returning additional capital to shareholders. I know the company has historically had a very conservative approach to the market, and I'm sure there's some strategic purpose, but I wondered if you could speak to what that strategic purpose may be and whether any indicators in the business would give you confidence to deploy additional capital into buybacks or dividends. Thank you.

That's a question that we hear every quarter, and every quarter when the board gets together, we talk about it. We've always come to the same conclusion that we're better off to employ our capital and new opportunities such that Greg was talking about rather than buying our own stock back.

Is there anything in the business or are there particular hallmarks that would lead you to reevaluate that?

Not that we presently have visibility to.

Our next question comes from the line of [indiscernible] with [ Velta Research ].

Hi, team. Just wanted to say solid work on this quarter. I did have a few questions. First question would be, could you guys provide the manufactured and distribution split within PMT? I was just hoping to get a gauge on the durability of the mix shift.

No, we don't provide that at that level.

Okay, that's no problem. I guess my next question would be more so on backlog. How much of it would you say is expected to fill within the next four quarters, like ballpark?

I'll speak to PMT. Most of our backlog is -- because of the project-based nature of it is scheduled and the contracts that we sign are a year. So it depends on when we signed it, whether it will ship in this fiscal year or not. But there's no 3-, 4-, 5-year type contracts. Most of the backlog should ship within the fiscal year or within 5 quarters for PMT and then GES. Jens, do you want to...

Yes. So our backlog, because it's project-specific and we sell to large medical OEMs, it's a little different. So we have sometimes contracts to deplete the backlog over 2 or 3 years even. However, we expect every quarter new orders to make more than that backlog is right now. So backlog is going up for a while, and we are very positive on that.

And your next question comes from the line of Bobby Brooks with Northland Capital.

Just a quick one. I know -- I think it's in the release, GES backlog was up 5% year-over-year. Greg, could you speak to what the PMT specific backlog was? Because I know Canvys was really great growth. I'm just trying to square off what -- where our PMT landed?

Yes. The backlog increase -- and the backlog itself, there's no one-hit wonders, which is so -- we're adamant about that. We want to have nice, consistent growth when we invest in a product or a product line that is consistent long-term and short-term growth very fast. So the backlog today, it's a combination of both our technology partners on the power management side within GES.

We did see a large increase in our pitch energy modules with a very large order internationally. That was part of the growth, and then a handful of niche products that we have, such as the temperature monitoring device, the shunts, et cetera. So the backlog growth was across the board, both in components and engineered solutions. But if you look at the overall percent, it's that pitch energy module business that continues to gain market share. As you know, Bobby, it's a very large market that we're penetrating.

Got it. And so was like PMT backlog up double digits in the fourth quarter, fair to say or...

PMT backlog was up double digits in the quarter, yes, I believe.

Yes, great. And then maybe just one last one.

Go ahead, Bobby. Sorry.

No, you said up $10 million.

Yes, I believe it was up $10 million in the quarter.

Awesome. And just the last one for me is, it seems like -- would it be fair -- is it a fair read-through to say, you know, if we rewound the story to 2024, a lot of the focus was on the pitch energy modules and the wind turbine solution opportunity. But now today and especially over just the last two prints, it seems like that continues to be a great growth opportunity, but it seems like there's more [Technical Difficulty] per se. Is that a fair way to be thinking or maybe we just -- maybe it's just something I missed 2 years ago, but just curious to kind of hear your guys' thoughts there.

Yes, Bobby, you broke up pretty bad, but I think I understood your question in that our focus was never on wind turbines or solar or anything like that. It's been on power management applications. And what we're finding as we even add new technology partners, we're finding other niche power management applications. I think you saw the press release on C-Motive, where we'll be building power supplies and motor drives for them.

Also, you know about the starter modules. We have another large locomotive manufacturer that is also having us design one for them. Of course, the pitch energy module was one part, it was one customer, but the goal is to expand that globally because we are a global company with 60% of our sales outside of North America.

And that's into effect. And then with that, you know, the whole growth concept in our model for 80 years has been, what can you sell to an existing customer base? Because that's the most cost-effective way to bring new products to market. So we're identifying what I call niche, but they're very large. The 20-newton meter product that we're coming out with for 20-newton meter wind turbines, that'll be out in Q1, allows us to sell pitch energy modules in that application. We got the turbine guard. We've got the UPS now in an agreement with KK Wind. So these are the things that are going to be coming out. You'll see the press releases, but it's more power management type applications that just happened the first large one we had was in a wind turbine. So I would always look at it as we have a very unique capability with all these new products that are out there.

All of them either need a power management section or a new power management section based on the frequency or power levels. And we've done years and years and years of ultracapacitor experience, high-power tubes, high-power industrial components, so in a very strong and growing design and manufacturing team. So that's kind of the direction. We're not focused on wind turbines, we're focused on power management, in this case, the initial growth was in wind turbines. But you're right, that percent, even though that's going to keep growing, the percent will probably be in other products going forward.

Hey, let me jump in and correct something. The question was asked, I think maybe we misunderstood it, about what's the percentage of our manufactured product versus distribution product. And we said that we don't discuss that. We actually have reported that, and it is in the range of 55% to 60% of the products that we sell are products that we either manufacture directly or are manufactured exclusively for us to our specifications. So we wanted to follow up with that.

Our next question comes from the line of [ Joseph Nergis ] with [ Segrin Investments ].

Well, first, let me congratulate you on a great quarter and on the prospects that you've enumerated on this call. My call is basically on, I'll call it before Gotion and after Gotion, after the press release with Gotion. In the last conference call, I guess you talked about quite a few quotes out there on the battery energy solution issue quite a bit. Were you utilizing Gotion batteries previous to their press release, our partnership with them?

Yes, we were working with Gotion on and that's how we got to know them. And once we shared both of our capabilities, and as maybe you know, they're about 30 minutes from here. We talked to them about the batteries as we were looking at some of these opportunities.

But during those discussions, they needed us to help bring their batteries to market, being again, a North American company, and to meet all of those BABA, Build America, Buy America, federal entity, et cetera, Made in America. And so our relationship with Gotion in the beginning was, yes, just buy batteries from them and build a product. And it was an application we're working on, but has evolved to -- they'll be a technology partner of ours. They will give us the batteries and we will build the containers and integrate them here. So we'll either design or build our own PCS, the transformer, and all the other products that would go in that and use Gotion as our technology partner for their batteries.

And again, the good thing is with their batteries being built here in North America, we meet all the qualifications that the larger OEMs need to put that product and get the subsidies from the various states or grants based on the Made in America concept. So it's a good match, and we just had a meeting about a month ago with the Gotion CEO and I, and the whole troop was out there, and we signed an MOU, and we're going to help them bring their batteries to market, and they're going to help us bring BES products to market.

That's terrific. And so, Gotion has a sales force too. Are they pursuing the sales independent of you guys on some of these projects, and then they come to you?

Yes. They have a handful of people that talk to some of the larger things, like one of the other callers talked about these 100-megawatt sites...

Very large, yes.

Yes, we'll be exclusive for certain size containers, and all referrals would come to us. We'll work together, but we have a much larger, much more knowledgeable sales force for North American opportunities than they do.

So it -- but they have the technology and a $2 million manufacturing location...

Was it 2 million square feet?

But it's $1 billion, right.

Yes, 2 million square feet facility. So that's our relationship with Gotion, and they'll be our partner bringing BES. The opportunity I just talked about that we booked, those will be Gotion batteries in those products.

Just one other follow-up. Subsequent to your announcement on the press release on the Gotion partnership, Gotion announced another battery, I guess if I say it right, they're [indiscernible] sodium-ion battery that they're introducing. And that seems like to me anyway, a game-changing potential product. I understand they're going to be manufacturing that battery in China. Do we know if there's any possibility that will be manufactured in Illinois, let's say, over the next year or so?

Yes, we've had conversations with them about that. Right now, the product they had fits the technical needs and cost needs of our current opportunities. So they showed us our roadmap. The goal is to eventually bring that to North America. And again, for the same reasons we talked about.

Obviously it's a huge market for BES products and the whole build in America, subsidies and grants. But their goal is to, yes, bring that to America eventually, but they're about a $3.5 billion, $4 billion company. They have a huge facility in China. Now, I just think they're using that to get it introduced and get it designed, and then they can transfer the production to North America.

Thank you. I would now like to hand the call back over to CEO and Chairman of the Board, Ed Richardson, for closing remarks.

Well, thanks again for joining us today and for your questions during the Q&A portion of the call. We look forward to talking to you again next quarter. But if you have any questions at any time, you're welcome to call us directly. Thank you.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the Third Quarter of Fiscal Year 2026. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Ed Richardson, Chairman and Chief Executive Officer. Please go ahead.

Good morning, and thank you all for joining Richardson Electronics conference call for the third quarter of fiscal year 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power & Microwave Technologies and Green Energy Solutions Group; 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're making forward-looking statements that 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'm pleased to report that Richardson Electronics 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 strength 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 for sustainable long-term value creation.

Looking at our third quarter FY '26 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 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 Canvys remain profitable with a 32.2% gross margin despite softer revenue in North America. It's 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 health care business in Q3 of FY '25. 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 closely are monitoring the developing situation in Iran, the related movement in energy markets in the evolving tariff environment. While these issues are creating real uncertainty for many companies, they've not had a significant impact on our business or markets at this point. We've remained disciplined in how we manage sourcing, inventory, pricing and customer commitments. We believe that disciplined positions as well as to navigate 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 attractive long-term growth opportunities for Richardson Electronics.

I'll now turn the call over to Bob Ben, our Chief Financial Officer; who will provide a detailed review of our third quarter results and capital positions. Following Bob's remarks, Greg and Jens will provide updates on our business units and then Wendy will follow up with the progress we're making executing against our multiyear growth strategies.

Thank you, Ed, and good morning. I will review our financial results for our third quarter and first 9 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 health care, for which the majority of assets were sold in January 2025, net sales increased by 6.0%. Please note that health care 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 wafer fab and RF and microwave products.

Excluding Healthcare, PMT net sales increased by 14.5%. Sales for GES were $0.5 million below the third quarter of fiscal 2025 due to project timing. Canvys 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 the third quarter of fiscal 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 Canvys.

Operating expenses were $16.2 million compared to $14.5 million in the third quarter of fiscal 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 the third quarter of fiscal 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 $0.9 million for the third quarter of fiscal 2026 compared to net loss of $2.1 million and non-GAAP net income of $1.6 million in the third quarter of fiscal 2025. Earnings per common share diluted were $0.07 in the third quarter of fiscal 2026 compared to net loss per common share diluted of $0.15 and non-GAAP earnings per common share diluted of $0.11 in the third quarter of fiscal 2025. EBITDA for the third quarter of fiscal 2026 was $2.2 million versus negative $2.1 million in the prior year's third quarter. Adjusted EBITDA was $2.8 million in the third quarter of fiscal 2025.

