Q3 2022 Frequency Electronics Inc Earnings Call
Greetings and welcome to the frequency electronics third quarter fiscal year 2022 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.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Any statements made by the company during this conference call regarding the future constitutes forward looking statements pursuant to the safe Harbor.
If 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 obligations to update these statements for revisions or changes after the date of this conference call.
It is now my pleasure to introduce your host certain Sloane President and CEO .
Thank you and welcome everybody.
Joining us today.
Before I turn this over to Steve to take us through financial details, let me offer a few thoughts.
Third quarter was challenging, particularly in our XI for operation due to delays in bookings on the reduced revenue that resulted from that.
We haven't seen any competitive losses. There are just delays. So we anticipate I anticipate these bookings will still come from them.
We're taking advantage of the low wind production to transition manufacturing from California to New York facility, which will help the compound effect of significantly reducing costs and reducing manufacturing overhead costs for the XI for products that will be manufactured in New York.
This will result in benefits over the long run.
The New York Operation, we were hit with severe round of Covid related employee absences, which affected the quarter's revenue and operating income.
Despite the challenges we saw an increase in revenue for the quarter compared to the first two quarters as well as compared to Q3 of fiscal year 'twenty one.
Bookings for the fiscal year are solid running well ahead of where we thought we'd be for the year and up about 30% from this point last year for the New York Operation and up about 21% overall for the company.
Backlog is now up to 41 $6 million.
And the overall book to Bill ratio for the quarter was a healthy 127 for the company, but an even better one for in the core New York Operation.
As usual, we've created cash from operations $4 million for the year, so far in cash and marketable securities currently stand at $22 2 million up $2 1 million from yearend fiscal year 'twenty one.
We also remained debt free.
On the technical front, our digital rubidium atomic clock for the GPS III F program is progressing extremely well through its qualification testing.
And we have in production additional units one of which will be used for long term testing on the ground by the government and one which is planned to fly on the GPS III satellite to validate its operation in space.
Our pulsed optically pump rubidium atomic clock is progressing well designed phase also laboratory testing has indicated its performance will be outstanding ultimately, enabling better hold over times, and helping mitigate GPS jamming and spoofing.
The Mercury ion clock development is also underway.
In addition to these two office of Naval Research funded projects, we are pursuing a variety of new technology opportunities with various government agencies for not only advanced atomic clocks, but also some new technologies unrelated clocks as part of our effort to grow top and bottom line.
While I can't go into the details here. These are exciting opportunities and I look forward to sharing more about these as things progress.
With that let me ask Steve to cover financial details for you and after that we will take some questions Steve.
Thank you Stan and good afternoon.
For the nine months ended January 31, 2022, consolidated revenue was $38 1 million compared to $38 6 million for the same period of the prior fiscal year.
Components on revenue are as follows revenue from commercial and U S. Government satellite programs was approximately $20 9 million or 62% of consolidated revenue compared to $20 1 million or 52% in the same period of the prior fiscal year.
Revenues on satellite payload contracts are recognized primarily as a percentage of completion method and are recorded only in the New York segment.
Revenues from non space U S government and Dod customers, which are recorded both in the New York and FDI diaper segments were $14 9 million compared to $16 3 million in the same period of the prior fiscal year and accounted for approximately 39% of consolidated revenue compared to 42%.
<unk> for the prior fiscal year.
Other commercial and industrial revenues were $2 4 million compared to $2 2 million in the same in the prior fiscal year intersegment revenues are eliminated in consolidation.
For the nine months ended January 31, 2022, gross margin and gross margin rate decreased as compared to the same period in fiscal year 'twenty. One the decrease in gross margin and gross margin rate was due to an increased engineering cost on development phase programs that experienced particularly complex technical.
Challenges as well as cost impacts on several programs, resulting from supply chain issues.
Lack of availability of parts and material and there are quality problems with traditional vendors resulted in the need to redesign certain electronic units to replace unavailable parts with different partners that were available in order to maintain contract delivery schedules in several cases re.
The government of circuit boards and other mechanical parts was necessitated by quality issues in the supply chain further contributing to increased cost.
For the nine months ended January 31, 2022, and 'twenty, one selling and administrative expenses were approximately 25% of consolidated revenue. The slight decrease in SG&A expense is mainly due to the decrease in professional fees. We expect this trend to continue as expenses normalize.
