Richardson Electronics, Ltd. (NASDAQ:RELL) Q3 2022 Earnings Conference Call April 7, 2022 10:00 AM ET
Company Participants
Edward Richardson – Chairman and Chief Executive Officer
Robert Ben – Chief Financial Officer
Wendy Diddell – Chief Operating Officer and General Manager, Richardson Healthcare
Greg Peloquin – General Manager, Power & Microwave Technologies Group
Jens Ruppert – General Manager, Canvys
Conference Call Participants
Ross Taylor – ARS Investment Partners
Tim O’Connell – Chain of Lakes Investments
Khadir Richie – Richie Capital Group
Walter Schenker – MAZ Partners
Eric Landry – BML Capital
Mike Hughes – SGF Capital
Mike Schellinger – MicroCapClub
David Schneider – Private Investor
Operator
Good day and thank you for standing by. Welcome to the Richardson Electronics Third Quarter Fiscal Year 2022 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Edward Richardson, Chairman and CEO. Please go ahead.
Edward Richardson
Good morning and welcome to the Richardson Electronics conference call for the third quarter of fiscal year 2022. Joining me today are Robert Ben, Chief Financial Officer; Wendy Diddell, Chief Operating Officer and General Manager for Richardson Healthcare; Greg Peloquin, General Manager of our Power & Microwave Technologies 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 will 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.
Our third quarter set another quarterly sales record since we sold RFPD in 2011. It was also our seventh consecutive quarter of sequential revenue growth, which is remarkable when you consider the number of holidays that are in our third quarter. In fact, all three business units performed better than Q3 last year and we overcame the unprecedented absences due to COVID-19 cases, particularly throughout the month of January.
Net sales for the third quarter of fiscal 2022 were $55.3 million, 22.3% higher than last year’s third quarter. Gross margin declined due to higher percentage of lower margin sales, higher freight costs and cost increases for raw material and components. Despite these challenges, third quarter operating income was $3.6 million or 6.6% of revenue, which is a significant increase from $315,000 or 0.7% of revenue for the same period last year.
Backlog at the end of the quarter was $175.6 million, up 19.5% over the second quarter. Each of our three business units had higher backlog driven by strong bookings growth. Within PMT, our largest business unit, backlog increased across numerous product lines, most notably in power management, semiconductor wafer fab and magnetrons. These products are used in many new applications, including alternative energy, 5G and manufacturing diamonds, hydrogen, and building products. I am pleased with the performance and I am confident this will lead to continued growth.
Considering Russia’s recent aggressive actions against the Ukraine, we stopped all shipments to Russia. Historically, we have shipped less than $1 million to Russia each year. We also have customers in the Ukraine, which represent less than $1 million in revenue per year, primarily in healthcare. We extend our heartfelt support to our friends, families and customers in the Ukraine and wish for a very swift end to this unjust war.
I will now turn the call over to Bob Ben, Chief Financial Officer, to review our third quarter financial performance in more detail, then Greg, Wendy and Jens will provide more detail on our third quarter performance as well as our new programs.
Robert Ben
Thank you, Ed and good morning. I will review our financial results for our third quarter and first 9 months of fiscal year 2022, followed by a review of our cash position. Net sales for the third quarter of fiscal 2022 increased to $55.3 million, up 22.3% compared to net sales of $45.2 million in the prior year’s third quarter due to higher net sales across all three business units. PMT sales increased by $8.8 million or 25% from last year’s third quarter, driven by strong growth from our new power and microwave technology partners for various applications, including power management and 5G infrastructure, as well as increasing shipments of our patented ULTRA3000. In addition, sales for several Electron tube product lines, including semiconductor wafer fabrication increased from the third quarter of fiscal 2021. Canvys sales increased by $1.1 million or 15% due to strong customer demand in North America and Europe. Richardson Healthcare sales increased $0.2 million or 7.4% year-over-year due to an increase in part sales and an increase in demand for the ALTA750 tubes. In addition to higher revenues, total company backlog increased to its highest level since the sale of RFPD of $175.6 million in the third quarter of fiscal 2022 from $146.9 million at the end of the second quarter of fiscal 2022, and $98.7 million at the end of the third quarter of fiscal 2021. Backlog increased in all three business units when compared to both third quarter last year and our most recent second quarter.
Gross margin for the third quarter was 31.8% of net sales compared to 34.9% of net sales in last year’s third quarter. PMT’s margin decreased to 32.2% from 34.9% due to a higher mix of lower-margin PMG sales partially offset by increased shipments of wind turbine modules. Canvys gross margin decreased to 32.2% from 35.2% because of higher global freight costs. Healthcare’s gross margin was 25.1% in the third quarter of fiscal 2022 compared to 33.0% in the prior year’s third quarter due to an increase in component scrap expense and rising freight costs.
Operating expenses were $13.9 million for the third quarter of fiscal 2022 compared to $15.5 million in the third quarter of fiscal 2021. The decrease in operating expenses resulted from the non-recurrence of a $1.6 million legal settlement in the third quarter of fiscal 2021. In addition, lower legal fees were offset by higher employee compensation expenses.
The company reported operating income of $3.6 million or 6.6% of net sales for the third quarter of fiscal 2022, versus operating income of $0.3 million or 0.7% of net sales reported in the third quarter of last year. Other expenses for the third quarter of fiscal 2022, including interest income and foreign exchange, were $0.1 million compared to other expenses of less than $0.1 million in the third quarter of fiscal 2021.
The income tax provision of $0.6 million for the quarter reflected a provision for foreign income taxes and the offset of a U.S. tax provision against the valuation allowance. In addition, state income taxes for Illinois increased due to the suspension of net operating loss carryforwards until the end of fiscal 2023.
Net income was $2.9 million or 5.2% of net sales for the third quarter of fiscal 2022, as compared to a net income of $0.2 million or 0.5% of net sales in the third quarter of fiscal 2021. Earnings per common share on a diluted basis in the third quarter of fiscal 2022 were $0.21 compared to $0.02 per common share on a diluted basis in the prior year’s third quarter.
Now, turning to a review of the results for the first 9 months of fiscal year 2022, net sales for the first 9 months of fiscal year 2022 were $163 million, an increase of 28.9% from $126.5 million in the first 9 months of fiscal year 2021. Net sales increased by $30.4 million or 30.8% for PMT, $5.2 million or 25.6% for Canvys and $0.9 million or 12.2% for Richardson Healthcare. Gross margin decreased to 31.6% from 33.6%, primarily reflecting product mix in PMT and higher global freight costs in Canvys, partially offset by improved manufacturing efficiencies for Healthcare.
Operating expenses were $40.6 million for the first 9 months of the fiscal year, which represented a decrease of $1.3 million from the first 9 months of the last fiscal year. The decrease was due to the non-recurrence of a $1.6 million legal settlement in the first 9 months of fiscal 2021 and lower legal fees partially offset by higher employee compensation expenses. Operating income for the first 9 months of fiscal year 2022 was $11 million or 6.7% of net sales as compared to an operating income of $0.6 million or 0.4% of net sales for the first 9 months of fiscal year 2021.
Other expenses for the first 9 months of fiscal 2022, including interest income and foreign exchange, were less than $0.1 million as compared to other expenses of $0.5 million for the first 9 months of fiscal 2021. The income tax provision of $1.3 million reflected a provision for foreign income tax and the offset of U.S. tax provision against the valuation allowance. In addition, state income taxes for Illinois increased.
The company reported net income of $9.6 million or 5.9% of net sales for the first 9 months of fiscal year 2022 versus a net loss of $0.2 million for the first 9 months of fiscal year 2021. Earnings per common share on a diluted basis in the first 9 months of fiscal 2022 were $0.71, compared to a net loss of $0.02 per common share on a diluted basis in the prior year’s first 9 months.