Turning to a review of the results for the first 9 months of fiscal year 2026. Net sales were $162.4 million, an increase of 3.4% from $157.0 million in the first 9 months of fiscal year 2025, which reflected higher sales across our business segments. When excluding health care, 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 9 months of fiscal 2025. As a percentage of net sales, operating expenses for the first 9 months of the fiscal year improved to 29.6% from 29.7% for the first 9 months of the prior fiscal year.

Operating income for the first 9 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 9 months of fiscal year 2025. The company reported net income of $2.7 million or $0.19 per diluted common share for the first 9 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 9 months of fiscal year 2025. EBITDA for the first 9 months of fiscal 2026 was $6.2 million versus negative $0.5 million in the prior year's first 9 months. Adjusted EBITDA was $4.5 million in the first 9 months of fiscal 2025.

Turning to a review of our cash position. Cash and cash equivalents at the end of the third quarter of fiscal 2026 were $29.5 million compared to $33.1 million at the end of the second quarter of fiscal 2026. This use of cash primarily related to higher inventory associated with final buys from a critical supplier. Capital expenditures of $0.8 million in the third quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements and IT systems versus $0.5 million in the third quarter of fiscal 2025. We paid $0.9 million 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 the fourth quarter of fiscal 2026. As of the end of the third quarter of fiscal 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, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. GES and PMT remain key components of our multiyear growth plan and the progress we are making is encouraging. Coming out of FY '25, 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'm pleased to report that we continue this momentum through the first 3 quarters of FY '26.

Starting with GES backlog for our core PEM products include the Ultra 3000 multi-brand offerings grew 15% in Q3 as more companies adopted our 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 FY '26 with forecasted double-digit revenue growth as well as supporting continued momentum into FY '27.

Coming out of 39% growth in Q2, GES sales were down 5.4% in Q3 versus the prior year. However, after 3 quarters, with 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 started modules and global expansion of fee products, which 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 GES 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. As we feel this will help us achieve double-digit growth again in FY '27.

Our GES growth strategy remains centered on power management applications. We've 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 entity transformation initiatives. We serve dozens of wind turbine owner and operators, including exclusive partnerships with the top 4 owner operators of GE wind turbines, RWE, Infra Energy and now and NextEra. We also saw growth from our new multi-brand 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 is components business, which had a 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 FY '27. Across both segments, one of the most important priority 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 BS solutions, which we had expected to be operating in Q4 FY '26 is now more likely to come online in Q1 FY '27. Even so, we are still quoting numerous opportunities throughout North America, including shipping our first system this month. More broadly, we're investing in infrastructure, expanding our design and field engineering teams, 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 we will generate new revenue in FY '27.

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 FY '26 will be another growth year for both PMT and GES with solid momentum going into FY '27.

And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys designs, engineers, manufacturers and sells custom displays to regional equipment manufacturers across global industrial and medical markets. It is our mission to deliver high-quality display solutions tailored for our customers' needs. Canvys reported revenues of $8.0 million in the third quarter of fiscal year 2020 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 the third quarter of fiscal year '25. While 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 the third quarter of fiscal year 2026 increased to EUR 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 logistics markets continue 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, Canada 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 endoscopy 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, billing and packaging equipment.

Our initiatives remain centered on increasing Canvys' ability 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 customer engagement, our request for quote activity and the quality of our opportunity pipeline. With the backlog now at $38.2 million and our Q4 forecast, looking very promising, we believe we are well positioned to put a strong finish to 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.

Thanks, Jens, and good morning, everyone. As a reminder, the remaining portion of our health care business, including the manufacture and repair of certain CT tubes, is now recorded under PMT. Under the January 2025 supply agreement with Direct Med, Direct Med is our sole customer for our CT tubes. Since the health care divestiture closed in Q3 of FY '25, Q3 of FY '26 should mark the end of the year-over-year comparisons. During the quarter, we wrapped up production of our Alta tubes, and we're 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 FY '27.

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're 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-waited Sutalon-India program. We're concentrating our new 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 best 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 FY '27 and our more recent experience developing power modules for world-class wind and rail customers. We're 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's especially true in applications where downtime is expensive and distributed storage can solve an immediate operating issue.

For us, the opportunity isn't just overall market growth. It's turning those real customer needs into a repeatable pipeline of commercial projects. Within our Made-in-America growth strategy, were the incredible evidence that the U.S.-based production and 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've 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're 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've 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've also kicked off a disciplined cost controlled 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 road map focused on high ROI use cases across our global operations, driving efficiency improving decision-making and reducing manual work. We're 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're evaluating opportunities thoughtfully with an emphasis on areas where we can leverage our existing capabilities and global infrastructure. We believe the initiatives we're executing today position us well to accelerate revenue growth and improve profitability over time, and we'll stay patient and selective as we consider longer-term acquisition opportunities.

With that, I'll turn it back to Ed.

Thanks, Wendy. In closing, our third quarter results reflect the continued progress in strengthening the financial profile of the business. We delivered our year-over-year sales growth, improved gross margin and generating 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, a continued focus on repeatable sales, operational discipline, higher value engineered solutions, we believe Richardson Electronics 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'll now open the call for questions.

[Operator Instructions] And our first question comes from Anja Soderstrom with Sidoti & Company.

This is Justin on for Anja. Following the March launch of your Laser flat Saver solution, can you discuss how customer interest, initial adoption and order activity has trended? .

What do you think. Yes. So right now, there's -- we've identified in our system. So just real quickly, all of our customers on our system are applied 1 to 3 application codes. And so we served our customer base like we do with any new product introduction of any customers that will be working in an application that would need that product. So the team has done that. They've mailed out sales tools to get with them. They're having a show this quarter when they're going to feature it in the booth. So right now, they're getting a lot of requests for more data, more information, but it's in the infancy chase of its launch.

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?

Yes. So it's a very project-based business, which as we've mentioned, it's very hard to forecast quarter-over-quarter. Prime example of that is in Q2, we grew 39%. And the backlog with GES is very, very strong. It's close to $40 million, but that's a backlog that was generated over the past 4 years. And in those four years, these products didn't 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 in the field, putting it into their turbines. And then in Three, we saw sales not be as high as we would like, but backlog and bookings continue to grow as they 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 is up a little bit that's new business, new customers and new products that keeps that backlog at $40 million. So we're very confident that we're 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've developed in our design centers. We've done all of that this year. And as of the end of the third quarter, sales are up, backlog is up, and we're looking for a Q2 type growth in our Q4 and going into FY '27, looking for, again, double-digit growth. So we're very confident and happy with our backlog and the customers that are adopting these products as we introduce them.

Our next question comes from Bobby Brooks with Northland Capital Markets.

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.

Yes. In Q3 specifically, on the GES side, it was -- our internet...

PMT, PMT. On the PMT start first.

Well, PMT, it was our semiconductor wafer fab customers. And then RF and wireless components 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 fab customers and our RF and microwave components business.

Got it. And then on GES, right, it's like up slightly, but core backlog up more, and you gave some color to Justin on the last question. And -- but I was -- what I was kind of confused. So the backlog is ordered based on annual contracts. So like you're getting on order at the beginning of the year from a customer saying, "Okay, we want x amount of [Audio gap] 3,000 this year and then they pull from that. Like do they have to -- like do they have to -- if they order 100 ULTRA capacitors, do they need to take all 100 in the year?

[Audio gap]

Exactly, Bobby. So they give us an order for an annual usage of their forecast, but they could order 1 unit or pull 1 unit off of, let's say, 100 pieces that you talked about at the beginning of the year, and at the end of the 12 months, it could take the other 99 or they could take 25 a quarter. It's very hard because with them, it's all based on the time of year, the weather, the wind speed. That's where we carry such a large inventory because they'll literally look at a web report and find that the wind speeds will be down this certain week in a certain month and asked us to ship that month. So that's kind of how it's really hard to say what the sales will be and then the backlog because of these annual contracts. But Bobby, the good news is when you see $8 million shipments that were pulled off of current orders, if the backlog stays the same, that's new orders from other customers that were coming in. And just overall, a $40 million backlog generated on products that didn't exist 4 years ago, it is a strong backlog, even if it's stayed at $40 million.

Yes. I agree with that. And so one more clarification point. So let's -- we're walking down the road of annual orders, someone orders 100 units and let's 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. Do they -- like are they -- I guess the purpose of the question is, are they contractually obligated to hit that number that they pledged to, or can they push it over to the next...

Yes.

Okay, so like -- you already know...

To give -- yes, they give us the quantity based on that quantity, we give them a price. Obviously, if 25 is larger to get a better price. And they give us [ appeal, ] and their commitment is to take those products over a 12-month period.

Okay. Got it. And then just like if you had to rank order what would be the 3 most compelling near term, call it, over the next 12 months opportunities you see in the GES segment and why.

Well, the first one is because we're quoting opportunities between $2 million and $20 million is the BES, those bookings would be huge in a given quarter. And the other two going into FY '27 and some in is new products coming out of our Sweetwater design center. We have a new PEM coming out for the 20 new meter turbines throughout the world. We have a number of accessory walk hold accessory products the Turbine Guard and others that will be just -- just finishing up beta testing now, absolutely fantastic performance. We've ordered all the housings and starting to bring in products so we can start shipping that in booking and shipping that in Q1 of FY '27. So the three would be BES and then a handful of new products, mainly the 20 net meter, we see that a very large growth area for us. And then these turbine guards, which go into every turbine that we've ever sold a pitch Energy module in. So we have a captured audience, we have the contacts and that's usually what takes the most amount of time when you're introducing a new product, who are the people that make the decisions on and on and on? Well, we've already worked with most of them for 4 years. So Bobby, the new products and the major big BES strategy that we're implementing, right? We're in the very infant stages of that.

I appreciate the color. And then just last one for me is, just a little bit more color on so that the BES demo plant that time line 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?

Yes. So it has nothing to do with us really. And if you ever built a new house in a rural area, it's getting all the hookups. They have to increase the transformer and getting something like that through ComEd, I don't know who you use, Bobby, but here in Illinois, it's just time consuming. But we do have, and they committed to it. We have a weekly call with them now, but it's just very time consuming to get them to get the the grid set up that we can put in the demo center so we can also then obviously sell back into the grid. But we'll probably proceed without it. We might just put it in place, so people can see it, see how it's hooked up to our facility because obviously, we're going to use it here and then move forward. So that's kind of the status of the BES. We just like the other programs we've done in the past with the RF microwave components and then the -- what we call project turbulence here, which is the engineered solutions. We've identified technology partners. We feel we have a couple of very strong ones for this strategy, one that will support us in the Americas, and another one that will support us globally. And that's what we're using right now to do these quotes. So we're not running in place. We're out looking for opportunities. And as you know, we identified 1 in 16-page proposal, and we won it in December. And I can tell you, it's already been shipped this quarter by about $570,000 or $590,000 our first system.

Congrats on the strong quarter.

Bobby, you're not going to ask me about GE? I waited and waited, I got good news for you. I didn't put it in.

He's already left.

