Q4 2021 Frequency Electronics Inc Earnings Call

Greetings and welcome to the frequency electronics fourth quarter and fiscal year and 'twenty 'twenty 1 earnings release conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation and if anyone should require operator assistance. During the conference. Please press star zero on yourself on keypad as a reminder, this conference is.

And being recorded and.

Statements made by the company during this conference call regarding the future constitute forward looking statements pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, such statements inherently involve uncertainties that could cause actual results to differ materially from the forward looking statements factors.

That would cause or contribute to such differences are included in the company's press releases and are further detailed in the company's periodic report filings with the Securities and Exchange Commission by making these forward looking statements. The company undertakes no obligation obligation to update these statements for revisions or changes after the.

Of this conference call and it's now my pleasure to introduce your host Stanton Sloane President and CEO.

Thank you good afternoon, everyone. Thank you for joining us on the call today.

We begin by saying I'm very pleased would that be is improving financial performance and fiscal year 'twenty 'twenty 1.

So and increased by approximately 31% compared to fiscal year, 'twenty, and 'twenty and 53% compared to Q4 fiscal year 2020.

Gross margin for the fiscal year increased to 31%.

And while we work diligently to keep improving that the trend is very encouraging.

Comparing Q4 fiscal year 'twenty, 1 to Q4 fiscal year 'twenty revenue increased by $5.4 million opt.

Operating income was positive and net income was significantly improved at $1.4 million again and that is an encouraging trend.

Net income for the full fiscal year was also substantially improved and we generated over $12 million of cash from operations ending the year with approximately $20 million of cash and marketable securities.

We also ended the year debt free and.

With approximately a $40 million backlog or funded contract work.

SG&A cost increased last year due to legal and other administrative cost increases absolute these unusual expenses bottom line performance would have been higher.

The fact that we achieved these improvements and a very difficult year attests to the growing strength of the company.

The COVID-19 pandemic was a particular challenge last fiscal year due to supply chain issues and delays and customers processing have anticipated contract awards, particularly in our XI for operations.

Italy, we did lose 1 employee to Covid.

Except for that extremely unfortunate event it was a very good year.

Now, let me turn the call over to Steve and Havent and take us through financial details and Steve. Thank.

Thank you Stan and good afternoon.

For the fiscal year ended April 30th 'twenty 'twenty, 1 consolidated revenue was $54.3 million up 31% compared to $41.5 million for the same period of the prior fiscal year.

And sort of revenue are as follows revenue from commercial and U S. Government satellite programs was 27 million compared to $20.4 million for the same period of the prior fiscal year and accounted for approximately 50% of consolidated revenues compared to 49% for the prior fiscal year.

Revenue on satellite payload contracts.

And nice primarily under percentage of completion method and recorded only and the FBI and New York segment.

Revenue from non space U S government and Dod customers, which are recorded and bulk the FBI, New York and <unk> segments were $27.8 million compared to $16.9 million and the same period of the prior fiscal year and accounted for approximately 46% of consolidated revenue compared to 41.

And for the prior fiscal year.

On the commercial and industrial revenues were $2.5 million compared to $4.2 million and the prior fiscal year intersegment revenues are eliminated in consolidation.

For the fiscal year ended April 32021, gross profit and gross profit percentage increased significantly as compared to the prior fiscal year. The increase in gross profit and gross profit percentage was due to completion of several programs identified and prior periods that and incurred higher engineering cost and there is a.

Element and phase and have since been completed or are near completion.

For the fiscal year ended April 32021, and 2020, selling and administrative expenses were approximately 24% and 28% respectively of consolidated revenues.

The increase in SG&A expense was mainly due to an increase and professional fees relating to litigation deferred compensation and insurance expenses.

R&D expense and the fiscal year, ending April 32021, and 2020 decreased to $4.7 million from $5.1 million.

Decrease of <unk> 4 million and were 9% and 12% of consolidated revenue the.

And the company's R&D expense decreased year over year as previous R&D efforts have ended and turned into production. However, the company plans to continue to invest in R&D to keep its products at the state of the art.

For the fiscal year ended April 32021, the company recorded an operating loss of $1 million compared to $10.9 million and the prior year. The decrease in operating loss and the fiscal year ended April 32021 reflects improvement in revenue gross profit and gross profit percentage.

Other income consists primarily of investments derived from the company's holdings of marketable securities. So.