Turning to a review of our cash position, cash and investments at the end of the third quarter of fiscal 2022 were $39.1 million compared to $39.7 million at the end of the second quarter of fiscal 2022 and $47.4 million at the end of the third quarter of fiscal 2021. The company continues to invest in working capital to support its growth initiatives. Accounts receivable increased to $31.6 million at the end of the third quarter of fiscal 2022. However, days outstanding were 39 at the end of the third quarter compared to 40 days at the end of the second quarter. In addition, inventory grew to $73.7 million from $70.7 million at the end of the second quarter of fiscal 2022, primarily due to increases in components and work in process for our manufacturing business.
Capital expenditures were $0.6 million in the third quarter of fiscal 2022, the same as in the third quarter of fiscal year 2021. Approximately $0.2 million related to investments in our health care business, $0.2 million was for our manufacturing business, $0.1 million was for IT system and $0.1 million was for other projects. We paid $0.8 million in cash dividends in the third quarter of fiscal 2022.
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 2022. Finally, during the third quarter of fiscal 2022, we repatriated $0.5 million to the U.S. from Japan, bringing our total year-to-date repatriations to $1.5 million. Our U.S. domiciled cash and cash equivalents balance totaled $24.8 million as of February 26, 2022.
Now I will turn the call over to Greg, who will discuss the results for our Power & Microwave Technologies Group.
Greg Peloquin
Thank you, Bob. Good morning, everyone. Sales for the Power & Microwave Technologies Group or PMT in the third quarter of fiscal year 2022 grew 25% to $44 million versus $35.2 million in Q3 last year. In addition to strong sales quarter, PMT achieved an excellent book-to-bill of 1.47. Our sales growth and strong bookings confirm another solid quarter to what is shaping up to be an excellent FY ‘22. Our gross margin decreased in the quarter to 32.2% versus 34.9% in the prior year, which was mainly due to some product mix as well as increased freight component and labor costs. Both business units and PMT supported the strong growth in bookings and billings in Q3.
Our Electron Device Group, or EDG, had an extremely robust quarter in bookings as we continue to take market share from our competition and continue to find new applications for our legacy tube products, specifically magnetrons, using development of synthetic diamonds and other green solutions. In addition, we continue to experience outstanding growth in our Power & Microwave Group or PMG. Over the years, we have added a growing line of new products and technology partners targeting RF and power management applications. This includes 5G infrastructure programs as well as programs dedicated to the consistently growing power management and energy storage applications that support numerous green initiatives.
With respect to 5G wireless and power management, revenues increased by high double digits again in Q3 with a very strong book-to-bill. Power Management saw growth in applications for wind energy, electric vehicles and energy storage. Recently introduced products such as our patented ULTRA3000 pitch energy module used in wind turbines, continued to gain traction with increased sales and bookings in the quarter. We are producing the ULTRA3000 with remarkable results in the field and millions of accumulated hours of operation. During the third quarter, we received our second patent for the Pitch Energy System for wind turbines. This extends our leadership position by further supporting our innovative ULTRA module technology.
We also saw an increase in bookings with key customers such as Enel, Inver Energy, RWE and newest other owner operators of GE wind turbines. Our ULTRAGEN3000 design for generators and seller base stations and critical facilities has had good success in alpha product trials. And in the quarter, we received our first beta site order with T-Mobile. We also booked our first multimillion dollar order for our power management module used in electric vehicles, in this case, electric locomotives. This order will start shipping in Q2 of FY ‘23. Again, this product will also be manufactured, tested and supported from La Fox, Illinois.
As I’ve mentioned, we continue to add new products to our portfolio and are on schedule to introduce new products that support green energy applications in the first half of FY ‘23. Our microwave component business continues to benefit from the positive trends associated with 5G, microwave communications and SATCOM applications. These applications are utilized as people continue to work from multiple locations, sending and receiving large amounts of data. Our entire team has done an excellent job identifying niche technology partners who collaborate with us globally. We continue to invest in and focus on resources to support these growth markets. These resources include design engineers, field engineers and manufacturing capabilities. We also added several small niche technology partners who fill technology gaps in our portfolio. This strategy has been highly successful, and we will continue to use it to develop new engineered solution products as well as increase our customer base, revenue and profits by capitalizing on our existing demand creation infrastructure.
We are excited to see that over the years in these past 3 quarters, our legacy tube business has had a strong return to both bookings and billings. The third quarter of FY ‘22 continued to prove that the demand for all of our products and services did not go away with the pandemic. And we’re even more excited about the trends in bookings that will support strong revenue in the coming quarter. We continue to receive support from our key technology partners such as Qorvo, MACOM, Nokia Wave, LS Materials, Amogreentech and Fuji Semiconductor, and key tube manufacturers in the industry, such as CPI, Thales, NJRC and Photonis. They have all worked with us to manage our customer requirements.
Our growing in-house engineering and manufacturing teams did a great job supporting increased demand for our products and new product designs. The team also supported product designs for key growth markets, including green energy applications such as the ULTRA3000, ULTRAGEN3000 and lithium-based power management module for our electric locomotives.
I am pleased with the progress we are making. We will continue to identify, develop and introduce products using numerous technologies for green energy power management applications. However, we remain challenged by longer semiconductor component lead times and overall supply chain. This affects our component business and engineered solutions products. We are aggressively investing in inventory that should position us well and fill the pipeline to ensure we can meet our customers’ needs, while we collaborate closely with our customers and suppliers.
I cannot stress enough the value of Richardson Electronics model to our customers and suppliers. Our unparalleled and capability and global go-to-market strategy are unique to the power and RF and microwave industries. We have developed a powerful business model, including legacy products and new technology partners that fill well with our engineered solution capabilities. Through our steadfast and creative focus on customers, we will continue to excel by taking advantage of opportunities when they arise. Our backlog has never been stronger and the execution of our strategy has never been better. There is no question our customers and technology partners need Richardson products and support more than ever.
And with that, I’ll turn it over to Wendy Diddell and Richardson Healthcare.
Wendy Diddell
Thanks, Greg and good morning everyone. Sales for the Healthcare Group increased in Q3 to a quarterly record of $3.13 million. This was 7.4% higher than Q3 of FY ‘21. We sold a record number of tubes during the third quarter, led by increased tube sales in China. Sales of parts exceeded prior year levels. While equipment sales also exceeded prior year levels, they remain constrained due to ongoing lack of new systems available for purchase and resale.
Gross margin in the second quarter was 25.1% versus 33% in Q3 last year. Our gross margin was negatively impacted by higher-than-anticipated scrap rates in the quarter relating to the use of recline parts as well as rising freight costs. However, gross margin improved slightly over the most recent second quarter, as we again increased the number of tubes produced and continue to address new component quality from our suppliers. The most significant roadblock to higher sales and margin continues to be the breadth of our CT Tube product offering.
Our next tube lunch is the ALTA750G, the second tube in the Canon series that works on newer Canon Toshiba CT scanners. We have one ALTA750G tube in beta. The second is scheduled for install next week. We anticipate a full rollout after 30 days of acceptable performance. Sales growth will be gradual as we get the ALTA750G into the market and Canon CT scanners come off OEM service contracts.
We continue to make good progress on the Siemens repaired tube program. This is a series of four tubes, including the Straton Z, MX, MXP and MX P46. The Siemens installed base is considerably larger than Canon, and there are no third-party replacement options for these types. We are on track to release the Siemens types in calendar year 2022 and 2023, with revenue starting slowly in fiscal year 2023. We are also evaluating other tube types for future development, but not at the expense of our Siemens program. Our number one 1 priority is to shorten the time it takes for Healthcare to provide positive operating contribution to the company, bringing more tubes to market will improve sales and margins and help us accomplish this goal.
I will now turn the call over to Jens Ruppert to discuss the results for Canvys.