R&D expense for the nine months ended January 31, 'twenty, two and 'twenty, one increased to $3 9 million from $3 5 million, an increase of 400000 and were approximately 10% and 9% of consolidated revenue.
R&D increases in the nine months ended January 31, 'twenty two we're due to higher levels of internal R&D associated with investments. The company is making in new technology developments related to atomic clocks and low noise oscillate as that are intended to produce long term increases in revenue and position the company to compete.
In the marketplace with next generation products.
The company plans to continue to invest in R&D to keep its products at the state of the art.
For the nine months ended January 31, 2000, and the company recorded an operating loss of $2 1 million compared to an operating loss of $1 1 billion in the prior year.
The factors cited above in gross margin discussion are applicable to operating income as well operating losses for the nine months period, ending January 31, 'twenty two resulted from lower revenue and lower gross margins during both periods. The company experienced increased supply chain and other costs. The majority of the operating loss.
We're experienced in Q1 as a result of higher professional fees associated with litigation has since been settled.
Other income consisted primarily of investment income derived from the company's holdings of marketable securities earnings on the Securities May vary based on fluctuating interest rates dividend payout levels and the timing of purchases sales redemptions and matured as a securities.
The nine months ended January 31, 'twenty two investment income included $123000 dividend from Morion compared to 105000 distributor from oriented in the same period of fiscal 'twenty one.
This yields a pretax loss of approximately $1 8 million compared to a $700000 pre tax loss for the prior fiscal year.
For the nine months ended January 31, 'twenty two the company recorded a tax provision of $3000 compared to 37000 for the prior fiscal year.
Consolidated net loss for the nine months at January 31, 'twenty, two was $1 8 million or <unk> 20 per share compared to 700000 net loss or <unk> <unk> per share in the previous fiscal year.
Our fully funded backlog at the end of January 2002 was approximately $42 million up $2 million from the previous fiscal year ended April 32001.
The company's balance sheet continues to reflect the strong working capital position of approximately $40 million at January one 2022.
And a current ratio of approximately $4 eight to one. Additionally, the company is debt free.
The company believes as liquidity is adequate to meet its operating investing needs for the next 12 months in the foreseeable future I will turn the call back to Stan.
To your questions.
Thank you Steve.
Operator, we will now explain how you can submit questions operator.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone now we ask that will posing your question. Please pickup your handset if a speaker phone to provide often sound quality. Once again, if you have any questions or comments. Please press star one on your phone now please.
Hold a moment, while we poll for questions.
Your first question is coming from Brett Reece.
Your line is live.
Thank you Hi, Stanton Hi, Steve.
Alright.
The delays in bookings that you talked about.
Could you go into a little bit more.
More specificity as to what that's all about.
Well.
Don't really know.
And a lot of detail other than the bookings that we've been anticipating.
We just haven't been processed through the in this case.
Largest one is through one of the government prime contractors.
And why that is I cant tell you I don't believe is tied to the CR.
But.
Just seem to be delayed in getting getting things on contract.
Do we have like.
Lobbyists or people in Washington.
When there are these type of delays you can make inquiries. So that Q you can find out how long the delays are going to be so you can.
Plan our business.
You can't to lobby the government prime contractors, so in the case, where the customer having people in Washington lobby things doesn't really do anything.
We have access to of course to the government budget budget information and all of them.
Exhibits and all that stuff, which we look at pretty regularly those are those are of interest when youre looking at.
At the program level, but you have to remember we're not the prime contractor.
Second tier provider to the prime contractors.
Okay.
The move of manufacturing from California to New York can you quantify what the cost savings whats the run rate on the on the cost savings going forward.
I don't want to put a number out but I'll tell you that.
Does two things it reduces cost.
In California because of course.
For a given number of manufacturing people there we don't with the same number of manufacturing people here because we have other.
Other.
The administrative or the staff for overhead portions of manufacturing don't need to be replicated here. So if you take the cost out of California.
The overall cost of manufacturing for that same product here is less.
And.
How much less depends on the revenue so.
Other factors so.
I'm not going to predict a precise amount, but its a pretty significant effect.
Right right.
One last question and I'm going to refer to.
