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On Thursday, Richardson Electronics (NASDAQ:RELL) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Stock Buy Backs
Al Tobia – Sidus Investment: I wanted to address the word opportunistically, and if I go back to the conference call from last year and I look at some commentary when – and a year ago was when the cash first hit the balance sheet of the Company. Basically, your commentary was you intended to buy back stock, wanted to increase the dividend, but going to walk before you run. The dividend was increased to $0.05 back then. What does a $0.05 per quarter dividend that we haven’t increased it since, what does that tell me? That a 1.6% yield or so and no increase in the dividend, does that tell me that you are more favorably disposed towards returning shares through buyback versus increase in the dividend beyond this?
Edward J. Richardson – Chairman, CEO, COO and President: Well, we’ve been buying stock back every day as a matter of fact within the regulations, and at the current prices, the repurchase of the stock is the most accretive thing we can do. So that’s certainly a priority as long as the price stays in this kind of range.
Al Tobia – Sidus Investment: So if I address that then, through the first couple of quarters of the repurchase, if I look at the quotes from last year, basically you had said that it was going to take a few months to execute through the $25 million authorization. We are not through the authorization and the first batch of stock that was bought back was bought back at about $13.30 average price. In the last quarter we reduced the amount of shares back in a purchase dramatically, and the price was down in the $11 in change range. So, what does that tell me about that value of the Company in the last year? Is it down 20% in your eyes?
Edward J. Richardson – Chairman, CEO, COO and President: No. I mean, again we are being opportunistic, but we are regulated as you may well know as to how much stock that we can buy each day.
Al Tobia – Sidus Investment: You govern the price at which you buy it back if you are on a program.
Edward J. Richardson – Chairman, CEO, COO and President: Well, certainly.
Al Tobia – Sidus Investment: So, you’re not regulated by the price.
Edward J. Richardson – Chairman, CEO, COO and President: We’re not regulated by the price but we’re regulated by the volume.
Al Tobia – Sidus Investment: What I’m saying is that you’ve lowered the price that you were willing to buy the stock back by 20% yet Russell Index is up significantly during that period and you’ve earned money and built book during that period.
Edward J. Richardson – Chairman, CEO, COO and President: We don’t have any intent to set the price of the stock in the marketplace. We are buying opportunistically as I said.
Al Tobia – Sidus Investment: But isn’t the opportunity to buy back based on the value of the Company?
Edward J. Richardson – Chairman, CEO, COO and President: That’s true but I don’t intend to pay more than the market price of the stock.
Al Tobia – Sidus Investment: I don’t understand what that – I’m confused again. You bought stock at $13 and change and you bought significant amount of it. You bought a lot more of it, north of $13 than you bought under $12, yet you’ve slowed down the amount of stock you bought because you’ve lowered the price, which you’re willing to pay. Yet, over that time your comparable companies are up in value and you’ve earned money over that time and built book. Theoretically, you’ve executed on your plan. So, somehow you’re paying less now than you were a year ago for the Company and I just don’t understand the thought process. Letting the last sale dictate how much you buy doesn’t makes sense to me. You should be buying based on what you think the value of the business is.
Edward J. Richardson – Chairman, CEO, COO and President: We’re buying every day the maximum amount of volumes that’s allowable.
Al Tobia – Sidus Investment: Depending on what price you set.
Edward J. Richardson – Chairman, CEO, COO and President: That’s not true. We can only buy so much every day.
Al Tobia – Sidus Investment: But that’s absolutely wrong because if the stock goes up beyond the price you’re willing to pay you can buy none and you bought – I’m just looking at numbers. I’m just trying to understand the thought process. When you first announced that the cash came in, you spent $20 million at an average price of $13.30. Last quarter you spent $1 million at under $12. I’m failing to see the word what’s going on here. You have more cash to win. You built cash in the Company. In theory you built value in the business by improving your model with the distribution – with the service center approach, and yet, you’re buying fewer shares at a lower price. It’s not the market, it’s you. You’re setting the price. So, I understand if you say, you want to lower your price paid on the stock down, but then why not raise the dividend up because somehow you’re not returning the money to shareholders that when the money first came in, you said that you were going to do. I’m just confused about the amount of money returned to the shareholders. That’s basically what I’m trying to understand.