Oh, he's off okay. I will talk to you later, Bobby. So to add to that, we have this program going with GE that they -- for installers that are installers or customers that have service agreements. They needed to test our product because, obviously, right now, they're 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's no difference, which you already know there's not, then they can put the design in an 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've been trying to do to use our pitch energy modules and don't replace the lead acid batteries with led acid batteries. So very positive, Bobby. We tested it here at past. I talked to Mike Rodkin yesterday, and he's just going to finish it up. So hopefully, in Q1, knock on wood, that program will be all signed off, and we'll be up and running.

Our next question comes from Ross Taylor with ARS Investment Partners.

Going over your balance sheet, it looks like you've got -- you got north of $11 a share in book value. It looks like over 80% of that book value is current assets, net current assets. And obviously, I'm curious on getting to how much of those -- of the inventory line is the tallest inventory you've built up? And how rapidly do you anticipate converting that inventory into cash.

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

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 weren't able to find those.

I wouldn't say we're going to sell off the inventory quicker because of that. It gives us comfort that we're never going to be in a position where we lose sales because we don't have product.

Okay. That's important. Can you talk about a couple of areas. One, initiatives you have, you've talked about the idea of getting more recurring business, I think one of the drawbacks stock has suffered from historically as 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 could see the fruits of that in a more stable earnings or less downside earnings fondly. And then along with that, would you also talk about the potential opportunities in the idea of artificial diamonds. You're hearing a lot of talk on the leading edge in 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's -- from my understanding, there's an initiative to push forward with turning artificial diamonds into substrate, and how you might benefit from your involvement in that space.

All right. Let me -- that's two very different long questions. Let me start with the second one...

Yes, but you're only giving me two, so I got to get them.

That counts more than two. All right, artificial guidance, we are dealing with a couple of very large customers that make those type of substrates for cooling AI. It's still using, as you call them, artificial diamonds, that's still in its early phases. We have shipped them, I think it's three now microwave generators, large generators that's the great Lakes Crystal technology company that's making those. So we will continue to participate with companies like that using our microwave generators. So it's a good opportunity, and we hear the same thing you do, Ross. Now on recurring revenue, I'm looking around the room here a little bit, I'll 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's service contract like you might be looking for, so it's recurring in that we basically have the tubes to fit those sockets. And those tubes have a limited shelf life or not shelf life, but usage life. So when those two fail, then they come back to us and they order them again, that's the strength of the MRO business and the EDG business, in particular. Now if you're talking more about service agreements and contracts, I'm going to turn that over to Greg and let him address that.

Yes. Just a couple of things to add also to jump in what Wendy said. Most of our RF and microwave semiconductor customers are looking at diamond substrates for semiconductors. It's becoming a technology of choice going from GaN and silicon carbide now diamond. And so we hope that continues because they're going to need different equipment, which 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. We have a very, obviously, very strong base business. We call it legacy, I call it legendary, the tube business. And that is pretty consistent, plus or minus 2% or 3%, obviously very profitable. And so we're using some of those profits, but also that base business, including the customers to bring in new products, and we have forecast for every product we introduced based on the number of customers, TAM, DTAM, 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's just a pretty much standard model in that we have a very strong base business. And then we continue to bring into that those similar type markets, power management and RF microwave, which are also tubes and bringing new products with the state-of-the-art technology that we can design manufacture and test here.

And can I throw 1 quick theoretical question in for Ed. I mean, presently, 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.

Well, I think we just need to continue the development of the new programs we're talking about. Every quarter, I'm sure this was coming up, our Board talks about whether or not we should buy our stock back, and we've 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.

Yes. And I wasn't going to bang my head on the buyback. Even I...

I tried to hit it on you.

Well, we're just in different places. I actually would argue your buybacks haven't been a failure. We can do that intellectually at some other point in time. But no, I do think it just -- it's an area, and I do think that these initiatives to capitate the downside in the 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 encouraged to actually value the business more appropriately.

[Operator Instructions] Our next question comes from Chip Rui with Rui Asset Management.

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'll just ask specifically if you could talk about two. One, semi CapEx has been the historical volatility for you guys. It's been a tremendous down cycle for a couple of years, but you've -- industry-wide have 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 2 or 3 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 to. So just to clarify, it's approved, it's baked. Have you actually signed off or you still need to. And just for clarity, that does open about 50% of the market that you haven't been able to touch. So just some more color on how meaningful that could be?

Yes. So the situation we have, the team obviously has done a great job selling to owner operators. As you know, we have exclusive agreements with the top 4. 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 with it whatever they want with determine. There's other customers, and that number has become lower than we originally thought. It's a much smaller percent of the owner operators that actually have GE contracts, but it's still worth this process. And so our part, they're not testing to see if it works. We've sold over 84,000 of these to date with Six Sigma like quality. We're on their website already what this program is, is if you have a service agreement with GE, and you're 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 the GE safety manual. And so we're -- the good news is they sent us the spec that they're going to test. We've already tested the product. Every one of them has worked perfectly matched up with that. We are still have sent products to them. They're going through the testing. And again, I hope this is completed by Q1. But just like NDA and this agreement that we have with them and say, gee, anymore, I have to say, a large wind turbine manufacturer, is those companies that are that large, it just takes time, but very positive, working direct with them. They're going to do the final test on the product. And what they're doing is just making sure that the ESR matches up the same with the battery, then they don't have to change the manual because there's no technical changes to the product and in the installation. Plus, as you know, we designed and developed a discharge tool that's becoming more and more popular that actually discharges all the energy in the cells in the ULTRA caps before you put it in and then before you take it out. So that's kind of the scenario with it. It's worth millions of dollars to us, but it's not a 50% increase in our SAM. It's probably about 15% to 20% increase in our opportunity or served available market. Does that explain it a little bit better?

Yes. It's great.

And then your other question was regarding the semi market, the first question.

Yes. Just it's been kind 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 2 to 3 years?

Yes. I think that what you're going to see is continued good growth in that particular part of our business. Okay?

Yes. I think what you're going to see is you're still going to have cycles, but this cycle that we're seeing now, especially in their forecast and what they're 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've seen in the past just because of all the things that many of you mentioned on the phone with the need for more sec conductors, data centers, the whole thing that this upside should last longer versus the 6- to 12-month cycles that we've seen in the past. So that's the other benefit of this. And then while that's growing before the cyclical part of it, we will hopefully be bringing in new products to balance out the downsize of the semiconductor for fab market. So when it does pick up, we use of a better term, it's gravy to our overall results.

And our final question comes from Andrew Rim with Odison Partners.

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

Do you have that handy?

I have it. Backlog for PMT at the end of the quarter was $75.4 million.

Okay. So that was up pretty substantially. I mean, I think you guys said in your prepared comments, up 15% or maybe a little bit higher?

Backlog overall -- excuse me, was up 11.4%.

Okay. So total backlog is around 153, 155 somewhere in there?

151.2.

Okay. And then in the past, you commented on what the semi wafer backlog has been. Can you comment on that? Or just maybe even in rough terms?

We'll just tell you it's up.

Okay. And then I guess, you commented on the inventory. I didn't check, but for the sales 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 sales, overall inventory is down. I think that's kind of an important metric here. So -- if you don't provide it as a footnote, I guess I would encourage you to do so because I think that's pretty important because you guys have worked hard on reducing overall inventory. So I think that's important to this story.

Thanks, Andrew. We'll take that under advisement. Good hearing from you.

This concludes the question-and-answer session. I would now like to turn it back to Ed Richardson for closing remarks.

Well, thanks again for joining us today and your questions. We look forward to talking to you again in July. We're happy to take your calls anytime, so feel we're happy to take the calls, and we're welcome to call us any time. Thank you very much.

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

Good day, and thank you, welcome to the Richardson Electronics Earnings Call for the Second Quarter Fiscal Year 2026. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Ed Richardson, CEO. Please go ahead.

Good morning, and thank you all for joining Richardson Electronics Conference Call for the Second Quarter of Fiscal Year 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power & Microwave Technologies and Green Energy Solutions Group 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're making forward-looking statements that 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'm pleased to report that Richardson Electronics has achieved 6 consecutive quarters of year-over-year growth. underscoring the progress we're making in executing our multiyear strategy. This growth reflects our continued repositioning toward higher growth end markets, and the expanding contribution from our engineered solutions. Equally important, these results are driven by the strength of our people. While investors are familiar with our senior leadership team, we've been intentionally investing across the organization to build depth, diversity and technical expertise throughout our ranks. I believe we have assembled 1 of the strongest and most motivated teams in the company's history, positioning Richardson Electronics for long-term sustainable value creation.

Looking at our Q2 FY '26 results. Total sales were $52.3 million, up from $49.5 million in Q2 of last year driven by sales growth in our green energy and Canvys businesses. Operating income improved to $132,000 versus a loss of $667,000 last year. Within our GES business unit, we're very pleased with the year-over-year growth as well as sequential quarter-over-quarter growth. Both onshore wind and EV sales were up over the prior year in Green Energy segment, reflecting higher sales from existing customers as well as sales from new products and expanded customer base. Canvys revenue exceeded the prior year by 28% on improved demand from our medical OEMs. It's important to note that the sales growth was partially offset by the inclusion of our health care business in both the current year and the prior quarters. As a reminder, we sold the majority of our health care business in Q3 of FY '25. So this will impact our year-over-year comparisons through the end of Q3 this year. We also remain focused on managing expenses and improving inventory turns. Our cash position remains strong at $33.1 million providing us with flexibility to support both our ongoing operations and strategic growth opportunities.

I'll now turn the call over to Bob Ben, our Chief Financial Officer; who will provide a detailed review of our second quarter results and capital positions. Following Bob's remarks, Greg and Jens will provide updates on our business units and then Wendy will follow up with the progress we are making executing again on our multiyear growth strategies.

Thank you, Ed, and good morning. I will review our financial results for our second quarter and first 6 months of fiscal year 2026 and followed by a review of our cash position. Consolidated net sales increased 5.7% to $52.3 million compared to net sales of $49.5 million in the prior year second quarter. When excluding health care, for which the majority of assets were sold in January 2025, net sales increased by 9.0%. Please note that health care results, including prior periods are consolidated into the PMT segment beginning in fiscal 2026. This was our sixth consecutive quarterly year-over-year increase in sales. Second quarter net sales growth was led by a 39.0% increase in GES sales, driven by an increase in power management products. Canvys sales increased 28.1% and which primarily reflected higher sales in North America. Sales for PMT were 4.0% below the second quarter of fiscal 2025. Excluding health care, PMT sales were approximately flat.