A transcript I subscribe to David Rosenberg.
An economist in Canada, and <unk> had as a special guest.
Pipe Mall Green, who is an expert on cyber security threats and among other things she'd lectures at Sandhurst in.
In Great Britain.
And Cai.
<unk>.
Quoting from Hull last talk which was about a week ago.
Understanding the strategic importance of space is crucial because you could see what's happening on the ground because you can control everybody else has access to the main things that we care about these days, which is the digital domain can you cut off an entire nations access to GPS.
You knock out their satellites and space. Yes, you can we've seen recently major incidents between the United States, Russia and China in space.
And then she went on to name two examples which were not in the mainstream media.
Chilling listening too hard to describe what's going on.
Our.
The the various things.
Clocks and the ability to prevent spoofing and controls satellites I mean arent, we in the cat bird seat.
For order flow.
We're unfortunately the world.
Is going.
So.
That's a very complicated.
Trying to ponder and of course.
There's all sorts of ways you can.
Affect GPS everything from denial of service type stuff.
Okay.
So you'll have to leave that for the government folks in terms of their strategy, but what I would say is that the better Clark you have up there the more hold over you have so if youre going to for example, jam GPS signals.
Then the clock it becomes critically important because you need satellite to be able to maintain sink until you get the signal back so from that point of view I would argue yes, we produce very high performance clocks, so our specialty here.
And a lot of the programs, we're working on obviously GPS.
Or.
That's the intent is to provide better capability.
You've been doing a fantastic job.
But are you frustrated that the order flow.
It is not.
Been more robust.
To date.
Well I think it's been pretty robust I mean.
I guess you can.
It can be the turtle or the hair.
In my mind, the continuous improvement is.
It was a pretty good pretty good strategy and Thats, what pricing. So I think we're doing pretty good.
Every now and then you get these extremely large opportunities that come along and we will continue to chase those.
Sure.
Overall, our strategy in terms of growing the <unk>.
Revenue basis is panning out I would point to the two ONR contracts is a great example of that.
In my comments I mentioned.
We're chasing some new stuff.
A little different than our traditional business as another way to go about that.
And as long as I can keep incrementally growing the business.
Pretty happy.
Okay, great. Thank you for answering my questions and ill drop back in queue. Thank you.
You bet.
Your next question is coming from Michael Eisner.
Your line is live.
Hi.
Okay.
How does the Covid situation in New York now.
Settle down.
We had about over here in the basically in January .
And we.
We had quite a number of folks out.
32% and three folks.
Out with it and why.
Because we didn't have any significant effects.
Prior to that in terms of our employees and why it why it hit us in January I really can't talk about.
But it sort of settled down I think we're.
At the moment, we have just one employee who's out for for testing positive.
Im expecting back next week so.
It seems okay now but.
January .
Had COVID-19 .
The crime.
At the beginning of January .
It was very high level Dan.
Pulling.
The supply chain going forward from now.
And the court how is it looking.
Well there is still issues in the supply chain.
There is two things one is.
Shortages or delays, if you will a lot of stuff.
The parts that we use.
We used to be able to get in a few weeks some of them now are four 612 months delay.
<unk> deliveries.
That's one problem. The other problem of course those costs are going up.
<unk> seen in the news.
Things that are sourced from Russell nickel and titanium some of those things are all going up pretty rapidly. So that's the next challenge.
The.
On the component parts side.
<unk>.
It seemed to me to be more on the active components so things that.
No.
The more expensive and longer lead things.
Seemed to be more problematic, but I'm, hoping that we'll start to slow down a bit.
Of course.
Cream situation.
Throws a wrench in a lot of different things.
Because of raw materials, but.
That's where we are we're holding our own so far but we have as we said in his comments we have had some delays in some of those cause other costs, because you've got a redesign stuff too.
For components that can source.
Yes.
Companies had delays it's nothing your fault.
You said GPS III I think did you mean, GPS III F and your comments.
No GPS III, we're going to fly one of our <unk> units on the GPS III satellite.
Two.
Basically a demo because satellite is designed for not for our clock, but theyre going to put our quad <unk>, so who can demonstrate its performance in space.
You didn't think you I think last call the call before you didn't think you're going to get on GPS III.
Thank you all go to get one.
We are.