Jens Ruppert
Thanks, Wendy, and good morning, everyone. Canvys engineers, manufactures and sells custom displays to original equipment manufacturers in industrial and medical markets throughout the world. Canvys delivered an excellent performance with sales of $8.1 million for the third quarter of fiscal 2022. Strong customer demand on a global basis drove the 15.0% increase in sales over the same period last year. Gross margin as a percentage of net sales was 32.2% during the third quarter of fiscal 2022, down from 35.2% during the third quarter of fiscal 2021. The decrease in gross margin was related to an increased freight costs impacting many customers across the global supply chain.
Extended lead times on several key components also remain an issue. However, our close relationship with customers and partners overseas enables us to procure long lead time components, which has helped us achieve a new record backlog of $52.4 million this quarter. Canvys’ backlog increased 19.4% from this year’s second quarter and is up 66.3% on a year-over-year basis. As you can see, momentum in our business has strengthened. We are optimistic that the high demand for custom monitors, touchscreens and all-in-one systems will continue for the foreseeable future.
During the quarter, we received several new orders from both existing and first-time medical OEM customers. Some of these applications include cell analysis, cryolipolysis, corneal cross-linking, eye examination, dental treatment centers, laser ablation, robotic assist surgery, medical device control and fully integrated operating rooms, surgical navigation, patient monitoring, surgery video documentation, diagnostic imaging and ophthalmology.
In the non-medical space, our products are used in a variety of commercial and industrial applications. This includes CT scanners for inspecting luggage at airports, human machine interface, or HMI, for high-speed, high-precision milling machines, product dispensers for retail applications and tailor prompting products. We are pleased with our team’s performance. The new record backlog positions us for future growth from the variety of customers and applications as well as the value of orders from existing and new customers, it is clear of our global customers’ outstanding products and local service. While our sales organization stays focused on new opportunities, I continue to review and adjust our business strategy to improve the operating performance of the division. Maximizing cash flow is an ongoing priority. We continue to work closely with our partners to help us reduce inventory, while being able to meet the demands of our customers, particularly with the challenges brought on by the industry-wide supply chain delays.
I will now turn the call back over to Ed.
Edward Richardson
Thanks, Jens and congratulations on the entire Canvys team for another excellent year. We are very pleased with the company’s performance in the third quarter, particularly given the challenges we face and the very fluid business environment. Our backlog is growing, and we’re working around the clock to increase production and meet our customers’ demand. We will continue managing supply chain issues as well as higher freight costs, particularly with rising fuel costs. We are also focused on rewarding our team members for helping the company grow.
Fortunately, the amount of lost time due to COVID-19 pandemic has decreased substantially. Overall, activities across all our global markets are robust and business remains strong. We’re investing in equipment and expanding our manufacturing areas to take advantage of new opportunities. This expansion will support growth for our alternative energy solutions as well as our legacy products such as magnetrons for diamond manufacturing and marine applications.
We are hiring additional engineers and production technicians as quickly as we can find them. We’re cross-running employees to improve flexibility of our workforce and using overtime to meet customers’ requirements. The team has really stepped up when we need them the most. We are reviewing every sale, every opportunity and every new hire to ensure we are using our cash wisely. As we celebrate our 75th anniversary on May 24, 2022, it’s an exciting time for the company.
At this point, we will be happy to answer a few questions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from the line of [Technical Difficulty] from Wellington Shields. Your line is open.
Unidentified Analyst
Thank you. Ed, Wendy and the group, congratulations on what is a great quarter.
Edward Richardson
Thank you.
Unidentified Analyst
Welcome. There is, however, an elephant in the room and the elephant is margins. And we all appreciate because it’s affecting everybody that across the board in terms of freight and cost of goods sold. At what point in time can pricing come back where you create significantly better margins than you have in this quarter?
Edward Richardson
Well, I think it will be pretty much linear. We’ve been caught in some areas, for instance, in Canvys. Most of our product comes in from Taiwan or Japan or Korea, and we do the value added either in Germany or in Boston. But we’ve had to absorb the freight cost for some period of time. And now Jens has done a good job in talking with our customers, and they understand the additional freight costs, and we’re able to pass some of it along. But in one quarter alone, we had $150,000 additional freight cost. I’m not sure, Jens, what was it in this last quarter, can you remember?
Jens Ruppert
Actually, I don’t remember the exact number, but I think for the first 9 months, it’s more than $900,000.
Edward Richardson
It’s amazing. So anyway, we’re well aware of those costs, and we’ve had a lot of increases in raw materials, things like oxygen-free copper and ceramics and things of that nature. And we’re working hard to increase the prices and pass that along. But I think probably this time next year, it will be back to normal, and it will be linear between now and then.
Unidentified Analyst
Alright. Thank you. ULTRA3000, could give me some thoughts, please, on fiscal 2023 in terms of revenues?
Greg Peloquin
Well, Howard, as we started the year with about $10 million, $11 million in backlog, we continue to add new customers. We booked a number of multimillion-dollar orders. And these rollouts are very similar to any rollout. We have a lot of experience with 3G, 4G and 5G rollouts. So it’s time. They are testing a product. We have a number of large customers that are doing beta site testing and across the board historically with the results we had with these Phase 1s, we fully expect us to continue at a run rate, I believe I mentioned this group to be $45 million in 1 to 3 years. And we’re definitely at that run rate.
Unidentified Analyst
Could you repeat that? Because it was static on my line, what your run rate is potentially for 2023?
Greg Peloquin
Well, our 3-year run rate right now, we looked at this group and based on the sales, our bookings will be much higher than that, but we’re at a run rate to do over the next 2 years about $45 million.
Unidentified Analyst
Okay, thank you. Battery Street Energy, cell towers, beta testing, you expect to see some revenues this fiscal year upcoming?
Greg Peloquin
Just small beta site revenues. That program is also going very, very well. It’s the ULTRAGEN3000. We have beta site testing going with T-Mobile in Phoenix, they placed a second order for 15 more towers with zero failures, that’s running perfectly. But I don’t think we will see any large revenues or bookings until probably Q1, Q2 of FY ‘23. But we’re very, very happy with the speed that this thing has been rolled out and the design itself and that product is also will be patented.
Unidentified Analyst
Can you give us some sense of what your thoughts are for Q1? I mean, is it $2 million, $5 million? Any sense at all? We’re not holding it for you, it’s just…
Greg Peloquin
Howard, it’s really hard to say. I mean, if you just do math, the number of towers that they have, but these companies are very conservative when they put a new technology because it isn’t a new technology to generators. So from a bookings point of view, Howard, I would think in the first half of the year, $3 million to $4 million in bookings, how much of that will actually ship I don’t know, Howard, I can’t give you an answer on that.
Unidentified Analyst
No, fair enough. Let’s go to another subject in terms of ultracapacitors in locomotives. You’ve accomplished – you had an order for two, that order has been completed. Is that a correct statement?
Greg Peloquin
No, Howard, and it’s not an ultracapacitor. We’re not in the EV – we’re not in the wind turbine market. We’re not in the electric locomotive market, we’re in the power management. And we’ve been working with Progress Rail and Caterpillar for a while in developing a module. In this case, it’s a module with our partner, Amogreentech. It’s a lithium-based module. We have just completed that design. We have booked the first multimillion-dollar order for a number of electric locomotives. They continue to gain market share in terms of outfitting these locomotives. And we expect that to be also a $6 million to $7 million opportunity in FY ‘23. But we won’t start building that until June.