For the fiscal year ended April 32021 investment income includes a $105000 dividend from Morion compared to a 250000 all different from oriented and the same period in fiscal 'twenty.

Included in other income for the fiscal year ended April 30, and 21 was the collection of a $1 million note relating to the sale of July on in April of 2018.

This yields pre tax income of approximately 476000 compared to a pretax loss of approximately $11.8 million and the price here.

Yes.

For the fiscal year, ending April 32021, the company recorded a tax benefit of 204000 compared to $1.7 million for the prior year.

Consolidated net income for the fiscal year ending April $30.21 was 680000 were 7 cents per diluted share compared to a consolidated net loss of $10.3 million or $1.10 per share and the previous fiscal year.

Our fully funded backlog at the end of April 2021 was approximately $40 million up approximately $5 million on the previous year ends April 32020.

The company's balance sheet continues to reflect a strong working capital position of approximately $57 million at April 32021, and a current ratio of approximately 6 to 1. Additionally, the company is debt free.

The company believes that its liquidity is accurate to meet operating and investing needs for the next 12 months and the foreseeable future I will turn the call back to Stan and we look forward to your questions. Shortly.

Thanks, Dave.

And we take questions. Please be advised that we will not discuss details of any pending litigation or matters related to it.

Now, let me turn the call over to the operator, who will explain how to submit your questions operator.

Thank you.

We would like to ask a question. Please press star 1 on your telephone keypad and a confirmation tone will indicate that your line is and the question queue.

You May press Star 2 if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star Key's warm.

1 moment, please while we poll for questions.

Okay.

Our first question is from Brett Reiss with Janney Janney Montgomery Scott. Please proceed.

Thank you.

Hi, Stat, and Hi, Steve.

Good good congrats on the quarter.

Very very encouraging.

Thank you.

Just 1 or 2 questions.

And if if we.

We have a quarter, where you do let's say 18 to 20 million and revenues with the same mix of business as this last quarter. What do you think the gross margin would be and in that kind of quarter.

Well.

I would hope it would be as good or better obviously.

Striving to raise the gross margin. So we'll continue to do that it's driven by a lot of things product mix and timing variety of other variables.

Right I'm, just trying to get a sense of.

What kind of operating leverage we have.

Revenues hopefully continue to.

And to move up.

Well I think we've said before the business is very sensitive to revenue so the the.

And the best Predictor I think here is the revenue trend and that's what I would look at.

Great Great all right I'm going to drop back because I'm sure you have a couple of other people on the call.

Thank you.

Our next question is from Sam Rybacki with.

With SER asset management. Please proceed yes.

Good afternoon, Stan and Steve. Thank you for taking my call.

You folks have done wonderful unbelievable stent and since you've been on board and tell.

Tell me is it possible to expect at this point in time the share holders get stock will stop sowing and hold on to the stock as you clearly have a.

Expect to improve earnings.

Well hard for me to predict People's behavior, I can tell you I'm not selling anything.

No.

And I.

And I believe that people will.

And that their confidence and the business will increase as we continue to improve and.

And hope they will.

Continued old and buy more and that would be my expectation.

Well, that's wonderful that that would be my expectation and.

And the U S.

And as far as I know, we talk about a number that's unfunded.

Do you have a number of sales backlog, that's unfunded or funded debt you could sort of share with us at this time.

So as we've said many times, we don't we only report the backlog debt funded but the unfunded part is substantial.

And the order of.

And probably and the $40 million range.

On funded $40 million.

And fund it is took 40 million too okay correct.

Is it possible you will start telling your story is it's improved to the wall Street people of course, the numbers are really wonderful and it's clear and.

Something to talk to about from.

So everybody would know what you're doing.

Yes, the answer is yes.

And as until I felt like we had things on the right track and I think we are so I'm ready to get out and start talking with folks.

Congratulations.

Thanks.

Thank you.

Our next question is from Michael Eisner private Investor. Please proceed.

Job.

Did you hire more people this quarter and going forward.

We have we've hired a roughly 25 people since January.

Let's say this quarter, so last quarter, you're talking about Q4, so, yes and going forward.

We've added about 25 folks weighted I think we have openings for another 10 or so so we're adding folks.

So you could find people.

We've had.

And reasonably good luck, finding folks and this environment of course very difficult we seem to be holding our own our turnover rates are very low here.