And if everything goes good one.
Stopped production of GPS III, yes.
We are in the cycle on GPS III with call unit, that's going through the final stages of qualification, we do not yet have.
Orders for the flight units.
But I would expect that to be imminent soon as we finish qual here.
Like a month or two.
A couple of months.
Still a couple of months.
Well look today they may elect.
The unit.
I don't want to get too much into detail, but the unit has a qualification program. After that qualification program. It has what's called a long term aging test.
But once we're done with the Qual program, we've basically proven the design of the clock and my hope is that at that point they'll start to exercise flight option does not wait all the way through the long term aging test, but I don't know that yet.
That would mean a continuous stream of revenue.
If they if they approve it.
Sure, Yes, if they exercise the options.
Well I don't know if I forget how many clocks and the GPS three F was at 21.
No. There is there is 22 satellites 22 satellite, but some some of the initial satellites.
In production and of course, those don't have our clocks on them, yet because we're not through quality.
Yes, the first 10 or 11 I think at Warners.
You said you got money from Morion.
Is that going to be a problem in the future.
They are in Russia right.
Yes, sure we get dividends, where we have a small equity position memorial and we get dividends from them. We don't it's not substantial and frankly, I don't expect to get them anymore. So.
Given things are we're just not.
Got it.
We're not dependent on Morion for anything and I wouldn't expect that we'll be able to do much business for the future and the ruble is worthless.
Hum.
Going back to Sam's question that ZISA are you moving.
Production and keeping that technology out there.
How are you doing this.
Manufacturing will move you could you could think it's analogous to them deciding to have a contract manufacturer.
It's the engineering development and everything else will remain there as it is.
Just going to shift.
Manufacturing part here.
That means you go to the small small office.
Well no not smaller office will absorb their manufacturing into the current manufacturer megawatts manufacturing plant.
Absorb that here, we don't need any additional space.
No I know you could know Youll have space in New York, but you reduced space in California.
California.
Eventually yes.
We have a lease.
Of course, we have to either sublet part of the building or when we renew the lease we will we wont need all that space.
When is the lease up.
Thank you Scott a couple of years.
So you.
So how long is that going to take to move into New York.
Yeah.
Probably another month.
Alright.
That's going to save some some good money on people.
Yes.
We're going to have to hire any new people in New York for the sphere.
Yes, we will hire additional manufacturing people book, but we won't replace the manufacturing workforce out there one for one we won't need the.
The infrastructure part we already have that Youre, all we need is the people who do assembly.
How many people do you have in California.
Now there is roughly 32% or three effects.
Okay.
I know I'm asking a lot of questions just get this over with.
<unk>.
And Mercury.
<unk> atomic clock.
How much of that is in the backlog.
Well, let's see.
And the backlog of Mercury on a general of him.
It would be the first piece of it.
These are approximations its about $2 million.
And the same thing for the.
Space qualified precision.
It is.
You're talking about the pop ramps the other ONR contract.
It was announced October 15th.
October 15.
Okay.
Im sorry, I Didnt have the post optically pump Big aim was in September .
How much of that backlog.
Roughly the same to.
2 million roughly.
And yes, the want the final one.
Yeah, Phil the 15th contract here, if you don't know I don't have the press release in front of me I don't remember, which one that is sorry.
Okay.
What's your bids outstanding at this point.
Bids outstanding.
I don't know offhand I'm going to guess.
Probably a couple of hundred million dollars.
Can you expect to get most of it.
Well.
We don't win 100% of things our win rates.
Have run in the 30% to 40% range.
You trade and if you take out the cash about $6 a share.
620, a share.
Yes, Im not sure of the current market conditions are good.
Calibrated, but okay, no I'm, just saying it's ridiculous because the technology you have in the plant.
It is worth a lot net if you take out today.
We're underappreciated this was a national asset.
Yeah, I agree with you.
Alright, sorry, I asked.
So many questions about the question again, while I have you. Thank you you.
You bet.
There are no further questions from the lines at this time I would now like to turn the floor back to Stanton Sloane for closing remarks.
Great. Thank you well, thank you everybody I'm glad you're able to join us today.
We talk to you next quarter, please stay safe and healthy have a great day. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect at this time and have a wonderful day. Thank you for your participation.
[music].