Unidentified Analyst
No, no. Fair enough. My understanding is about…
Greg Peloquin
I just want to add to that. In these opportunities, all these opportunities that were – and these new products are driven by components. And the greatest thing about this is we have weekly calls with their engineering teams, and this is Caterpillar. There is so many opportunities that are going to come out of this electric locomotives, yes, we are the lead partner for the powering system of that. But you look at smart agriculture, they are making as much of their products green, and you got a – agreements with technology partners in the 5G world, the world leaders and in the power management side, the leaders in that type of technology and an ever-growing design team, I’m more excited about the relationships and the operations that have come out of it as I am with these individual opportunities, which, by the way, as you’ve seen, are multimillion dollar opportunities.
Unidentified Analyst
My understanding, there are about 400,000 and some-odd locomotives just in the United States. Does that sound about right to you?
Greg Peloquin
I don’t know about that. I mean, they are diesel, there is not that many electric locomotives but…
Unidentified Analyst
Well just the diesel I’m talking about, that’s what you’re – yes.
Greg Peloquin
Yes. They mentioned they have 60,000 diesel locomotives globally. This is Progress Rail that they outfit. So I don’t know what the total is. But those are big numbers. We will take half of it.
Unidentified Analyst
I appreciate that. Last question. Last quarter, you mentioned other products in the portfolio sometime first half or 2023. Can you expand on that?
Greg Peloquin
Yes. There is – in listening to the customers, and what issues are having, there is other products that fit our niche. And we really go after products that we have a niche or we add value. And so one of these products, which we introduced in Q1, we might announce it before that, but we will be doing beta site testing in Q1, also goes in the wind turbine. We have a number other products that will go into critical facilities for power management. But the one product that we’re going to introduce in Q1 is a larger opportunity than the ULTRA3000 itself.
Unidentified Analyst
That’s all I have. Thank you again. Congratulations on a good quarter. Ed, Wendy, thank you. All of you, thank you.
Edward Richardson
Thank you.
Operator
Our next question will come from the line of Ross Taylor from ARS Investment Partners. You may begin.
Ross Taylor
Thank you and also congratulations on what’s really shaping up to be a great year. Howard addressed some of my issues. But to kind of recap, what you’re looking at is the operating margin business of the business should be recovering incrementally to kind of historic levels over the next three, four quarters as you’re able to pass the cost increases for components and freight on to your customers at this point?
Edward Richardson
Yes, that’s correct.
Ross Taylor
Okay. And looking at that, I listen to you guys talk and you’re in a number of really hot button areas, you are providing some really exciting technology. Do you see anything about the outlook for your business that should slow your growth over the next couple of years?
Edward Richardson
Not really, when you look at $175 million backlog that’s grown from $140 some million in the last quarter, and at the same time, the sales have grown as well, you can understand that the next year or 2 are pretty much guaranteed. We don’t see anything that will slow us down right now. I mean there is no question that we’re on the verge of a third world war and things of that nature that we have no control of. But we do very little business in that area. So that doesn’t have too much impact. But certainly, there are things like that, that could impact this that we don’t control.
Ross Taylor
But all else being equal, I’m listening to you talk about the new products, new product opportunities and the like. And it really sounds like you’re on a ramp business. Your margins, while they have been softer than historic, are you expect them to be recovering. We look at this in a market that trades at 17x, 18x earnings, why do you think it is that your share gets so little respect? I mean we’re looking at a stock, as I said, you’re in every area, it seems like you want to be in. And if you cash adjust your share price, you’re trading at 9x earnings, which is basically almost like you’re going broke. What do you think the market is missing or what do you need to do to get the market to wake up to the opportunity that’s sitting in this company?
Edward Richardson
Well, we don’t understand it either because we just mentioned that next year will be our 75th anniversary, and I hate to admit it, but I’ve been involved for 60 years. And I would say that this is the most exciting time in my career. We look at the business like a table with six legs and five of them are on fire right now. And we just – we can’t produce all the products that we have orders for. And Healthcare is coming along. We think by 2024 that we can start to show a profit in Healthcare, and that will add a great deal to the bottom line. I guess we sold RFPD in 2011 and took the company from being $700 million in sales and 1,000 employees and losing a ton of money down to a company that was $140 million but we kept the international infrastructure, which was important to the two business, with 24 of foreign subsidiaries and 60 offices all over the world. And so it took us a long time to add enough products to fully absorb that infrastructure and when we got to $160 million, we broke even last year, we were at $177 million and showed a small profit. And now this year we will be $215 million, possibly $220 million and show a very nice profit. And I think investors that are aware of the company for a long time are saying, this old guy isn’t going to get it right ever, but it’s starting to get there now. And I think that in the years to come, the company would be very profitable.
Ross Taylor
Just to be blunt, even if you don’t get it right, quite honestly, the business executes well enough and the value is there that this is, to me, probably the greatest value I see in the equity market today because you’re making money and you’re going to make more. It seems like the wind turbine business could generate a substantial portion of what the company generated in revenues all of last year in a year or two. Would that be a wrong assumption?
Edward Richardson
No, we think so. That’s the most exciting business we’re in right now. The green energy business, not only the wind turbines, but the electric locomotives and the cell business, just the opportunity is amazing. And fortunately, the patents that we have were in early. I understand that lots of people understand the opportunity in green energy, and there are lots of people working on that market, but we seem to be well ahead of a lot of the competition.
Ross Taylor
Talk about your cash, and you’ve obviously been investing some of that cash in working capital and the like, but you’re also generating cash as a business as you roll forward and should be generating it. It’s not hard to envision next year, you should earn well over $1 a share in earnings. I think it looks like this year, you should probably own $0.90 plus a share in earnings, if you just can keep the same earnings power on what I would expect will be higher revenues in the fourth quarter. What do you do with that cash? Is that part of the problem? Is that the market sits in and looks at what’s effectively a quarter-plus of your market capitalization sitting in cash and doesn’t see it?
Edward Richardson
Well, yes. At the moment, we’re just funding the growth of the business. It’s – first of all, we have 24 foreign subsidiaries and as Bob mentioned, only about $25 million of the cash is in the United States where we can use it, and we have to carry about $0.5 million in each of the foreign subsidiaries to keep them within their legal requirements. We can use that cash. We can move it around, borrow it from city or to subsidiary. And unfortunately, we don’t have that problem right now. But as you saw, the inventory was up very substantially. We have enough ultracapacitors in the building to build every order and every order that we are projecting. And we did that for a reason. We haven’t been able to ship as fast as we wanted to because there is been a shortage on integrated circuits, which we’re now getting in stock. But it’s basically funding the receivables and the inventory that’s required for the growth that we’re seeing. We should be – this year, we will use a little cash. And it looks like next year we will go cash flow positive.
Ross Taylor
Yes. And so what you’re saying is this 20% plus top line growth is actually component-constrained growth, so as components become more available, that growth should accelerate?
Edward Richardson
It’s certainly true. Look at the backlog, the $175 million plus backlog. And we – those orders are set up, particularly in EDG where we’re making magnetrons, if we could build them, we could ship every one of them today. It’s just – we can’t build the product fast enough.
Ross Taylor
Okay. Well, you guys are doing a great job operating it. I think we need to think about getting some coverage and getting people to actually care about the business because the opportunity is clearly there. One of the most attractive, as I said, on a valuation basis, it’s hard to find something in this market that comes anywhere close to a 20% plus top line grower trading at a single-digit cash-adjusted multiple. It’s just…
Edward Richardson
We appreciate your confidence, and we absolutely agree with you.
Ross Taylor
Well, let’s hopefully both prosper in the next year.
Edward Richardson
Alright. Thank you very much.
Ross Taylor
Thank you, gentlemen.
Operator
Our next question will come from the line of Tim O’Connell from Chain of Lakes Investments. You may begin.
Tim O’Connell
Hi, good morning and congratulations on the great quarter.
Edward Richardson
Hi, Tim. Thank you.