Consolidated gross margin for the second quarter was 30.8% of net sales compared to 31.0% during the second quarter of fiscal 2025. The slight decrease in consolidated gross margin was primarily due to lower margin in PMT and GES, partially offset by higher margin in Canvys. Operating expenses as a percentage of net sales improved to 30.5% for the second quarter of fiscal 2026 compared to 32.3% in the second quarter of fiscal 2025. Operating income improved to $0.1 million for the second quarter of fiscal 2026 from an operating loss of $0.7 million in the prior year second quarter. Net loss was $0.1 million for the second quarter of fiscal 2026 compared to $0.8 million in the second quarter of fiscal 2025. Net loss per common share diluted was $0.01 in the second quarter of fiscal 2026 compared to $0.05 in the second quarter of fiscal 2025. EBIT for the second quarter of fiscal 2026 improved to $0.7 million versus breakeven in the prior year second quarter. Please note that EBITDA is a non-GAAP financial measure and a reconciliation of the non-GAAP item to the comparable GAAP measure is available in our second quarter fiscal year 2026 press release that was issued yesterday after the market closed.

Turning to a review of the results for the first 6 months of fiscal year 2026. Net sales were $106.9 million, an increase of $3.6 million from $103.2 million in the first 6 months of fiscal year 2025, which reflected higher sales across our business segments, except for PMT. When excluding health care, consolidated net sales increased by 7.8% and PMT net sales increased by 5.2%. Gross margin was 30.9% of net sales which was a slight increase from the first 6 months of fiscal 2025. As a percentage of net sales, operating expenses for the first 6 months of the fiscal year improved to 29.8% from 31.1% for the first 6 months of the prior fiscal year. Operating income for the first 6 months of fiscal year 2026 was $1.1 million as compared to an operating loss of $0.4 million for the first 6 months of fiscal year 2025.

The company reported net income of $1.8 million or $0.12 per diluted common share for the first 6 months of fiscal year 2026 versus a net loss of $0.2 million or $0.01 per diluted common share for the first 6 months of fiscal year 2025. EBITDA for the first 6 months of fiscal 2026 was $4.0 million versus $1.7 million in the prior year's first 6 months. Turning to a review of our cash position. Cash and cash equivalents at the end of the second quarter of fiscal 2026 were $33.1 million compared to $35.7 million at the end of the first quarter of fiscal 2026. The Capital expenditures of $1.6 million in the second quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements and IT systems versus $0.5 million in the second quarter of fiscal year 2025. We paid $0.9 million in the second 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 the third quarter of fiscal 2026.

As of the end of the second quarter of fiscal 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, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. GES and PMT are key components of our multiyear growth plan. Coming out of FY '25, we had strong backlog. We launched several new products, expanded our customer base and advance multiple development programs from beta testing to preproduction. This momentum continued into Q1 and into Q2. Building on this progress in Q2 of fiscal year 2026, GES grew to $8.3 million, a 39% increase over prior year and a 14% increase over this year's first quarter. As we continue to see the amazing adoption of our pitch energy modules for various wind turbine platforms with owner operators and other related power management products throughout the world. PMT sales were $35.2 million in the quarter. a 4% decrease over prior year. This reflects a slight slowdown in the electronic device MRO business, offset by growth in the RF and Wireless Components business unit. Our GES strategy centers on power management applications. We've rapidly designed multiple products, secured patents and built a strong base of customers and partners.

Our success is evident in our growing sales pipeline as we capitalize on numerous growth opportunities to support new power management requirements and significant energy transformation opportunities. Our pitch Energy modules and related wind energy products led GES quarter-over-quarter growth. We continue to gain market share by developing new products and solutions that are accepted by our customers, and the team is doing a great job expanding this program globally. We serve dozens of wind turbine owners operators including exclusive partnerships with the top 4 owner operators of GE wind turbines such as RWE, Invenergy, Enel and NextEra. We also saw growth from our new multi-brand PEM turbine platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms such as 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.

We are entering the back half of FY '26 with solid momentum. We recently added key technology partners such as Kiba Goshen and Mulan, who play critical roles in both wind power management and energy storage systems. Key initiatives include faster design to production cycles supported by a new design center in Sweetwater, Texas, Suit water has 1 of the largest concentrations of wind turbine and power management engineers in North America. Expanding our design team to accelerate and enhance design cycles prior to transitioning work to our world-class manufacturing and Test Group in LaFox, Illinois. This is one of our most critical strategic priorities underway. We expect to have the Sweetwater design center fully operational in Q3 of FY '26. We are also adding key people from the industry to help expedite growth. We are on schedule to complete our Illinois-based demo center in Q4 FY '26. This demo site will allow us to showcase our active BES solutions to potential customers. We are currently collaborating with numerous customers on BES systems that we can support with our current technology partners. In fact, we booked our first system at the end of December.

Our GES products and technology partners support our niche product strategies as it appears federal subsidies will be harder to get under the current administration. Looking at our new ESS project and strategies, we are focused on sales in key states, and we'll continue to offer large subsidies such as Illinois, Massachusetts and California. We are also expediting our efforts to expand global market penetration of our power management products for green energy applications focusing on Europe and Asia. Currently, about 70% of our GES sales are in North America. Turning to Power & Microwave Technologies Group or PMT, which includes our Electron Device Group, EDG, and our legacy Tube semiconductor wafer fab equipment business and the RF Microwave Components Group, or PMG. In the quarter, we did see some sales growth, led by increased demand in our RF and microwave components business. as we see growth in RF and wireless applications such as SATCOM and military applications, including radar and drone technology. While semi fab sales were flat in the quarter, we are encouraged by our customers' forecast indicating growth for the rest of the fiscal year.

Looking ahead, we are excited about the strategic initiatives across PMT and GES, including our ESS program, global expansion of our key products and new technology partnerships. While we are navigating a higher degree of uncertainty associated with the impact of tariffs and market conditions, we are pursuing opportunities that may come from these disruptions. 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 engineering teams continue to identify new customers and opportunities. Our global capabilities and global go-to-market strategy set us apart from our competition in power management, RF microwave and green energy markets. We have developed a business model that combines legacy products with new technology partners and solutions allowing our growth strategy to deliver engineered solutions to a global customer base. This model differentiates us from our competition.

We are working on these initiatives alongside marketing our manufacturing design services to companies who need partners in the U.S. to manufacture, test and support products currently made in other countries. We acknowledge there are a lot of moving parts but we have successfully used our global resources, infrastructure and capabilities to mitigate the effect of these situations like this in the past. So in summary, we remain optimistic about our growing project-based business, even though it remains hard to forecast. We continue to increase our technology partners, design opportunities and engineering staff. We have a new technology partnerships that fill technology gaps. We have proven strategy of identifying opportunities in the multibillion-dollar markets we serve. As a result, we continue to feel FY '26 will be another growth year for both PMT and GES. And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys Engineers manufacturers 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 to our customers' needs. Canvys reported revenues of $8.8 million in the second quarter of fiscal year 2020 an increase of 28.1% from $6.8 million in the same quarter of the previous year. Our gross margin as a percentage of net sales increased to 32.6% from 31.7% in the second quarter of fiscal '25, primarily due to product mix. The backlog at the end of the second quarter of fiscal 2026 remained strong at $38.0 million, providing a robust foundation for future business. During this most recent quarter, Canvys secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation endoscopy and human machine interface HMI solutions for the control of medical devices. Furthermore, our solutions are widely utilized in various commercial and industrial applications.

For instance, our products enhance passenger information systems in trains and buses and improve HMI technologies used in printing, vending, billing and packaging equipment. Our initiatives focus on increasing Canvys' visibility and market leadership by seeking new opportunities, building customer relationships and collaborating within the industry to drive growth. Looking ahead, while the business is still project focused and can therefore vary quarter by quarter, we are cautiously optimistic about improving demand in our markets. Positive indicators such as increasing request for quotes and encouraging customer feedback suggest steady growth. Our dedicated sales team continues to explore new opportunities while are focused on implementing strategic plans to ensure sustainable growth and deliver long-term value for our shareholders. I will now turn the call over to Wendy.

Thank you, Jens, and good morning, everyone. While the remainder of our health care business, including the manufacturer and repair of certain CT tubes is included in PMT, I want to continue providing key highlights as we go through this transition period over the remaining quarters of FY '26. As a reminder, we sell CT tubes exclusively to Direct mat as part of the January 2025 sale and distribution agreements. Over the last quarter, we continued to make excellent progress finishing production of our Alta tubes. We should wrap this up by the end of third quarter of this fiscal year. We've also made good strides during the recent quarter repairing Siemens Stratton Z tubes. We are preparing to launch the repaired Siemens MX series as early as the fourth quarter of this fiscal year. Given the health care transaction occurred in Q3 FY '25, Q2 and Q3 of FY '26 will continue to show unfavorable comparisons. However, the combination of completing the production of the Alta Tubes and expanding our Siemens program for Direct Med will result in an improvement to our bottom line beginning in FY '27. Switching to an overview of our multiyear strategy. We continue to focus on accelerating growth and improving efficiency.

In the second quarter, we had significant growth in our green energy business unit, reflecting our ongoing investment in this sector and the benefit of new products generating revenue. Today, we are shipping our pitch energy modules for nearly all GE manufactured turbines to an expanded customer and geographic mix. There are several additional products in development and test that should start contributing to revenue growth in calendar year 2027. We also continue to make progress developing a world-class battery energy storage design center at our LaFox facility. As we've mentioned before, the demand for battery energy storage continues to accelerate as our turnkey solutions and technology partners position us to capitalize on that growth. In the quarter, we added several projects to our pipeline, including 1 that closed end of December.

Our made in America activities are also generating interest. We are utilizing existing customer and supplier relationships to promote our engineering and manufacturing capabilities here in the U.S. We've reached the quoting and prototype stage on several programs, primarily taking advantage of our PCB facility as well as our battery knowledge. This isn't a fast process but the upside of new programs will play a key role in fully utilizing our factory and resources. Finally, we are expecting stronger demand for our engineered solutions within the semiconductor wafer fab equipment market, well into calendar year 2026 and beyond. This growth is tied to the ongoing benefit of AI on equipment demand throughout the world. We are well positioned to benefit from growth in memory-related applications. This growth takes advantage of our existing resources and manufacturing facilities as well. We remain focused on efficiency and cash generation. The period of elevated inventory investment relating to a single critical supplier is nearing completion as that supplier prepares to exit production of power grid tubes. We expect final inventory receipts of approximately EUR 1.5 million in the first quarter of calendar year 2026, after which inventory levels should normalize and cash conversion improve.

This inventory provides product coverage through 2030. We have identified alternative supply sources with sufficient time to ensure continuity, quality and fulfillment of customer demand. Outside this area of growth, we continue to focus on controlling inventory and improving turns. We have also initiated a disciplined cost-controlled effort to explore the benefits of AI and by creating an enterprise-wide AI steering committee. This effort is expected to create a road map focused on practical high ROI applications across our global operations. The goal is to drive efficiencies, improve decision-making and reduce manual workload while maintaining strong governance around security, data privacy and responsible AIUs. Importantly, this initiative is designed to leverage our internal teams with clear milestones and tight scope controls, ensuring we capture meaningful benefits without significant incremental cost.