[music].
Greetings and welcome to the frequency electronics third quarter fiscal year 2022 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.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Any statements made by the company during this conference call regarding the future constitutes forward looking statements pursuant to the safe Harbor.
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 obligations to update these statements for revisions or changes after the date of this conference call.
It is now my pleasure to introduce your host sitting Sloane President and CEO .
Thank you and welcome everybody.
Joining us today.
Before I turn this over to Steve to take us through financial details, let me offer a few bumps.
Third quarter was challenging, particularly in our XI for operation due to delays in bookings on the reduced revenue that resulted from that.
We haven't seen any competitive losses. There are just delays. So we anticipate anticipate these bookings will still come from.
We're taking advantage of the low wind production to transition manufacturing from California to New York facility, which will help the compound effect of significantly reducing costs and reducing manufacturing overhead costs for the XI for products that will be manufactured in New York.
This will result in benefits over the long run.
The New York Operation, we were hit with severe round of Covid related employee absences, which affected the quarter's revenue and operating income.
Despite the challenges we saw an increase in revenue for the quarter compared to the first two quarters as well as compared to Q3 of fiscal year 'twenty one.
Bookings for the fiscal year, a solid running well ahead of where we thought we'd be for the year and up about 30% from this point last year for the New York Operation and up about 21% overall for the company.
Backlog is now up to 41 $6 million.
And the overall book to Bill ratio for the quarter was a healthy 127 for the company, but an even better one for in the core New York Operation.
As usual, we've created cash from operations $4 million for the year, so far and cash and marketable securities currently stand at $22 2 million up $2 1 million from year end fiscal year 'twenty one.
We also remained debt free.
On the technical front, our digital rubidium atomic clock for the GPS III program is progressing extremely well through its qualification testing.
And we have in production additional units one of which will be used for long term testing on the ground by the government and one which is planned to fly on the GPS III satellite to validate its operation in space.
Our pulsed optically pump rubidium atomic clock is progressing well in the design Phase also laboratory testing has indicated its performance will be outstanding ultimately, enabling better hold over times, and helping mitigate GPS jamming and spoofing.
The Mercury ion clock development is also underway.
In addition to these two office of Naval Research funded projects, we are pursuing a variety of new technology opportunities with various government agencies for not only advanced atomic clocks, but also some new technologies unrelated clocks as part of our effort to grow top and bottom line.
While I can't go into the details here. These are exciting opportunities and I look forward to sharing more about these as things progress.
With that let me ask Steve to cover financial details for you and after that we will take some questions Steve.
Thank you Stan and good afternoon.
For the nine months ended January 31, 2022, consolidated revenue was $38 1 million compared to $38 6 million for the same period of the prior fiscal year.
Components on revenue are as follows revenue from commercial and U S. Government satellite programs was approximately $20 9 million or 62% of consolidated revenue compared to $20 1 million or 52% in the same period of the prior fiscal year.
Revenues on satellite payload contracts are recognized primarily as a percentage of completion method and are recorded only in the New York segment.
Revenues from non space U S government and Dod customers, which are recorded both in the New York and FDI diaper segments were $14 9 million compared to $16 3 million in the same period of the prior fiscal year and accounted for approximately 39% of consolidated revenue compared to 42%.
<unk> for the prior fiscal year.
Other commercial and industrial revenues were $2 4 million compared to $2 2 million in the same in the prior fiscal year intersegment revenues are eliminated in consolidation.
For the nine months ended January 31, 2022, gross margin and gross margin rate decreased as compared to the same period in fiscal year 'twenty. One the decrease in gross margin and gross margin rate was due to an increased engineering cost on development phase programs that experienced particularly complex technical.
<unk> as well as cost impacts on several programs, resulting from supply chain issues.
Lack of availability of parts and material and there are quality problems with traditional vendors resulted in the need to redesign certain electronic units to replace unavailable parts with different partners that were available in order to maintain contract delivery schedules in several cases re.
Commit of circuit boards and other mechanical parts was necessitated by quality issues in the supply chain further contributing to increased cost.
For the nine months ended January 31, 2022, and 'twenty, one selling and administrative expenses were approximately 25% of consolidated revenue. The slight decrease in SG&A expense is mainly due to the decrease in professional fees. We expect this trend to continue as expenses normalize.