Tim O’Connell
Hi. So, some of my questions have already been answered. But I was hoping for a little more color on the locomotive business. The way I look at it that the revenue number per locomotive, how many there are in this world, your relationship with Progress and the revenue number per locomotive. This appears to be a much larger opportunity than the wind turbine business. So my questions are, what kind of market share do you think you can get there? How quickly do you see these manufacturers adopting battery power? And kind of what’s the plan to go after this market, whether it’s just with Progress or any other manufacturers? Thanks.
Greg Peloquin
Yes. So right now, we have 100% market share with Progress Rail, Caterpillar. And there is really two leaders in this market, it’s Progress Rail and GE Transportation. Our partnership is with Progress Rail. It’s at a design level. And there’ll be other products. Our content continues to grow as they ask us to design other parts of the system other than just, in this case, not just but the module. So right now, our content’s about $1 million of locomotive. And that growth is really dependent on how much market share Progress Rail grabs. We expect this to be in terms of bookings as they were all these electric vehicles. I think if you look online, you can see companies like Union Pacific, Long Island Railroad placing orders, and they mentioned Progress Rail. So you can kind of get some numbers of what that’s expected. So yes, we’re very excited about it. It’s really dependent on how much market share Progress Rail gets, and we believe they are going to get a majority of it. And I’ll just add to that again because I’m on these weekly calls, the opportunity in other products within Caterpillar, also, yes, that overall makes us bigger than the ULTRA3000. But the ULTRA3000 business is going to generate other opportunities from these same owner operators, and we are talking to people like Siemens and GE who are the manufacturers. And there is another product that we introduced in Q1 that is causing them a lot of pain due to the lead acid batteries, that will more than double the opportunity if you want to call it, the windmill ultracapacitor business.
Tim O’Connell
Okay, thanks. Good color. And I just think this is such a great area for you guys to be in, in the undiscovered green energy company here with Richardson.
Greg Peloquin
Well, the interesting part of it is we booked the first large order. One of the things we used every aspect of Richardson’s 75 years. The reason we beat our competition is these products are sent to 15 to 20 different sites, in this case, all throughout North America. Our distribution business, which has been around for 75 years, can do that with their eyes closed. Our competition couldn’t do that. On the locomotive side, they are mandating U.S.-based railroads that it has to have – be manufactured and tested and supported from the U.S. That just was perfect for us. We’re here in La Fox, Illinois and we have niche capabilities. And we’ve, over years, these high-powered tubes that we make and thermal dissipation that they have been working with for years we have just world-class knowledgeable engineers of ultracapacitor technology. And we’re very selective. Yes, I could come up with 15 other green products, but we have a real niche. And again, it’s big money. It’s tens of $20 million, but it’s still niche for us. And we just have found, after 15 years of ultracapacitor experience, that we have the ability to address these somewhat niche applications better than some of these larger companies. And you’re right. If you put it all together, is absolutely a homerun.
Tim O’Connell
Great. I am looking forward to seeing you guys success.
Greg Peloquin
Thank you.
Edward Richardson
Thank you very much.
Operator
And our next question will come from the line of Khadir Richie from Richie Capital Group. You may begin.
Khadir Richie
Hi, good morning. Thank you so much for taking my call.
Edward Richardson
Good morning.
Khadir Richie
Yes. Congrats on your performance in reference to Ross Taylor’s comment, our team is new to Richardson and we’re continuing to learn about the business over time. So perhaps others are taking notice as well.
Edward Richardson
We hope so.
Khadir Richie
It seems that – yes, yes, it seems that you are delivering quite a bit of momentum in the business, and we noted the significant growth in your backlog that continues to build. Can you possibly characterize this growth a bit? What part of that growth could be related to the global supply chain? And could there possibly be some over ordering or pulling future quarters forward versus a real increase in demand that can be repeated? Can you discuss that?
Edward Richardson
Well, a very large share of our backlog is for products that we manufacture. And on a lot of those products were either sole sourced or very nearly sole source. There are other companies that can make the product, but it would require the customer to redesign the equipment to use their product. So we don’t see over-ordering. That type of thing normally happens in the commodity semiconductor business. I’ll let Greg comment on that. A very, very large portion of our backlog is for products that we manufacture where we are sole sourced or nearly so.
Khadir Richie
Got it. Thank you. And you mentioned that – it was mentioned earlier in the call that you’re aggressively ordering inventory so you can meet your future demand. Can you think of – can you discuss how you’re thinking about acquiring inventory and how has your strategy really changed in the current environment?
Edward Richardson
Well, in most cases, for instance, the integrated circuit used in the ultracapacitor, the delivery has been 48 weeks, but formally – fortunately, with Greg’s relationship with the people in the semiconductor industry, he’s been able to get their product. And I don’t know, Greg, what have we got delivery on, 15,000, 17,000 units so far?
Greg Peloquin
Yes. So the semiconductor industry is my background, but Richardson has always been very aggressive on inventory. And so when we started seeing these orders and we talked to the – there is a part of our business that’s quite large, that is components. They are made by Qorvo, MACOM, Fuji, all these Tier 1 semiconductor. We talk to them daily, and they give us insight on what’s going on. And if we see a hiccup coming, we’re very aggressive about getting the inventory. So even though we are frustrated that we aren’t getting as much as we want, I really think Richardson has done a better job than our competitors. And we’ve actually gained market share because of our aggressive ordering and just our communication. It’s still – the RF and wireless and power world is a very niche, incestuous market. And I’ve been doing this 35 years and most of the people on my staff are doing the same. So we have contacts, we clock all the time. We communicate information. I just think we’ve done a good job of getting in our orders and communicating with our suppliers to get ahead of the game. And I think we’ve done a better job than our competitors. And I think that is part of the reason we’re gaining market share.
Edward Richardson
You might have Jens comment on Canvys, $50 million of the backlog plus is with Canvys and Jens is a display engineer and been in the business a long time and he has plenty of contracts with these medical OEMs, where he is bringing in LCDs or ordering them out at 12 months in advance to make sure the customers have the product. Jens, do you want to comment on that?
Jens Ruppert
Yes. I think you addressed it very well. I mean we have customers that place orders for a long time out, basically 2 to 3 years even. And sometimes, we are still struggling to get components. However, due to those long-term contracts and relationships we have, we have, I call it, secret sources where we can still get the material almost on time for everything we need. So it’s a great relationship we have with our suppliers. So I’m not very disrupted or pessimistic about the future. So I’m looking forward to serve the customers with the products they need on time.
Khadir Richie
Okay, great. Thank you. And just one last quick question, can you discuss any challenges that you’ve had on the workforce management front in regards to finding the engineering talent and managing kind of rising salaries and how you are navigating that front?
Edward Richardson
Sure. Wendy, you want to comment on that? You’ve been in the front on that one.
Wendy Diddell
Yes. So I’ll start. So just to keep it in perspective, one of the data points I find particularly interesting and illustrative to answer your question, since the beginning of the calendar year, in La Fox manufacturing alone, we’ve hired 37 people. So we are using a combination of all the traditional sources to find people. We’ve increased our finders speed to our employees for bringing in people. We’ve hired a recruiting specialist to add to our HR team to specifically go out and proactively find candidates for positions. In the engineering area, we’ve had a really strong intern program over the past number of years, and we’ve been fortunate to be able to bring in a lot of those engineers as full-time employees as they graduate. And then Greg Peloquin and Greg Kinney have done a great job of also finding additional engineers to join our team. So on that front it’s a continual recruiting effort. We’re hiring again to more people than we’ve hired in a long time. It’s not always easy and not surprisingly, right? I mean we have the same challenge every other company. We’re fighting for employees. We have raised our minimum salaries, our minimum hourly rates to be able to attract more people. That has added obviously to our cost pressure. But it’s more important for us. I mean we’ve got people right now working 6 and 7 days a week, every single week in order to meet the demand. So we are taking care of them. We’re giving back to them and acting responsibly in terms of our compensation programs.