Edward J. Richardson – Chairman, CEO, COO and President: I certainly appreciate your opinion, Al, but there is a regulation out there that depending upon the volume of the stocks that’s trading how much we can buy every day and right now we’re buying the maximum volumes every day.
Al Tobia – Sidus Investment: Based on the price that you set. So, I mean if you set the price at $10, the maximum volume you could buy be zero?
Edward J. Richardson – Chairman, CEO, COO and President: The market is setting the price of the stock.
Al Tobia – Sidus Investment: We beg to differ – I would beg to differ, but your comparables are up. That’s – if you told me that the Russell index was down 20%, that’s fine. Your index is up. So you’re underperforming your index and you’re lowering the price you’re willing to pay for your stock. Therefore, you’re not getting any volume in.
Edward J. Richardson – Chairman, CEO, COO and President: We’re doing exactly what we said we were going to do, Al. We’re opportunistic. If the market is setting the prices of stock at lower rates, that’s that we’re going to pay for it. We are not going to raise the price artificially.
Al Tobia – Sidus Investment: So, you be comfortable if the stock drifted down to $9 and you have $13 a share in cash, buying it at $9, $10, and only buying 50 shares a day if it only traded there.
Edward J. Richardson – Chairman, CEO, COO and President: We’ll buy the maximum volume allowed on that date.
Al Tobia – Sidus Investment: Using the price that you set.
Edward J. Richardson – Chairman, CEO, COO and President: No to what prices the market set.
Al Tobia – Sidus Investment: Then on the dividend you are not, you are comfortable with the $0.05 dividend which hasn’t been raised once in the last year?
Edward J. Richardson – Chairman, CEO, COO and President: The Board considers the dividend every quarter and I am sure at some point if they feel that it’s the right time to do it they will raise the dividend.
Al Tobia – Sidus Investment: You do understand that what’s holding the Company back is the lack of either boasting the dividend or more aggressive stock repurchasing, right, in terms of the stock price. I mean, that is given at least when the Board discusses things or no?
Edward J. Richardson – Chairman, CEO, COO and President: Al, we are doing exactly what we said we were going to do a year ago and we are going to continue to do acquisitions, we are going to buy the stock back, we have raised the dividend, we’ll consider raising the dividend again and it’s the same program that’s been in place from day one.
Al Tobia – Sidus Investment: Well, when I read the commentary from day one it didn’t read this way, but a $0.05 dividend I don’t think does anyone any good in terms of a return. So, we are sort of between, we are not buying enough stock to really do anything meaningful in terms of adding to earnings and the dividend isn’t big enough to justify a yield play in the stock. So we got a low growth business that’s way over capitalized with a small acquisition strategy and very, very minimal return of cash to shareholders and therefore an underperforming asset?
Edward J. Richardson – Chairman, CEO, COO and President: Well we certainly appreciate your opinion.
Richard Whitman – Benchmark Capital: Two questions. First is for Kathy. Can you define under non-current investments of roughly $15 million, what comprises that please?
Kathleen S. Dvorak – EVP, CFO and Chief Strategy Officer: It’s CDs and time deposits.
Richard Whitman – Benchmark Capital: So, why would that not be included under cash and cash equivalents or current investments? I don’t understand.
Kathleen S. Dvorak – EVP, CFO and Chief Strategy Officer: The accounting definition, because they are over one year.
Richard Whitman – Benchmark Capital: Next question is for Ed. Ed, the previous gentlemen’s comments, we won’t go over those, certainly an important part of capital allocation includes the stock buy backs and the dividends, but the more important thing in a Company as overcapitalized as you are is the increase in the value of the Company and the stock price, therefore must be determined by acquisitions, and I know you’ve addressed that you are looking at them, but do you have anything on the radar screen that potentially could be large enough to spend a good chunk of your liquidity in making an accretive acquisition?
Edward J. Richardson – Chairman, CEO, COO and President: Yes. We are actually considering several acquisitions that would be quite meaningful, but it’s really too early to give you any further information on that.
Richard Whitman – Benchmark Capital: But the targets have been identified and the process has begun of making a serious look or attempt at acquiring businesses which could be accretive to the Company.
Edward J. Richardson – Chairman, CEO, COO and President: The answer is yes. But to give you more information than that is just too early.
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