Longer term, we remain focused on driving growth through a combination of organic initiatives and a disciplined approach to acquisitions. We continue to evaluate opportunities thoughtfully with an emphasis on leveraging our existing capabilities and global infrastructure to support sustainable growth. We believe our current strategic initiatives position us well to drive revenue and profitability over time while we remain patient and selective as we consider potential longer-term acquisition opportunities. I'll now turn the call back over to Ed.

Thanks, Wendy. In closing, our results this quarter demonstrate the strength of our strategy and the resilience of our business model. It also reflects the talent of this management team to adjust the constantly changing market conditions. By sharpening our focus on repeatable sales, driving strong cash flow and building on our scale across power management and alternative energy solutions, we're positioning the company for long-term success. At the same time, we remain disciplined in our commitment to improving profitability. These priorities give us the confidence in our ability to deliver sustainable value for our shareholders, customers and employees as we move forward. We'll now open the call for questions.

[Operator Instructions] Our first question will come from the line of Bobby Brooks from Northland.

You mentioned how overall -- you mentioned how overall GS backlog declined, but that core backlog grew. Could you just discuss what would be considered core backlog versus noncore?

Sure, Bobby. This is Greg. So the backlog -- so sales were up 39% and backlog was down $57,000 -- that's not too bad. You go 39% in your backlog going to decrease is 57,000. So when I talk about core backlog, we have the products that you and I have talked about, the pitch energy modules and everything else. We also have a group of customers that are -- we're selling components into that are building green energy products. It's a much smaller portion of GE -- but that's what we call the noncore and that book-to-bill was down. But if you look at the core business, which is 95% of it, the book-to-bill was 1.10 on 39% growth and of course, 15% above that. So we're very excited about the business -- core business that we talked to you about that you know about. Those are the products that are growing.

Got it. That's helpful and really good to hear. And then maybe what's -- what's the right way to think about cadence of orders turning to backlog and then revenues within GES? Like are there certain product lines that can be booked and shipped inter-quarter? And and that maybe was a dynamic that spurred the strong GES sales in the quarter?

Exactly, Bobby. So as these products come out, they go from alpha beta to production, and then once that happens, you see we have new customers every quarter, new sales. And so that business is what led to the growth. And as you know, we're expanding that model, which is about 85% North America expanding it into Europe. So we had wins in Europe that we booked and then wins in Asia that we booked. So that core business that we talk about -- that's growing quite heavily, and we continue to get new customers and backlog. So we're starting to understand what the annual usage is. And so we're trying to get ahead of the game and build products for stock. It's a guessing game. They do give us a forecast, but they're terrible forecast. So in Q2, we did ship a lot of product from stock. So that's a book-to-bill of 1 that's flat bookings or backlog, and that's where you saw it. So the team has done a great job working with these key customers, trying to develop their annual needs. And then when they come in, for 1,000 units, just kind of out of the blue Bobby, I know a couple of those were able to ship from stock. So that's how it's working. And we're continuing to try to make sure we have inventories so we can ship from stock. But in a very positive way, we're seeing higher demand than what we're building.

Our next question will come from the line of Anja Soderstrom from Sidoti.

I'm just curious with the approval list for the Alpha-1 we -- and what kind of opportunity could that present?

At again, Ana. For the what product?

The out 1,000 for the GE approval list.

I think is asking about the GE, where do we stand with GE getting approval. -- for the -- for your Ultra 3000.

Yes. So Anja, we have GE approval. We're the featured product on their Internet site or their marketplace product. What -- we're not driving this. This is being driven by their customers. So NextEra and InverEnergy, has been pushing GE because they have a handful of sites where they're using GE services to do maintenance and service. And so -- all we need to do is have GE. We're going to send them some product, and they're going to try to literally blow it up. I mean it's all about what this product will do so they can improve it from a safety point of view. From a performance point of view and working in their turbines, that's already been approved, that's already done. So we've been going back and forth with an NDA, I've worked for a $30 billion company -- for the $30 billion company before, and it just -- it takes time. So we have an agreed NDA. We signed it, we sent it back to them. We're expecting it back. But I will tell you, Anja, these people aren't waiting. In fact, we booked a large number of business that they said, "You know what, will outsource this ourselves. We won't use GE services to install these Ultra3000s, which we've been buying for other sites for 3 or 4 years.

So it really right now, I don't see it being a slowdown of any sort. We have more than enough business right now. It will be an upside. But I wouldn't doubt if they just say, "You know what, we're not going to use your services to do our pitch energy modules because -- these things are such a cost savings to these owner operators and the eliminate a huge problem that they have, I don't think they're going to wait for this. So this is being driven by GE's customers. We're just supporting it. But again, we finally have an agreed NDA because I'm not sending them any product without an NDA. We're going to send them products here this quarter, they'll test them, and then they'll say, okay, their service group can install these into the turbines. But it's interesting, some of these owner wrappers aren't waiting for them. They're just doing it themselves and installing it themselves or outsourcing it.

Okay. That was helpful. And then what's kind of margin impact does the medical have. What kind of opportunity do you see there as you conclude that supply agreement?

Okay. So this is Wendy. Year-to-date, the overall hit to the gross margin in PMT has been almost negligible. It's about a 0% gross margin, so we're not experiencing a huge hit there. It's the addition of the SG&A. And on a year-to-date basis, while we're doing better than we anticipated with that, we still are losing money. As we mentioned in the call, we anticipate finishing up the Alta 2 production in the third quarter. And when we conclude that, and we're focusing them strictly on the repair of the Siemens tube, we expect that to turn to a profitable bottom line contribution. So I'm estimating, we're estimating at this point that, that will begin in Q1 of FY '27. And but we're going to do everything we can to pull that into Q4.

Okay. And then you're sitting on some cash, and we expect cash flow to improve as you are finishing building up the inventory for the powergrid tubes. What do you -- what do you plan to do with all the cash?

Well, I'll jump in first and then Ed and Bob can also contribute. The first thing we always remind everybody on yes, the cash is spread out throughout the world. And I believe today, about 70% of it sits outside the United States in various legal entities. And that cash has to stay there. So while it looks like -- I mean, $33 million is a great number, and we're going to continue to focus on growing that. Please do remember that some of that is not in the United States. So we're going to continue investing in the growth initiatives primarily in the alternative or green energy solutions part of the business. Greg mentioned the Sweetwater, Texas facility and improving our new product development cycle. We're looking at some additional both sales and engineering resources that support that business. So we really want to hold that money that we have in the United States for those type of investments. We are continuing to be very opportunistic and open-minded about small acquisitions. Those would be ones that would be easily bolted on. Again, focused primarily in alternative or power management and focused in areas where they bring in engineering or some type of product that is unique or exclusive to the market. So those are the areas where we're really holding our cash. Ed and Bob may want to add to that.

I can add to that. Anja, it's Bob Ben. Just to let you know, we do -- the cash that we have on hand that we're not necessarily using on a daily basis. We have invested in various money markets, and we're getting an average yield of about 4% right now, just under $10 million of our total cash is invested in that. And so we are we are doing that, and that's what you see on the income statement as investment income, which is located in the other income section of our income statement.

Okay. And then a last question in terms of the summer conductor. What do you see there? And do you still expect that to pick up in the second half of 26

In the semi fab equipment market. Is that your question Anja?

Yes.

Absolutely. For all of our customers in that market segment, they are anticipating solid growth through the rest of calendar year 2026 and beyond. And we're starting to see some of that in our more near-term forecast.

Our next question will come from the line of Chip Rui from Rui Asset Management.

I want to follow up on the semi question that was just asked. I mean it seems memory has gone from debt on arrival of the hottest being out there. I know you've not exclusively memory, but you both sides. But has there been a cadence shift with what your customers have talked about. I know last quarter, Ed said you would finally kind of worked through kind of end customer inventory. Can you just give us a little bit more visibility on perhaps a cyclical recovery there? It seems you're still a little low from a revenue and earnings point of view, but historically a large contributor for the company -- so kind of when you say there's a better outlook, is it inflected positively? Or are you still hoping it will positively A little more color on that would be great.

So I'll start on that, Chip. So as I mentioned, we're starting to see stronger forecast for our Q3 and Q4. Bear in mind that the forecasting is not always the best and it tends to bounce around a lot as we've been discussing really for the last couple of years. But we do see, again, across multiple customers within that channel their input to us is get ready. We are ready. We have the resources. We have the space. It's not going to cost us a lot of money in terms of realizing upside. I also want to point out that on a year-to-date basis, Q1, Q2, we're still up considerably over prior year's first 2 quarters. So we are cautiously to more than cautiously optimistic about Q3 and Q4, and we're ready. So I don't know if that answers your question, maybe you could follow up if you have anything more you want to know.

No, that's helpful. I just -- I know it's up a little bit, but we're still -- it seems like the industry is gearing for a pretty big upcycle, even though you're up, you're still nowhere near where you were a couple of years ago. So hopefully, it's some upside. And then I'll just make a comment on the buyback. I've never pushed you guys to buyback. I understand where your cash is globally. But everybody on the call was bullish across the board this morning. From pitch energy, not only with GE to global, it seems semi is getting better. You've got new product development. It seems to me the enterprise is inflecting positively on multiple levels. Yet your stock is once again down and the analysts are focused on backlog and sequential margin I know you don't have a lot of cash, but $3 million or $4 million of that cash could be a couple of percent of your market cap. You also have an undrawn revolver, which would be in the U.S. My recommendation is carpedium. I mean, if there's a time to buy stock, it's when it's down. And when people don't see the vision that you guys see, it seems to me if -- what you're saying comes to fruition, this is just an incredible opportunity. So I'll leave that as a comment.

Thanks, Chip. We appreciate the input.

[Operator Instructions] Our next question will come as a follow-up from Bobby Brooks from Northland Capital.

Could we maybe just discuss the growth initiatives that you guys launched a couple of quarters ago and kind of how those are progressing in a little bit more detail. Just curious to hear more on that.

Are you referring specifically to the Maiden America program or specific products than to Green Energy?

Just kind of broadly any growth initiatives that came that kind of step from the cash that you got from some of the health care business.

I can talk a little bit about the PMG and and GES business. So as you know, Bobby, the growth initiatives were: one, to expand internationally, the product to implement our energy storage system program and continue to add new products. And all of those were successful the past 2 quarters. So on the global expansion, as I think we've talked about, we now have orders and have shipped orders into Asia and Europe. We are coming out 3 new products -- I'm sorry, 2 new products in Q2 from our new Sweetwater design center that are already in beta testing with a couple of very large owner-operators. So we'll introduce those and we fully expect to start receiving bookings for that. And on the ESS side, we rolled it out. We have technology partners. And in December, we booked our first order for energy storage system with the town of the city or City of Goleta, California for their water waste treatment facility. We will also be supplying the solar panels for that and the energy storage system. Through that process, it kind of confirmed that our niche approach going after utility and small -- comparatively small, very large to us, 2-megawatt type systems that was booked in December.