Greg Peloquin
And that referral bonus goes to any investor that refer someone to us.
Wendy Diddell
Yes. Yes. We’ve got investors that are sending us resumes and people they know. We went to a conference last week.
Greg Peloquin
It applies to anyone and everyone.
Wendy Diddell
Yes, it was good. But we can always choose more and it’s a continual effort.
Khadir Richie
Alright. That’s great to hear. Thank you. That’s all my questions, thank you and congrats again.
Edward Richardson
Thanks, very much.
Operator
Our next question will come from the line of Walter Schenker from MAZ Partners. You may begin.
Edward Richardson
Hi, Walter.
Wendy Diddell
Hi, Walter.
Walter Schenker
Good morning. Hi. Wendy, Ed. Well, I thought no one is going to ask Wendy a question, but you just got one. But in looking at the medical market, one of the things you learned and therefore, we learned, if you entered the market, was that a significant number of potential customers were under maintenance contracts, and therefore, until those rolled over, there really wasn’t much of an opportunity for you. But over time, the opportunity should grow as you pick off some of these people over time. And looking at the year-over-year, and I just look at one quarter, is that not happening to the degree you hoped and therefore, you really need a broader line, or can we see some more significant growth as people come off maintenance contracts and theoretically are open to save some money if they go to you instead of their prior contractor?
Wendy Diddell
So, I think with the launch of the G, the second tube in the Canon family, that will open up the door for more people to take their systems off the OEM contracts. Right now, we only have a D, as you know, and that covers a certain range of Canon CT scanners. The G expands that range. And so people would be more open-minded to using a third-party service organization because they don’t run the threat of having some of their equipment still have to be covered by the OEM. So, that’s going to help, I think increase the sales of the D and the G. So, that answers part of your question. And certainly, expanding our product range is absolutely critical, Walter, as we have been discussing. Having the Siemens range of tubes, and again, there is four in that series, that market is much, much larger than the Canon market. The installed base is much larger. Siemens, I think, is the number one player in CT scanning market. So, that again, will add more volume. And I think that success to get success. And the more tubes you get out there, whether it’s a Canon tube or it’s a Siemens tube, the more people will come to you and look to you for additional purchases. So, it’s really a combination of getting that G out there, which will help us get more Canon equipment off the contract and then the volume will be incrementally driven by the Siemens program. Does that answer your question?
Walter Schenker
It does. Just I guess it’s still too small. Initially, maybe somewhat surprisingly, despite you being very small, there are some pricing adjustments by the dominant player in the industry once you entered and tried to under-price them. At this point, pricing, and I realize it’s only on one product is reasonably stable?
Wendy Diddell
Yes. It’s reasonably stable. Yes. We don’t see anything crazy going on.
Walter Schenker
And we won’t know how Siemens is going to react until you are in the market?
Wendy Diddell
That’s correct. We, again, optimistically perhaps, we don’t see them having the same knee-jerk reaction. I mean as we have discussed, we think there has been a lot of money left on the table, but I think we collectively feel that Siemens will be less likely to have that kind of cost reduction.
Walter Schenker
Okay. And then just my final very quick comment, which is not going to get a response, so I am doing it because I can smile and say, it’s to Ed. I couldn’t get you to buy high. Other – many people couldn’t get you to buy back stock when it was half the current price in the more recent periods as you go into a positive cash flow and may be significant positive cash flow going forward in ‘23 and ‘24 fiscal years. And Ross laid out how cheap the stock is, which we all agree. I, as one shareholder, would very much appreciate if you revisited buying back stock, again, you are only small premium to book. You have got a lot of cash. You are at a very low multiple. I couldn’t push you before, but maybe in ‘23 and ‘24, there is hope that the company at least consider if the stock continues to be so undervalued, that’s just the statement.
Edward Richardson
Right. Well, we did buy $65 million worth of stock back after we sold RFPD. And at the time, we ended up paying a price somewhere between $8 and $9, and I thought it was a fortune when the stock went to $4 or $5. It looks pretty good today. So, you never know, never say never.
Walter Schenker
Okay. Thanks Ed.
Edward Richardson
Thanks Walter.
Operator
Our next question will come from the line of Eric Landry from BML Capital. You may begin.
Edward Richardson
Good morning Eric.
Eric Landry
Hi. How are you?
Edward Richardson
Alright.
Eric Landry
Great quarter. I am so happy for everybody there. What a difference 3 years or 4 years make. I remember back in – some of the comments in 2018 and whatnot. This is so much nicer, anyways.
Edward Richardson
We agree. You have only been with us about, what, 8 years or 9 years, Eric, something like that, maybe more.
Eric Landry
It’s been a while. But it’s worth it. So, anyways, I suspect like you guys, I am a little surprised at the stock price today. And a lot like what Howard said, I think a lot of it has to do with the margin degradation. So, perhaps you could comment on how much, I think it’s 310 basis points of the decline is due to an increase in shipping and your inability thus far to raise prices commensurate with your cost increase. Is there any – do you have any kind of an estimate as to how much…?
Edward Richardson
Wendy did a fairly decent analysis of it, I will let her…
Wendy Diddell
Actually, Bob did that. So, Bob hasn’t gotten to speak yet today. So, we will let Bob answer that.
Edward Richardson
Alright.
Robert Ben
Okay. Yes. One thing to keep in mind on the margin is we are in a lot of different businesses and the mix of sales, whether it’s product mix or customer mix always affects us differently every quarter. So, I think that’s important to keep in mind. And my analysis shows that that’s over half of the change, the three point change in the quarter. Yes, certainly, component prices and labor costs are affecting us. I certainly don’t want to give you an impression they are not. I show they add about a point roughly. And then the rest would be other things. We talked about the additional scrap in the healthcare business and freight as well that we have talked about. So, does that give you a rough idea, Eric of – to answer that question?
Eric Landry
Yes. So, a little bit more than half, you expect to be able to get back through pricing increases, correct?
Robert Ben
Yes.
Eric Landry
Okay. Yes, I just want to make sure that people are aware that you are not transitioning into a lower-margin business through all this growth. I think that’s…
Edward Richardson
Not at all. And just we have gotten caught in between with logistics costs and the higher raw materials cost, higher labor costs. Everything is going up and we haven’t been able to react fast enough.
Robert Ben
And if I can add a little bit, Eric, one more thing. Last quarter, our margin was 32.7% compared to 31.8% this quarter. So, still a drop, but not nearly as much. And I might add, last year’s third quarter at 34.9% was our highest point all year last year. So, I think it’s important to keep that in mind as well.
Eric Landry
Got it. Thank you. Wendy, of the 37 you have hired in the last three-plus months, what percentage is that of the people that you need?
Wendy Diddell
Well, if I understand the question, we need 100% of them – you mean how many more do we need?
Eric Landry
Yes.
Wendy Diddell
Yes. I think we have – I am going off of memory here and approving reps, I think we probably have 5 to 10 additional reps open, most of them in production on the engineering side, that is more, at this point, opportunistic. Healthcare, I think we are full. But in Greg’s area and supporting the ULTRA3000, I think we constantly have an open mind. Maybe we could take up to another five engineers if you have people you want to send us.
Eric Landry
Okay. I don’t, unfortunately. I was thinking maybe I could drive down there one or two days a week and help.
Wendy Diddell
We have all volunteered to do the same thing. We are like, look, I can build an ULTRA3000. I can get out there and work.
Greg Peloquin
Eric, we do have a second shift on the production of the ULTRA3000 and it pays time…
Eric Landry
I don’t know that I am qualified to build ULTRA3000, but I could probably sweep the floor. That would probably be.
Greg Peloquin
We will just test your product twice and you put a director set, Eric.
Eric Landry
There you go. Perfect.