R&D expense for the nine months ended January 31, 'twenty, two and 'twenty, one increased to $3 9 million from $3 5 million an increase of 400000.
And were approximately 10% and 9% of consolidated revenue.
R&D increases in the nine months ended January 31, 'twenty two were due to higher levels of internal R&D associated with investments. The company is making in new technology developments related to atomic clocks and low noise absolutely as that are intended to produce long term increases in revenue and position the company to compete.
In the marketplace with next generation products.
The company plans to continue to invest in R&D to keep its products at the state of the art.
For the nine months ended January 31, 2000, and the company recorded an operating loss of $2 1 million compared to an operating loss of $1 1 million in the prior year.
The factors cited above in gross margin discussion are applicable to operating income as well operating losses for the nine months period, ending January 31, 'twenty two resulted from lower revenue and lower gross margins during both periods. The company experienced increased supply chain and other costs. The majority of the operating loss.
We're experienced in Q1 as a result of higher professional fees associated with litigation has since been settled.
Other income consisted primarily of investment income derived from the company's holdings of marketable securities earnings on these securities May vary based on fluctuating interest rates dividend payout levels and the timing of purchases sales redemptions and mature as a securities.
The nine months ended January 31, 'twenty two invest in investment income included $123000 dividend from Morion compared to 105000 dividend from oriented in the same period in fiscal 'twenty one.
This yields a pretax loss of approximately $1 8 million compared to a $700000 pre tax loss for the prior fiscal year.
For the nine months ended January 31, 'twenty two the company recorded a tax provision of $3000 compared to 37000 for the prior fiscal year.
Consolidated net loss for the nine months at January 31, 'twenty, two was $1 8 million or <unk> 20 per share compared to 700000 net loss or <unk> <unk> per share in the previous fiscal year.
Our fully funded backlog at the end of January 2002 was approximately $42 million up $2 million from the previous fiscal year ended April 30 21.
The Companys balance sheet continues to reflect the strong working capital position of approximately $40 million at January one 2022 and.
And a current ratio of approximately $4 eight to one. Additionally, the company is debt free.
The company believes that liquidity is adequate to meet its operating investing needs for the next 12 months and the foreseeable future I will turn the call back to Stan.
To your questions.
Thank you Steve.
Operator, we will now explain how you can submit questions operator.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone now we ask that will posing your question. Please pickup your handset if a speaker phone to provide often sound quality. Once again, if you have any questions or comments. Please press star one on your phone now please.
Hold a moment, while we poll for questions.
Your first question is coming from Brett Reece.
Your line is live.
Thank you Hi, Stanton Hi, Steve.
Yes.
The delays in bookings that you you talked about.
Could you go into a little bit more.
More specificity as to what that's all about.
Well.
Don't really know.
And a lot of detail other than the bookings that we've been anticipating.
We just haven't been processed through the in this case.
Largest one is through one of our government prime contractors.
And why that is I can tell you I don't believe it's tied to the CR.
But.
It just seem to be delayed in getting getting things on contract.
Do we have like lobbyists or people in Washington.
When there are these type of delays you can make inquiries. So that Q you can find out how long the delays are going to be so you can.
Plan our business.
You can't to lobby the government prime contractors. So in the case, where they are the customer having people in Washington lobby things doesn't really do anything.
We have access to of course to the government budget budget information and all of us.
Exhibits and all that stuff, which we look at pretty regularly those are those are of interest when youre looking at.
At the program level, but you have to remember we're not the prime contractor.
Second tier provider to the prime contractors.
Okay.
The move of manufacturing from California to New York can you quantify what the cost savings whats the run rate on the on the cost savings going forward.
I don't want to put a number out but I'll tell you that.
Does two things it reduces cost.
In California because of course.
For a given number of manufacturing people there we don't want the same number of manufacturing people here because we have other.
Other.
The administrative or the staff for overhead portions of manufacturing don't need to be replicated here. So if you take the cost out of California.
The overall cost to manufacturer for that same product here is less.
And.
How much less depends on the revenue.
Other factors so.
I'm not going to predict a precise amount, but its a pretty significant effect.
Right right.
One last question and I'm going to refer to.
A transcript I subscribe to David Rosenberg.