And we have a list of other ones that we're pursuing in quoting. These codes are 10 to 15 pages a piece. But we're still very excited about our strategy in terms of technology partners that component business grew, our Engineered Solutions business grew. We've added new products and then the BS thing as we grow it really feel strongly, especially for the state of Illinois. Once that demo center is in place and people can see it, see how it works and c, we would train them and educate them on how to get all these rebates that. The state of Illinois gives the best in the nation, in [indiscernible] California. So those are our main initiatives, and we have traction I'm not a patient person. It's never been one of my attributes to the few I have. But we continue to push, and we continue to, every month get some sort of success and a handful of indications that we have the right strategy, the right technology partners and a real niche that we found in these multibillion-dollar markets.

I was just going to add in terms of other investment areas. When you look at our SG&A, you're going to see that's relatively flat. Our headcount is flat. What we're doing there is as we have normal turnover. We are reallocating those resources to the high-growth areas that Greg just went through. So you're not -- no one should expect a huge pop in the SG&A as a result of these investments. We've talked about the spend on the Thales inventory, and that should be ramping up. So that's one1 area where we've continued to spend some money on CapEx. Bob mentioned in his script that we've made some necessary facility and IT improvements. We also added a second PC board layout facility here, which is playing in nicely with the Made in America initiative that we launched a couple of quarters ago. So in general, I think what you're going to see is us moving some things around, again, rationalizing and gaining efficiency from a lot of the people and the resources that we already have.

That's great to hear. And then just 1 clarification, Greg, in your opening remarks, you kind of mentioned some tailwinds in the P&C business and some -- and what seemed to be some headwinds in the business as well, like that occurred intra-quarter. Could you just expand a talk about that again and maybe expand on it a little bit more? Or -- and maybe I was missing the ball too.

Yes. I mean I don't know of any substantial tailwinds in PMT. We obviously have a good grasp on the semiconductor market. We have seen some strong revenue and bookings on the RF and wireless side. We're seeing -- and just a reminder, Bobby, at 1 time before we sold it, that group was up to $0.5 billion. So we know that market very well, and we have a lot of relationships, and we have probably some of the best RF and wireless suppliers in the world. And we're really seeing some traction again in the quarter from a tailwind point of view in the SATCOM and he actually drone markets. And so that was a nice pickup for PMT anyway in terms of sales. It's a lower-margin business. It's demand creation, but it's components made by our technology partners. So that maybe is somewhat of a tailwind in terms of where we saw some upside in PMT. And then where we'll see some upside going forward.

Wendy, I'm at Mayo Clinic, everybody. I got -- I have to go to meet with my surgeon. However, the last time I was here was 3.5 years ago with a hip replacement, in a half hour after that surgery, I got a call from NextEra with a $10 million order. So I might stay here the weekend and see if I can pick something else up.

Our next question will come from the line of Ross Taylor from ARS Investor Partners.

A couple of quick questions. One, with regard to the semi-cap equipment space, have you guys built prebuilt product for that, it's something on your work in progress or your finished goods inventory line there that you've been -- because you've been preparing for this for some time. It seems that they have been a little slow getting the pull-through.

Ross, yes, we do that where we can. I think we've described the business before as being very high mix, low volume. So it's not the -- it's not like the Ultra PEM or the Ultra 3000s where we can build them. It's all the same products. So we don't have the kind of inventory that maybe you envision of having thousands on the shelf ready to go. -- but we have good exposure and good track record in terms of what the demand is. And we are certainly doing everything we can to make sure that when those orders come in, they go out almost instantaneously. So little bit of a mixed answer there for you.

Okay. And that's still -- should be -- historically, it's been I think about your highest margin business. And I would assume that should you get back to more aggressive run rates, that would return.

It's a good business for us.

Okay. Another quick question. Can you talk about -- give more color on the battery storage opportunities? And what kind of magnitude, what kind of time line are we looking at in that space because it's a fairly -- I mean, it seems to be a very important area we're seeing, whether it's AI data centers or quite honestly, just even factors or others given the nature of the grid.

So Greg, just dropped off, Ross, that would be an area for him to address. But what we can tell you is that his list of opportunities continues to grow. They range right now in size, magnitude anywhere between maybe $0.5 million on the small end to a couple of million or more on the large end. He is focused and the team is focused heavily in the industrial and commercial market, more of the let's look at it as kind of Tier 2, not the data AI centers per se. Those might be a little bit bigger than what we're planning to build. But it's an area where we've seen a lot of strong interest particularly in the states that Greg mentioned where the states are still providing a lot of incentives. But I don't think anybody can pick up anything and read anything without seeing the growth in energy storage requirements. So we fully plan to take advantage of that. And we'll try to bring some more color to that in the next call.

Okay. And do you think One of the philosophical, you and I've had this question, one of the things that this company has struggled with is it's historically been more of a project-based business. Do you see some of these things we're talking about here, becoming basically run rate businesses where we can kind of see a more steady annual flow through in top and bottom line.

I think you see that already. Certainly, you see that in EDG. We've talked about that. I think you're seeing it in the green energy piece with the wind. And I would expect that not only to continue to grow as we expand both the customer base and the geographic area that we cover I think those -- I call those bread-and-butter items. I love them because to your point, they're going out on a regular cadence. Some of the train, the EV rail, the, for example, the starter modules those will be more steady run rate. But we always are focusing on and trying to focus on products that will apply to a much broader market, not simply 1 customer or 1 program.

And obviously, success there would be, I think, important it would take away a lot of the volatility in earnings. And I will offer my comment on buyback. I think my position on it is well known. It's been voiced many times on these calls in the past. What I would say is, I can't believe that your Board doesn't think this company is worth substantially more than book value and you're currently trading at or under book with a substantial 20% of that being cash here or overseas? And so I know what I'd be saying if I sat on your Board, I'd be arguing that this company is worth a lot more than book, and you should be quite comfortable buying it back at or at under and even around book. It got coming from, I think, a long-term shareholder, but someone who really would love to see you guys start to actually become a little more proactive. Don't be so afraid of a tiny little level of debt. So I support the earlier comment that even going into your revolver to buy back $4 million or $5 million worth of stock would be, I think, greatly appreciated by the market and would be reflected in the share price.

And our last question for today will come from the line of Brett Davidson as a private investor now.

I realize Greg has dropped off the line, but I'm hoping somebody can provide some level of update on the electric locomotive product lines and the manufactured diamond product lines.

All right. I'll start with that. So let's take the latter 1 first on the diamond -- what we've seen there in that market, and I think again, everybody has read about is that, that market became very quickly saturated, oversaturated the synthetic diamond market. And as a result of that, we've seen a slowdown in the demand for those magnetrons that are used in the equipment that manufactures the diamond. When Greg referred earlier to some of the other elements of green energy solution being down, that's one of them. So in that area, it's still out there. We're still selling them. It's just again, an overcapacity of equipment already on the market and certainly an overcapacity of the synthetic diamonds. All right, in terms of the EV rail market, I think Progress Rail recently put out some of its own press that they have recently shipped to the large train to Australia. So we're pleased to see that. You may recall in FY '23, we shipped a significant amount of batteries that are used in those trains. So we're going to sit back on the sidelines and see how those 2 trains perform in Australia and what that means for the future.

On a more steady cadence basis, as I just referred to in my answer to Ross Taylor, is that we are now shipping on a regular run rate, the starter modules, and we expect to see some upside there. So in general, I would say that the EV rail market certainly is favoring more of a hybrid approach. This is outside of Richardson. This is the general market. More of a hybrid approach, but our starter modules, they are used in any train, whether it's diesel, electric or hybrid. So we remain optimistic about growth in that segment of the business as well.

Thank you. And I'm not showing any further questions in the queue. I would now like to turn the call back over to Ed Richardson for closing remarks.

Thanks, Victor. Well, thanks again for joining us today and for your questions during Q&A. We look forward to discussing our performance with you in April. And until then, please don't hesitate to call us at any time. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the Richardson Electronics Earnings Call for the First Quarter of Fiscal Year 2026. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the call over to your speaker today, Ed Richardson, CEO. You may begin.

Good morning, and thank you all for joining Richardson Electronics conference call for the First Quarter of Fiscal Year 2026. We appreciate your continued support and interest in Richardson Electronics. Joining me today are Bob Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer; Greg Peloquin, General Manager of our Power & Microwave Technologies Group, which includes Green Energy Solutions; and Jens Ruppert, General Manager of Canvys.

As a reminder, this call is being recorded and will be available for playback.

I would also like to remind you that we'll be making forward-looking statements that 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.

In Q1 of FY '26, total sales were $54.6 million up from $53.7 million in Q1 of last year, driven by sales growth in both PMT and Canvys. PMT delivered notable year-over-year sales growth driven by continued strength in our semiconductor and RF power segments.

It's important to note that sales growth was partially offset by the inclusion of our health care business in both the current and prior quarters. As a reminder, we sold our health care business in Q3 of FY '25 so this will impact our year-over-year comparisons through the end of Q3 this year.

The health care engineering and manufacturing team is making good progress, finishing production of ALTA tubes and finalizing repair processes for the Siemens tubes which should result in positive operating contribution towards the end of FY '26.

Within our GES business unit, we're very pleased with the year-over-year growth in the wind segment. The performance provides us with growth evidence that the policies from the current administration are not hurting demand of our alternative energy solutions. We believe our wind business is protected because we're pursuing programs strictly on our land-based turbines, support global customers and providing solutions that improve their performance and efficiency of the existing fleet. While overall sales were down slightly in GES, this was driven by a large onetime order in our EV rail sector in the first quarter of the last year that did not repeat this year. Backing out this sale, GES would have been up quarter-over-quarter.

A strategic priority of the company is engineered solutions, which are products we make ourselves in a LaFox. The strategy focused along with improved manufacturing utilization in the quarter contributed to the higher gross margin versus prior year. The long-term investment in our global footprint is also strength helping us better manage the tariff landscape.

Finally, we're pleased to report that we generated positive operating cash flow in the quarter marking six consecutive quarters. Our cash position remains strong at $35.7 million providing us with flexibility to support both our ongoing operations and strategic growth opportunities.

I'll now turn the call over to Bob Ben, our Chief Financial Officer, who will provide a detailed review of our first quarter results and capital position. Following Bob's remarks, Greg and Jens will provide updates on our business units. And then Wendy will follow up with a recap on our future growth strategies.

Thank you, Ed, and good morning. I will review our financial results for our first quarter fiscal year 2026, followed by a review of our cash position. Consolidated net sales for the first quarter of fiscal 2026 increased 1.6% to $54.6 million compared to net sales of $53.7 million in the prior year's first quarter. When excluding health care, for which the majority of assets were sold in January 2025, net sales increased by 6.8%. Please note that health care results, including prior periods, are consolidated into the PMT segment beginning this quarter. This was our fifth consecutive quarterly year-over-year increase in sales.

First quarter net sales growth was led by a 2.8% increase in PMT sales. Excluding Healthcare, PMT sales were up 10.5% and were due to higher demand from the company's semiconductor wafer fab customers as well as our legacy power grid to product lines. Canvys sales increased 8.3%, which reflected improved market conditions in Europe. Partially offsetting these increases was a 10.2% decrease in sales for our GES business unit. While revenues in the wind segment increased, they were offset by the nonrecurrence of a large EV locomotive order from the prior year's first quarter.