Edward Richardson
You can build the ultracapacitor.
Eric Landry
There you go. Sounds good. I will put my eye on. So, I just want to – real quick, I know this is getting long. I just want to address the magnetrons. And the way I see it, this is probably somewhere around maybe your second or third largest opportunity right now? Is that anywhere near accurate?
Edward Richardson
We just looked at the total backlog. Wendy, what is it on the magnetrons, just incredible.
Wendy Diddell
Yes, $13 million, $14 million.
Edward Richardson
Yes, $13 million or $14 million is the backlog right now in the magnetron business. And that’s almost double what it was the year ago.
Eric Landry
And what are the growth prospects? What do the growth prospects look like? I mean, it’s probably nowhere near the ULTRA3000, but I assume its material?
Edward Richardson
We could sell everyone we can make right now. In some of these new technologies like synthetic diamond thing is just kind of crazy. And now they are using magnetrons also to – they take tires and they take the carbon out of it and they make tile. So, roof tiles, floor tiles, big company in India has placed over 1,000 magnetrons, what is called carbon craft and they make both synthetic diamonds and tile. And then the applications for hydrogen is just a fuel of the future. There are just so many applications now for microwave, where semiconductors just don’t handle the root power and the high frequency at the same time.
Eric Landry
Right. So, it’s – do you have any type of a patent on your magnetron or any type of sort of a competitive barrier so that someone can’t come in and…?
Edward Richardson
Lots of people have tried to make the YJ1600 and people like Thales and English Electric, and they have all failed. So, it’s a technology that is in a lot of black magic. And no, there are no patents on power grid tubes that I know of any longer. They have all expired. But once you can learn to build them, and other people don’t know how to build them, you are pretty much in a sole-source position.
Eric Landry
And that’s what you feel like you are with this thing? So, someone who makes….
Edward Richardson
That’s right.
Eric Landry
Let’s just – I mean, this is a dumb question, but someone who makes the magnetrons for our everyday microwaves, could they enter this market?
Edward Richardson
Yes, they do. Panasonic makes one and so does LG. It’s a different magnetron. And the only way you can use it is to build a new piece of equipment and build the power supply and all the accessories to utilize that magnetron, and there are people that do that. There are – if you look at companies like Muga and CRM that build generators, they buy from those people, and they customize their equipment to use their product. At the same time, both those companies have been after as they want to buy all the production that we can make of our magnetron. So, we have something that they can’t get.
Eric Landry
And how long have they been trying?
Edward Richardson
It’s perpetual, and we sell to them. It’s – as long as we can build them, we will sell to anybody.
Eric Landry
Okay, great. Thank you. Last thing, because I know we are getting longer. Greg, the locomotive product, is this like – is this similar to the cell tower product where it’s used as a starter, or is this actual – are these actual completely 100% battery-powered locomotives?
Greg Peloquin
Yes, 100% battery-powered locomotives, the module, it doesn’t use ultracapacitors. It uses lithium-ion phosphate batteries. And it put the size of two car batteries together. And in a standard locomotive for the power levels that these are going into, there is about 160 per train, but it runs the entire train. Now also, I want to add, Eric that the first ones that are coming out are like for short distances, for example, taking the train to Chicago. These aren’t long haul that those are coming and that’s some other designs we are working on with Progress Rail and Caterpillar.
Edward Richardson
I tell him the beta, the original design that we are going to make weighs 10,000 pounds. That’s another good thing. We have got a big cement loading dock out there that – yes. It’s interesting. This is how this whole thing works. You talk to them about a component and then you build a module, and then they keep adding more to it, can you build this. And so I mean, eventually, could we build the entire system here in La Fox, yes. But right now, the main one is the battery module that goes into locomotive and they are in parallel circuit together, and they run the complete train. And then obviously, just like electric power, it’s brake regeneration. And right now, they are used in shipyards to move things around and then for commuter trains going from here to Chicago. The big market obviously, more power, more of these batteries as it gets the long-haul sending parts across the country. And again, I just can’t – we are a design partner for Progress Rail. And as they gain market share, we will continue to gain market share.
Eric Landry
Well. Okay. That’s it for me. I appreciate that you guys, you are really kicking assets, so great job. Thank you.
Edward Richardson
Thanks Eric.
Operator
And our next question will come from Mike Hughes from SGF Capital. You may begin.
Mike Hughes
Good morning. Thanks for taking my questions.
Edward Richardson
Good morning Mike.
Mike Hughes
Just – how are you Ed?
Edward Richardson
Good.
Mike Hughes
Good. Good to hear. Just a follow-up on the locomotive business, and maybe I missed this, but is it safe to assume the gross margins on that business will be kind of in line with the company-wide average kind of 30% to 35%? Is that fair?
Robert Ben
Yes, it will be accretive. All the products, the ULTRAGEN3000, ULTRA3000 and then the lithium-ion EV locomotive are accretive to the overall corporate margin of 35% plus.
Mike Hughes
Okay. Great. And you said the content per locomotive, and this was your content was $1 million? Is that correct?
Robert Ben
Right around $1 million. I think, yes, right near – our current content is about $1 million of locomotive.
Mike Hughes
Okay. Good. And then the backlog is really impressive. But I assume everything that’s in the backlog is price protected. So, just number one, if you could confirm that. And then number two, is there anything you could do on a go-forward basis to kind of – this is probably the highest rate of inflation you have seen since the 1970s. Is there anything you can do on a go-forward basis to protect yourself from booking something now and it’s not going to ship for a year from now where raw materials might be higher? Can you just address that issue?
Edward Richardson
Well, we have a policy that when we quote it, the quote is only good for 30 days. If we take a frame order and we guarantee them a price over a period of a year, then it’s on us. But – and we also normally have a currency fluctuation clause in each order as well. So, that we are quoting in the U.S. dollar even though the customer may be in India or China or Europe, somewhere else. So, we are trying to protect ourselves as much as we can, but obviously, we are getting caught now, and we think that we can correct that sort of on a linear basis over the next year.
Mike Hughes
Okay. And then on the last call, Ed, you indicated that you thought you could grow 15% to 20% the top line next year. Is that still the case? Is that still your thinking?
Edward Richardson
Yes, absolutely. With $175 million backlog and we will end the year probably somewhere between $215 million and $220 million, it probably – we can look at $250 million next year or something like that, maybe a little more.
Mike Hughes
Okay. So, if you kind of did the midpoint for this year, let’s say, $218 million and you grew at a 15% rate, that would translate into $250 million, which is just shy of $63 million a quarter. So, at what point do you step up to that higher level of revenue and as a gating factor, the – just the integrated circuit shortages? So, you are $55 million now, when does it go to $63 million on average?
Edward Richardson
It will be linear. Yes, it will be linear. Normally, our fourth quarter is our best quarter, and it’s amazing. And usually, the third quarter is really low because of the Christmas holiday and the Chinese New Year and that kind of thing. But if you look at it, the third quarter, revenue-wise, was quite good as well. But the fourth quarter is usually our highest quarter. And normal number quarter or the holiday quarter is the lowest, but that hasn’t happened either. It just continue to grow on a linear basis.
Mike Hughes
Okay. And then just on the SG&A line, it was $13.1 million in the prior quarter, and it was $13.9 million this quarter. What are the drivers behind that? And is the $13.9 million, maybe $14 million a quarter a good number on a go-forward basis?
Edward Richardson
Bob, do you want to comment on that?
Robert Ben
Sure. Yes, Mike. Well, to answer your question versus second quarter, versus third quarter, we continue to accrue our employee incentive expense. We have merit increases that happen throughout the year versus the previous quarters and year. So, most of that increase was in the employee compensation expenses. But quarter-to-quarter, we have different factors that impact us going forward on the $14 million, yes, I expect it to be closer to that in the fourth quarter and beyond. Next year, to get that growth, we are going to have to make some investments, whether it’s in SG&A or we talked earlier about working capital and capital expenditure. So, I don’t want anybody to think we can achieve this growth without making some of those, but $14 million is a good number with some growth next year going forward.