Average tenure of the work force is pretty ASO and the moment it is.

We're doing okay.

The supply chain now.

Still some issues on the supply chain.

Related to Covid, there's sort of a lag effect.

And some parts of the supply chain.

As they catch up.

Folks have had people out.

Ladies and their raw materials and other things.

And we.

We're we're.

It's fairly isolated we have it's.

Not a widespread.

Problem, but.

But we are having some lingering effects.

Working through those we have alternate.

Sources of supply for a lot of things so at the moment.

And we're holding our own.

Yeah. This is affecting everyone now on the supply chain problems.

Yeah.

Your backlog I think was about the same last quarter, but your revenue went up much higher.

Is that going on.

And <unk>.

What was that how did that happen.

What was the.

And just the timing when you recognize revenue.

Yeah.

The 606 accounting and of course, so we record the revenue as we.

As we complete the work.

Which is disconnected from when the billings or so.

And you see variation on the timing as a result of that.

Yeah, you guys always lumpy do you see revenue increasing.

And so our objective backlogs increase and so that's.

That's the best indicator of debt.

And the bids outstanding.

Yeah, We you know that goes up and down and as things get awarded or not.

We're doing pretty good on win rates and took last year. Our win rate was about 40%. So I would say that's pretty good.

Oh, Yeah, and things look look promising.

But who is I think it was like 600 million the bids outstanding.

Yes.

It's probably a little lower than that right now just because a lot of stuff got awarded or or we didnt win it but.

I don't know what the number is off and it's probably probably between 4 and $500 million.

Okay. Thank you.

Sure.

Thank you.

And we have 1 more we have another question from Brett Reiss with Janney Montgomery Scott. Please proceed.

Hey, Brett.

Hi.

And because things really look like they're turning around and you're building cash is it.

Too soon or premature for the board to at least consider instituting some sort of.

Our share buyback authorization.

So I'll, just say that we're mindful of deploying capital and looking at all the options and.

The board, obviously watches debt and.

We will decide what to do with it at some point, but we want to make sure we employ it effectively.

Great Alright, thanks for the additional question.

Yep.

Yes.

Thank you.

As a reminder, if you'd like to ask a question. Please press star 1 on your telephone keypad and a confirmation tone will indicate your line is and the Q.

And we have another question from Michael Eisner, a private investor. Please proceed.

And I could hit you with so many questions Lockheed are launched.

GPS 3 I think it was numbers right.

Launched on the 5 and others.

And the launch what was that.

Vehicle, 5 yeah, and they're going to launch 6.7 and 8.

Now are we involved and now a way involved and GPS to be asked which I think starts and.

Launched number 11.

And I remember you are correct, we're not on the 3 program we're on 3 F.

So we won't we won't I mean, they're working on and now, but how will our stuff won't be launched until number 11.

Well, it's a little more complicated.

We have.

2 products.

<unk> will.

Potentially beyond the GPS III.

Satellites the exact satellite the first satellite that those products will go on to is a little uncertain at the moment schedule wise there is a potential that will be putting 1 of those.

Product development version of that product actually on a GPS 3 launch that's and discussion but.

And at the moment, that's not a hard contractual requirement.

And final question.

Alcon spin and long contract the advanced electronic warfare.

How's that going.

You're talking about the advanced talk.

And we see advanced off-board electronic warfare, a O E W.

Yeah.

The products are and the final development stage, there they've tested very well.

The moment, we're awaiting a production order, which is dependent on not on.

On us but on on.

On Lockheed Martin and the government to get through the <unk>.

The milestone and authorized production.

So that's that's where that stands.

So you and booked any revenue on this yet.

We booked revenue on a W. But not on the production options, we don't have that yet.

Just on the day gave me money to our R&D.

The development and the initial testing and qualification.

And if things get busy you can now source.

Yeah, we outsource quite a bit and on things that aren't core to the business Circuit Board assembly that sort of stuff and.

And our machine shop mechanical parts.

And we do a fair amount of that.

Alright things and gone good.

Thank you.

Better yes. Thank you.

Thank you.

And gentlemen, we have reached the question and answer session and I would like to turn the call back to Stan Sloane for closing remarks.

I'll just say thank you everybody.

Good Goodyear and we look forward to talking to you again at our next call. Thank you.

This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation and have a great day.

Yeah.

Yeah.