Consolidated gross margin for the first quarter was 31.0% of net sales compared to 30.6% during the first quarter of fiscal 2025. The 40 basis point increase in consolidated gross margin was primarily due to margin improvement in both PMT and GES. PMT's gross margin increased to 31.3% from 30.1% as a result of a favorable product mix and improved manufacturing absorption. GES gross margin increased to 29.6% from 29.4% due to product mix, including a higher percentage of products we manufacture in LaFox. Lower gross margin for Canvys partially offset the improvement in consolidated gross margin.

Operating expenses as a percentage of net sales improved to 29.2% for the first quarter of fiscal 2026 compared to 30.0% in the first quarter of fiscal 2025. As a result, operating income was $1.0 million for the first quarter of fiscal 2026 compared to an operating income of $0.3 million in the prior year's first quarter.

Other income totaled $1.4 million for the quarter, which was $1.1 million higher than the first quarter of fiscal 2025. The increase from the prior year's first quarter was mainly due to a nonrecurring gain of $0.9 million from a confidential contractual settlement.

Net income was $1.9 million for the first quarter of fiscal 2026 compared to $0.6 million in the first quarter of fiscal 2025. Earnings per common share diluted were $0.13 in the first quarter of fiscal 2026 compared to $0.04 in the first quarter of fiscal 2025.

EBITDA for the first quarter of fiscal 2026 was $3.3 million versus $1.7 million in the prior year's first quarter. Please note that EBITDA is a non-GAAP financial measure and a reconciliation of the non-GAAP item to the comparable GAAP measure is available on our first quarter fiscal year 2026 press release that was issued yesterday after the market closed.

Turning to a review of our cash position. Cash and cash equivalents at the end of the first quarter of fiscal 2026 were $35.7 million, compared to $35.9 million at the end of fiscal 2026. Cash flow provided from operations was $1.4 million compared to cash flow provided from operations of $0.4 million in the first quarter of the prior year.

Capital expenditures of $1.0 million in the first quarter of fiscal 2026 were primarily related to our manufacturing business, facilities improvements and IT systems versus $0.9 million in the first quarter of fiscal year 2025.

We paid $0.9 million in the first 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 the second quarter of fiscal 2026.

As of the end of the first quarter of fiscal 2026, the company had no outstanding debt on its revolving line of credit with PNC Bank. In addition, we have extended this credit agreement through October 6, 2028, with similar terms and a $20 million borrowing limit.

Now I'll turn the call over to Greg, who will provide more details for our PMT and GES business groups.

Thank you, Bob, and good morning, everyone. PMT and GES are key components of our multiyear growth plan. Coming out of FY '25, we had a strong backlog, launched several new products, expanded our customer base and advance multiple development programs from beta testing to preproduction.

Building on that positive momentum, in Q1 fiscal year 2026, PMT, excluding health care, grew to $37.8 million, a 10.5% increase over prior year and a 5.1% increase over Q4 fiscal year 2025. GES sales were $7.3 million, up 35.5% over fiscal Q4 2025 and down 10.2% year-over-year due to a multimillion dollar EV locomotive billing that did not repeat this year and without which GES would have been up in the quarter versus prior year's first quarter.

However, on a positive side, the core wind turbine business grew 86.1% over prior year and 16% over prior quarter, supported by new customers, global expansion and new products. Our pitch Energy modules and related wind energy products lead GES quarter-over-quarter growth. We continue to gain market share with our end customers by developing new products and solutions that they are incorporating. Today, 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 in our new multi-brand PEM turbine platforms. We continue to grow this program internationally, expanding into Europe and Asia with new products for other turbine platforms such as Suzlon, Senvion Nordics and SSB. We have now received orders from customers in Australia, India, France and Italy.

Our GES growth strategy centers around power management applications. We rapidly designed multiple products, secured patents and built a strong global customer base and partnerships. Our success is evident in our growing pipeline as we capitalize on numerous growth opportunities to support new power management requirements, significant energy transformation and wind turbine repowering projects.

We're entering Q2 FY '26 with solid momentum. We have recently added key technology partners, such as [ Ciba, Goshen and Wulang ], who will play critical roles in both wind power management and energy storage. Key initiatives include faster design to production cycles, supported by a new design center in Sweetwater, Texas. Sweetwater has one of the largest concentrations of power management and wind turbine engineers in North America, expanding our design team to accelerate enhanced design cycles prior to transitioning the work to our world-class manufacturing and test group and LaFox is one of our main strategic priorities this year. We expect to have the Sweetwater Design Center operational in Q2 FY '26.

Turning to Power & Microwave Technologies Group or PMT, which includes Electron Device Group, our legacy Tube and semiconductor wafer fab equipment business; and RF and Power Microwave Components Group, or PMG. In the quarter, sales growth was led by increased demand in both our RF and microwave components business. As we see growth in RF and wireless applications such as Satcom and military applications, including radar and drone technology. We also saw continued growth in the fourth straight quarter among our semiconductor wafer fab manufacturing customers. Looking ahead, we are excited about the strategic initiatives across PMT and GES, including our ESS, or energy storage system program, global expansion of our green energy products and new technology partnerships.

While we are navigating a higher degree of uncertainty associated with the impact of tariffs and market conditions, we are pursuing opportunities that may come from these disruptions. We're investing in infrastructure, expanding our design and field engineering teams enhancing our in-house design and manufacturing capabilities to support growth demand and innovation.

Our field engineering team continues to identify new customers and opportunities. Our global capabilities and global go-to-market strategy set us apart from our competition in the power management, RF microwave and green energy markets. We have developed a business model that combines legacy products with new technology partners and solutions, aligning with our growth strategy to deliver engineered solutions to a global customer base. This model differentiates us from our competition.

Our GES products and technology partners support our niche product strategies as it appears federal subsidies will be harder to get under this administration. Looking at our new ESS project and strategy, we are focused in key states that will continue offering large subsidies such as Illinois, Massachusetts and California. We are expediting our efforts to expand our global market penetration of our power management products for green energy applications, focusing particularly on Europe and Asia as currently about 70% of our GES sales are in North America. We are working on these initiatives alongside marketing our services to companies who need partners in the U.S. to manufacture, test and support products currently made in other countries. We acknowledge that there are a lot of moving parts and end nodes in this market right now, but we have successfully used our global resources and capabilities to mitigate the effect of situations like this in the past.

In summary, we remain optimistic about our growing project-based business, even though it remains hard to forecast. We continue to increase our technology partners, design opportunities and engineering staff. We have new technology partners that fill technology gaps. We have a proven strategy of identifying opportunities in this multibillion-dollar market reserve. As a result, we feel FY '26 will be another growth year for both PMT and GES.

And with that, I'll turn it over to Jens to discuss Canvys.

Thanks, Greg, and good morning, everyone. Canvys 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 to our customers' needs.

Canvys reported revenue of $8.3 million in the first quarter of fiscal year 2026, an increase from $7.6 million in the same quarter of the previous year. Our gross margin as a percentage of net sales decreased to 30.9% from 34.3% in the first quarter of fiscal year '25, primarily due to product mix and higher inbound freight costs. The backlog at the end of the first quarter of fiscal 2026 remained strong at $38.4 million, providing a robust foundation for future business. During this most recent quarter, [ Henry ] secured orders from both repeat and new medical OEM customers for a range of applications. Our primary focus remains on robotic-assisted surgery, navigation endoscopy and human machine interface solutions for the control of medical devices.

Furthermore, our solutions are widely utilized in various commercial and industrial applications. For instance, our products enhanced passenger information systems in trains and buses and improve HMI technologies used in printing, vending, billing and packaging equipment. Our initiative's focus on increasing Canvys' visibility and market leadership by seeking new opportunities, building customer relationships and collaborating within the industry to drive growth.

Looking ahead, while the business is still project focused and can therefore vary quarter-over-quarter, we are cautiously optimistic about improving demand in our markets. Positive indicators such as increasing request for quotes and encouraging customer feedback suggest steady growth. Our dedicated sales team continues to explore new opportunities while I focus on implementing strategic plans to ensure sustainable growth and deliver long-term value for our shareholders.

I will now turn the call over to Wendy.

Thank you, Jens, and good morning, everyone. While our health care business is now included in PMT, I want to provide some additional color as we go through this transition period over the next several quarters. As a reminder, we sell CT tubes exclusively to DirectMed as provided under the terms of the January 2025 sale and distribution agreements. I am pleased to convey we are making excellent progress finalizing production of our ALTA tubes. We've also made good strides over the last quarter, validating new equipment and materials required to improve our processes for the prepared Siemens tube types.

Comparable health care sales throughout most of FY '26 will be lower than prior year, given DirectMed acquired the Healthcare parts business. The sale concluded in January 2025, so this unfavorable comp will continue through Q3 FY '26. We anticipate the financial impact of the retained CT tube business will turn positive in the fourth quarter of FY '26 or shortly thereafter.

Last quarter, after the sale of Richardson Healthcare, we discussed our focus on accelerating growth and improving efficiency. In the first quarter, we were pleased to see year-over-year growth in PMT and Canvys as well as the wind energy portion of GES, reflecting our ongoing investments in these sectors. Of particular importance is the success we continue to see with our Engineered Solutions growth strategy.

We also see some initial benefits from the Big Beautiful Bill. There are implications in the bill that are fostering wind turbine repowers, which lift sales of our wind turbine modules as well as sales of products from our technology partners. Wind management companies need to upgrade their towers to receive comparable tax benefits in coming years.

In the quarter, we announced our participation in the REV, Illinois program, which provides significant tax credits and return for investment in alternative energy technology development in the State of Illinois. We're making progress developing a world-class battery energy storage demonstration site at our LaFox facility. As we've mentioned before, the demand for battery energy storage continues to accelerate and our turnkey solutions position us to capitalize on that growth.

Our Made in America marketing campaign recently kicked off with the addition of a dedicated business development manager. We are highlighting our capabilities on our website and through trade show attendance.

In addition, we are leveraging our existing sales organization and global customer relationships throughout the company.

Finally, we are seeing increasing demand for our engineered solutions in the semiconductor wafer fab equipment market. Our large customers in this segment indicates the same growth relating to the ongoing benefit of AI on equipment demand throughout the world. Rest assured, the management team remains focused on efficiency and cash generation as well.

The end of the significant inventory growth in support of one of our largest suppliers who will soon terminate production of power grid tubes is in sight. In this regard, we are working closely with other partners to ensure ongoing sources of supply, but we are in a good inventory position to execute this strategy over several years. Longer term, we remain committed to driving growth both organically and through strategic acquisitions.

We're being thoughtful in our approach. We are looking for the right opportunities to utilize our capabilities and accelerate our growth while making full use of our global infrastructure. We believe our current strategic initiatives will drive revenue and profitability growth over the next several years, while we consider longer-term strategic acquisitions that further enhance our business.