Mike Hughes
Okay. And then just on the magnetron business, Ed, I think – Ed or someone else on the management team on the last call indicated there is a generator sale at $75,000 to $100,000, and there is the tubes that are $7,000, and there was some question of kind of how much share you would get in the generator space. Can you – just any updated thoughts on that?
Edward Richardson
Yes. This is pretty much in the hydrogen area, where they are taking methane gas and converting it into acetylene and hydrogen, and they do that with a 100-kilowatt generator. And the tube that goes into that generator is about $7,000. By the way, our competition just raised their price to almost $11,000 for those magnetrons. So, it will be interesting to see what happens there. But $7,000 or $8,000 has been in the area where we have been in the past. And the generator is, depending upon what bells and whistles around it, it’s a $100,000 generator. And quite often, we get the two businesses. We have lots of competition in the generator business. And the three companies that are start-ups that we aware of in the United States wanted to buy 100 generators each. So, it gives you an idea what the potential could be. And other than some beta orders, we don’t have any mass production orders on those, but it’s – it just gives you some idea of what the hydrogen business is going to be in the future or could be.
Mike Hughes
Okay. And then just the semi cap equipment end market, what type of growth are you looking for into next fiscal year for that business line?
Edward Richardson
Well, Lam is our largest customer there, and we pretty much followed their guidelines. What are they telling us now, Wendy, we do those vendor meetings?
Wendy Diddell
Yes. Kind of low-double digits, 10% to 15% is what we are expecting. They have their own supply chain challenges that I think are limiting their growth.
Mike Hughes
Okay. So, would that translate into like a $27 million, $28 million number for that business?
Wendy Diddell
That’s a good number.
Mike Hughes
Okay. And then just last question for you. On the inventory, I understand why it’s been building up over the last few quarters. But just from a days standpoint, do you think that’s stabilized for now, or will you need to continue to kind of build up ahead of revenue?
Edward Richardson
No, I think it will continue. We try – it’s one of the reasons why we maintain so much cash. Part of the reason why we are successful is we can supply products that other people can’t. And that comes from buying inventory well in advance, particularly what Jens was talking about, where he is buying LCDs a year in advance. We guarantee these big OEMs that they are going to have a display that runs their $3 million piece of equipment.
Mike Hughes
Okay. I mean there is obviously a cost to having higher working capital. Have you kind of – have you thought about or maybe you have already done this, just building that into your price and just having that discussion with the customers, your cost of doing business because your working capital requirements have gone up is higher and it really needs to be reflected in kind of you are delivering a lot of value to your customers, and it hasn’t – it’s not reflected at this point?
Edward Richardson
Right. No, we certainly try to do that. Unfortunately, when you are working with these frame contracts that are a year out, you get caught like we have in the short-term, but we will recover from that and we will be able to increase our prices as we go along.
Mike Hughes
Okay, I appreciate your time. Thank you.
Edward Richardson
Thank you.
Operator
Our next question will come from the line of Mike Schellinger from MicroCapClub. You may begin.
Mike Schellinger
Yes. Regarding – well, regarding backlog to sales, can you characterize what percentage of that challenge is supply chain versus personnel?
Edward Richardson
Yes. No. It’s not personnel. For instance, on the magnetrons, in the normal year on the YJ1600, we build 800 a year. And we went from building 800 last year to we have orders for over 5,000 right now. And so what we have had to do is to build new test sets. We have had to add ovens, we had to add vacuum pumps, all kinds of die tooling and fixtures and delivery on that, a lot of it we build in-house, but what we have to buy some of them as long as six months, and that’s the kind of thing that we would run into. We have geared up now where we can build 200 or 300 a month, and we are going to gear up to build 400 a month, but to get the equipment to do that is what the delivery time has been.
Mike Schellinger
Okay. Thank you very much.
Edward Richardson
Sure. Thank you.
Operator
And our next question will come from the line of David Schneider as a private investor. Your line is open.
David Schneider
Hi. Can you hear me okay?
Edward Richardson
Yes.
Wendy Diddell
We can hear you, David.
David Schneider
Okay. Yes. Just a quick question, an earlier person on the call, couldn’t figure out why the stock was where it is now. And it’s just – this is just my opinion, and then I will ask questions. I just think people nowadays the – I think people will like the stock more at $17 than $11.62. It’s just human nature. And so the fact that it’s $11.62 now, to me, doesn’t bother me at all. So – and the other – now back to the questions, I did notice the – and I think you did go over this. I just need a little clarification. I do monitor inventories. And so the sequential increase in inventory seems to have grown faster than the increase in revenues. And I am thinking that maybe to sell finished products, there is a few maybe bits and pieces that you are waiting for delivery on so you can ship things out and book it as revenues. Can you maybe just explain that?
Edward Richardson
That happens a lot, particularly in Greg’s business, where the customer, they want a complement of five different semiconductors and yes, to ship complete. And we only have three of them or four of them in stock. So, we are holding the inventory until we can get the fifth one to ship the kit, if you will, and that happens. Same thing happens when we are building equipment for Lam, if we are short some kind of a capacitor and we have got all the other components for a piece of equipment, we might have $1,000 worth of raw material waiting for $3 capacity.
David Schneider
And so as far as flipping over to the overall company being free cash flow positive, would big part of that being just that backlog and inventories turning that into cash, or what other factors would be going on?
Edward Richardson
Well, that has a lot to do with it. Obviously, the more money we make then we cross the line. It looks like we will be cash flow positive next year. That’s sort of our forecast. We have done, Bob, you have done, what a 4-year, 5-year cash flow?
Robert Ben
Yes. We certainly expect the cash flow to improve. Certainly, as sales continues to grow at 15% to 20% a year. And so yes, next year will be a transition year. Hopefully, we will get the cash flow neutral if that will be close. And then after that, our forecast is to generate significant amounts of cash. I think we talked about that earlier with the – some other people on the call.
David Schneider
Okay. That’s great. Your tax rate was 17% in the quarter you released yesterday, and I know the State of Illinois, they suspended the use of some carry-forwards there. For next – the fiscal year that starts, I guess what June 1st, what do you think your overall tax rate is going to be?
Robert Ben
Yes. I – we are forecasting 27% effective tax rate for fiscal ‘23. And that includes – I think I have mentioned this before on other calls, but we do anticipate we will be using all of our Federal NOLs by the end of this fiscal year. So, we have to factor in Federal tax next year. So, I would assume or I am using a 27% rate going forward. But then once Illinois, we can use the Illinois NOLs again after fiscal 2023, I expect that to go down as we can utilize those in fiscal ‘24 and beyond. So, for those years, fiscal ‘24 and beyond, I am using 23% is my estimated effective tax rate.
David Schneider
Okay. Well, that’s good. And how big does the Illinois carry-forward?
Robert Ben
It’s over $40 million, significant.
David Schneider
Okay, alright. Yes, I will probably e-mail some other questions. And yes, I am happy that fundamentally, you are doing well and that’s the most important thing.
Edward Richardson
Thank you very much.
Operator
Thank you. And I am not showing any further questions. I would now like to turn the call back over to the speakers for any closing remarks.
Edward Richardson
Okay. Well, thank you for your interest and your investment in the company, Richardson Electronics. We are optimistic about our future, obviously, and hope you are as well. If you would like to discuss our results, we are a very flat organization, call us any time, happy to talk to you, or better yet, come and see us. It’s easier to show you what we do than tell you about it. And we look forward to discussing our fourth quarter and full year performance with you in July. Thank you very much.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a good day.
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