An economist in Canada, and <unk> had as a special guest.
Pipe Mall Green, who is an expert on cyber security threats and among other things she lectures at Sandhurst in.
In Great Britain.
And kind of.
Quoting from Hull last talk which was about a week ago.
Understanding the strategic importance of space is crucial because you can see what's happening on the ground because you can control everybody else has access to the main things that we care about these days, which is the digital domain can you cut off an entire nations access to GPS speakers.
You knock out their satellites and space. Yes, you can we've seen recently major incidents between the United States, Russia, and China and space and then she went on to name.
Two examples which were not in the mainstream media.
It was killing listening too hard to describe what's going on.
Our.
The the various things.
Clocks and the ability to prevent spoofing and controls satellites I mean arent, we in the cat bird seat.
For order flow.
We're unfortunately, the world is going.
So there.
That's a very complicated.
Turning to ponder and of course.
There's all sorts of ways you can.
Affect GPS everything from denial.
Denial of service type stuff the kinetic.
So I have to leave that for the government folks in terms of their strategy, but what I would say.
Is that better Clark you have up there.
More hold over you have so if youre going to for example, jam GPS signals.
Then the clock becomes critically important because you need satellite to be able to maintain sink until you get the signal back so from that point of view I would argue yes, we produce very high performance clocks, that's our specialty here.
And a lot of the programs, we're working on obviously GPS.
Or.
That's the intent is to provide better capability.
<unk> been doing a fantastic job.
But are you frustrated that the order flow.
It has not.
Been more robust.
To date.
Well I think it's been pretty robust I mean.
I guess you can you.
You can be the turtle or the hair.
In my mind that continuous improvement is.
It was a pretty good pretty good strategy and Thats, what proxy. So I think we're doing pretty good.
Every now and then you get these extremely large opportunities that come along and we will continue to chase those.
Yeah.
Overall, our strategy in terms of growing the revenue base is.
Panning out I would point to.
<unk> in our contracts is a great example of that in.
In my comments I mentioned, we're chasing some new stuff.
A little different than our traditional business as another way to go about that.
And as long as I can keep incrementally growing the business.
Are you happy.
Okay, great. Thank you for answering my questions and ill drop back in queue. Thank you.
You bet.
Your next question is coming from Michael Eisner.
Your line is live.
Thank you hi.
Okay.
How does the Covid situation in New York now.
Settle down we.
We had about over here in the basically in January .
And.
We had quite a number of folks out 30, 32 or three folks.
Out with it and why.
Because we didn't have any significant effects.
Prior to that in terms of our employees and why it why it hit us in January I really can't tell you but.
But it seems to have settled down I think we're.
At the moment, we have just one employee who's out for for testing positive.
Im expecting back next week so.
It seems okay now but.
January well I had COVID-19 .
The crime.
At the beginning of January .
It was very high level Dan.
Point.
The supply chain going forward from now.
How is it looking.
Well there is still issues in the supply chain.
There is two things one is.
<unk> shortages or delays, if you will a lot of stuff.
The parts that we use.
We used to be able to get in a few weeks some of them now are four 612 months delay.
Deliveries.
That's one problem. The other problem of course is costs are going up.
Could you see in the news.
Things that are sourced from Russell nickel and titanium some of those things are all going up pretty rapidly. So that's the next challenge.
The.
On the on the component parts side the issues.
It seemed to me to be more on the active components so things that.
No.
The more expensive and longer lead things.
Seem to be more problematic, but I'm, hoping that we'll start to slow down a bit.
Of course.
Screening situation.
Throws a wrench in a lot of different things.
Because of raw materials, but.
That's where we are we're holding our own so far but we have as we suddenly comments, we have had some delays in some of those cause other costs, because you've got a redesign stuff too.
For components that can source.
Yes.
Companies had delays it's nothing your fault.
You said GPS III I think did you mean GPS three F and your comments.
No GPS III, we're going to fly one of our <unk> units on the GPS III satellite.
Two.
Basically a demo because satellite is designed for not for our clock, but theyre going to put a clock on there. So we can demonstrate its performance in space.
You didn't think you I think last call the call before you Didnt think there have been you didn't get on GPS III.
Thank you our goal to get one yes, we are.
And if everything goes good one.
Production of GPS III, yes.