I will now turn the call back to Ed.

Thanks, Wendy. In closing, our results this quarter demonstrate the strength of our strategy and the resilience of our business model. By sharpening our focus on repeatable sales driving strong cash flow and building on our diversity across power management and alternative energy solutions. We're positioning the company for long-term success. At the same time, we remain disciplined in our commitment to improving profitability. These priorities give us confidence in our ability to deliver sustainable value for our customers shareholders and employees as we move forward.

We'll open the questions now.

[Operator Instructions] Our first question will be coming from Robert Brooks of Northland Capital Markets.

I wanted to ask you on where we're at with the ULTRA3000s getting on to GE's approved aftermarket vendors list. On the last -- on your fourth quarter call, earlier this summer, you had said that you did a final test in June and the engineering team sent it to GE Legal and it was sitting there, but that all indications were that the service agreements were not going to be jeopardized if the ULTRA3000s are used. And so I just wanted to hear where that's sitting or any new developments on that?

Bobby, they update me every week. We actually talked to GE about other things, this included. So we're in communication with them. Their engineering team have signed off on it and the last communication, which was last week, was that its final signatures from legal, they're still waiting on it, and it was promised to us here in the next week or two. So that's the status of it. Once we get that final signature from their legal team, we will send them a number of units, they'll test them, mainly for safety, not for function, but for safety because their installers will be working with it. And so once that's done, they'll approve it.

And then along with that, not only are we pushing if you will, GE, but also two of our largest owner operators are also pushing it because they have both TSAs and their own repair.

So the short answer, which I just went long on is we expect it to be signed in the next couple of weeks. They'll do the audit of it for quality, safety, and we fully expect sign off here in Q2 at some point.

Got it. And then the semi fab sales were up 52% year-over-year, which is great to see. But I just wanted to make sure I'm thinking about it right, wasn't 1Q last year, we were at like a trough level for those sales? And then the follow-up is, would you expect that year-over-year growth rate to continue through your fiscal '26 or maybe at the minimum, the nominal level of semi wafer fab sales in 1Q stay consistent through fiscal '26?

Yes, you're correct, Bobby. Q1 of last year was the lowest quarter of the year for Lam, although they recovered very well. And we don't get a lot of visibility from them but the most recent information that they've put in the portal, it looks like that these larger numbers they've been talking about now, which seems like a year or two, we should start seeing strong, strong growth in Q3 and Q4 of our fiscal year. But we'll kind of be at the same run rate here in Q1 and Q2 with the large growth in Q3 and Q4 based on their forecast, which is -- a forecast.

And our next question will be coming from Anja Soderstrom of Sidoti.

I'm just curious with the [indiscernible] you noted from certain conferences around the world. How meaningful with them? And how do they compare to the actual opportunity there?

I'm sorry, could you repeat that?

Global [indiscernible] outside the U.S. what were sales like?

Yes. So we've launched it hard to produce this product globally with our -- the customer base. It's a smaller market than North America, but still a very strong market for us. We've been able to do a great job in introducing four new platforms, which will be more popular in Europe than GE, Nordics, Symbion, Suzlon and SSB we've done already in Q4 and part of Q1, alpha beta testing with customers in Australia, India, France and Italy, and they've approved that, and we've already received orders in our Q1 from customers in those 4 countries.

And we look at this every week. If I look at the document that we track, all the opportunities that we're currently working on in terms of our teams worldwide, it's getting up to two or three pages. So it's active. It's just an education process to these customers that is available -- and this product is available for their specific turbines. And then, of course, like we did with North America, you'll have alpha testing, beta testing and then final production. But I would say it's not going as fast as we like nothing ever does. But we're getting some good traction expanding this capability, if you will, outside of North America. Because as you know, 70% of our business is currently in North America. So it's pretty much nothing but upside outside of North America.

Okay. And what do you expect in terms of CapEx for the year, given your expansions in LaFox and the Texas center?

So I'll take that one, Anja. We're estimating it will probably be in that $5 million range. So a little bit higher than last year. But last year was very low because there were some programs that were pushed into FY '26. So again, we'll stick with that $4 million to $5 million range.

Real quick, on the REV Illinois program, and Greg, you can jump in here. The CapEx requirements themselves are not significant in this fiscal year. What we're looking at is some equipment that will help improve our manufacturing efficiencies and position us for new opportunities, primarily and particularly in the ESS solutions. So what we'll be looking at, the REV Illinois program allows us to account for people in addition to CapEx in addition to other R&D-related expenses. And that's where we're focused on right now is making sure we've got the engineering resources we need, the program managers we need so that when we get our facility built here, in FY '26, we'll be ready to efficiently and effectively market that.

Yes. I mean this a good example is the demo site. That -- all that development and -- goes towards the number that we've been -- to attain, to get all the subsidies and rebates. And just one thing in the REV Illinois program. We're going to apply for every single subsidy and tax credit we can get with this green energy program. Luckily, State of Illinois has the -- even better than California, the most rebates and tax incentives for people doing wind, solar, energy storage, green energy itself.

So we found out about this from some local contacts we applied. You have four years to do it, and it's approximately $8 million in total investment and a number of head count but we have four years to do it. So we're not doing things to get that credit. We're doing things to grow the business and increase shareholders' value. But our estimate is we'll hit those numbers very easily, so we might as well take advantage of it.

And our next question will be coming from Brendan Kinney, a private Investor.

So just one quick question. For the operating income, as the -- it was mainly due to a nonrecurring gain of $0.9 million. Could you just go into a bit more detail about what that was?

Brendan, this is Bob Ben. First of all, the operating income, as I stated in my remarks, was $1.0 million, and that did not include the nonrecurring gain that's below in other income, just to clarify. So the operating income for the quarter more than tripled from last year's first quarter. But to specifically address your question, the $0.9 million nonrecurring gain. As I stated in my remarks, that's from a confidential contractual settlement. So unfortunately, I'm not really allowed to say much about it other than that.

Our next question will be coming from Chip Rui of [indiscernible] asset management.

Good quarter. I have three questions, maybe I'll just litem out, and you can divvy them up. First, I think the -- Wendy, your comment on the repower initiatives and the Big Beautiful Bill. Could you expand on that? I think the sentiment has been kind of misplaced on you guys around wind anyway because you're not OE, you're pretty much all aftermarket. So now that there's a potential positive from the administration on repowering. I'd just like to dig into that a little bit more.

Secondly, the operating leverage looked great on the operating income. Can you just give us some thoughts on how the rest of the year will play out? Can we continue to see muted expense growth that would contribute to good leverage through the year?

And last, maybe, Ed, I like the comments on kind of -- I mean, clearly, the semi business and PMT is a really positive thing to hear the outlook there. But maybe dig into the other side, the legacy RF business seems like it's perking up too. So maybe some details there.

Thanks, Chip.

Chip, I'll just talk about the first question, and that's a great question. So -- and you hit it on the head, you understand it very well that almost all of our business, other than [ Suzlon ] is aftermarket. And so with this administration kind of removing a lot of the subsidies you get for new turbines kind of like your old car in college, you can't afford a new one so you refurbish and pick up your current one. That's what's kind of going on and the term in the industry is called repowering, where they, in some cases, drop the turbine to the ground and then replace everything they can, and then they'll have a turbine that's good for another 10 to 15 years.

At that time, instead of putting lead acid batteries back into the turbines, many of our customers and some of those larger orders we got in terms of our large we had a 1.25 book-to-bill in FY '25 was people ordering parts for this repowering program. So they will put in our pitch energy modules, which will last up to 15 years instead of the lead acid batteries. And so that decision by the government and which is giving a lot of press actually in a roundabout way supports us and hopefully, we'll expedite some of the large orders we have on our books in terms of pulling them in over the next two to three quarters.

The last thing with that and the Big Beautiful Bill, Wendy's talking about if they get it done by the end of this calendar year, they can put some of that money to the side or keep the current rebates and tax credits that they have now. So we're working a lot of our owner operators to get their forecast between now and the end of the year. So we -- again, we grew 23% in FY '25. We fully expect, based on the forecast and some of these other things that GES will grow double digits in FY '26. And I guess on operating...

I'll take that one. So in terms of leveraging and operating expenses, I'm looking at our forecast for the full year, it will be up just a little bit, not a lot over FY '25 as we invest in some of the programs that Greg has mentioned in terms of additional engineers, additional people outside the U.S., focusing on green energy growth. But again, Chip, we -- one of the things we do well as a company is really managing our SG&A level and keeping that increase under control. So I would not anticipate a significant increase over FY '25. Does that answer your question?

Yes. And then just thoughts on the RF side.

Right. Well, our RF tube business still remains about $85 million. We're going through a period where our largest supplier is actually going to exit the business over the next 3 to 5 years. And a lot of that equipment and technology we own, so we're in the process of trying to determine if we move it back here or work with other two manufacturers around the world, but it's put us in a position where we've built up our inventory very substantially. On the other hand, that inventory tubes are like good or fine wine, they're under vacuum and they last forever. So we have no issue as far as obsolescence on the tubes, but our difficulty at this point is finding other manufacturers or making a decision to bring some of that manufacturing back here. But what you'll see over the next three or four years is our inventory go down dramatically as far as that's concerned. But the business stays extremely profitable, and we're pleased to be pretty much sole source on tubes around the world.

Okay. That's great. Did you see -- I thought you said you saw a pickup in the kind of that core business in the quarter and some more positive signs.

In the tube business, I think it's just about level. What we are seeing is a pickup in the semi fab equipment manufacturing business we follow Lam's quarterly vendor meetings and listened to them and they're talking about a very positive increase in their business going forward. In the best year, we did about $40 million with Lam and people in that business. And I think right now, we're running in the low 20s, Wendy? Somewhere?

Yes. Go ahead.

So we see an opportunity to grow substantially in that business going forward.

And then on the RF solid state side, [ if you bring ] to that because that was a business that we were in before. That also grew, and we're seeing a large uptick in military, defense, RF communications drones and then core Satcom globally to get 5G to all these remote areas. That's the business that picked up, and that's where the growth was on the solid state side.

Okay. That's what I was asking. And that sounds like that sector, the defense side, it's pretty hot across the board. Do you see kind of accelerating participation into that end market?

Yes. And it's because of this global infrastructure that Ed put in place decades ago, it really is a benefit to a company like us. We're seeing a lot of the drone manufacturers are in Europe, and we have a great team there. But it's military, too, but we're seeing also urban development, homeland security, disaster management, or fires. I mean, drone technology is expanding very, very fast. And we have some of the, if not the best technology partners like [ MACOM, Qorvo 3R wave ] that have great products for that. So we're participating in it, and that's where the growth is on the solid-state RF and the microwave side.

And I would now like to turn the conference back to Ed for closing remarks.

Well, we want to thank you very much for following our progress and growth. We're really pleased with the performance of the company. And if you have further questions, please feel free to call us at any time. Thank you very much.

And this concludes today's conference call. Thank you for participating. You may now disconnect.