We are in the <unk>.
Cycle on GPS III with call unit, that's going through the final stages of qualification, we do not yet have.
Orders for the flight units.
But I would expect that to be imminent soon as we finished qual here.
I think a month or two.
A couple of months.
Still a couple of months.
Well look today they may elect.
The unit.
I don't want to get too much into details of unit has a qualification program. After that qualification program. It has what's called a long term aging test.
But once we're done with the Qual program, we've basically proven the design of the clock and my hope is that at that point they'll start to exercise flight option does not wait all the way through the long term aging test, but I don't know that yet.
That would mean a continuous stream of revenue.
If they if they approve it.
Sure, Yes, if they exercise the options.
Well I don't know that I forget how many clocks EMEA GBS, we F was at 21.
No. There is there is 22 satellites 22 satellite, but some some of the initial satellites.
In production and of course, those don't have our clocks on them, yet because we're not through quality.
Yes, the first 10 or 11 I think it was.
You said you got money from Morion.
Is that going to be a problem in the future.
They are in Russia right.
Yes, yes. They are we get dividends, where we have a small equity position memorial and we get dividends from them.
It's not substantial and frankly, I don't expect to get them anymore. So.
Given things are we're just not.
We're not we're.
We're not dependent on Morion for anything and I wouldn't expect that we'll be able to do much business with them in the future.
The ruble is worthless.
Mhm.
Okay.
Going back to Sam's question that ZISA.
Are you moving.
Production and keeping that technology out there.
How are you doing this.
Manufacturing will move you could you could think it's analogous to them deciding to have a contract manufacturer.
The units the engineering development.
We also will remain there as it is.
We're just going to ship.
Manufacturing part here so that means you go to the small small office.
Yes.
Well no not smaller office will absorb their manufacturing into the current manufacturer megawatts manufacturing plant, we will absorb that here, we don't need any additional space.
No I know you know youll have space in New York, but we.
Reduced space in.
California.
Eventually yes.
We have a lease.
We have to either sublet part of the building or when we renew the lease will we wont need all that space.
When is the lease up.
Thank you Scott a couple of years.
Alright.
So how long is that going to take to move into New York.
Probably another month.
Alright.
Thats going to save some money on people.
Yes.
Going to have to hiring new people and New York for the sphere.
Yes, we will hire additional manufacturing people boat, but we won't replace the manufacturing workforce out there one for one we won't need the.
The infrastructure part we already have that Youre, all we need is the people who do assembly.
How many people do you have in California.
Yes.
Now there is roughly 32 or three effects.
Okay.
I know I'm asking a lot of questions just get this over with.
Numerically.
Atomic clock.
How much of that is in the backlog.
Paul.
Well, let's see.
And the backlog of Mercury on and do you know offhand.
It would be the first piece so it's.
These are approximations its about $2 million.
And the same thing for the.
Space qualified precision.
<unk>.
You're talking about the pop ramps theater ONR contract.
It was announced October 15th.
October 15th.
Okay.
Im sorry, I Didnt have the post optically pump Big aim was in September .
How much of that backlog.
Roughly the same too.
2 million roughly.
And the one the final one.
Yeah, Phil the 15th contract here, if you don't know I.
I don't have the press release in front of me I don't remember, which one that is sorry.
Okay.
What's your bids outstanding at this point.
Bids outstanding.
Don't know offhand I'm going to guess.
Probably a couple of hundred million dollars.
And you expect to get most of it.
Well.
We don't win 100% of things our win rates have run in the 30% to 40% range.
Yeah, you trade and if you take out the cash about $6 a share.
About <unk> 20, a share.
I'm not sure if current market conditions are good.
Calibrated, but okay.
No I'm, just saying it's ridiculous because your technology you have in the plant.
It is worth a lot.
We've taken out today.
We're underappreciated this was a national asset.
Yes, I agree with you alright, sorry, I asked.
So many questions about that's question again, while I have you. Thank you you.
You bet.
There are no further questions from the lines at this time I would now like to turn the floor back to Stanton Sloane for closing remarks.
Great. Thank you well. Thank you everybody from glad Youre able to join us today.
We talk to you next quarter, please stay safe and healthy have a great day. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect at this time and have a wonderful day. Thank you for your participation.